31 December, 2007

Happy New Year from the WC Power Tech Fund

Best wished to everyone in the New Year

Happy 2008!

2007 Ends with a Bearish Tone, Dow loses 100 points

The Dow ends the year down 101 points, and while the average is in positive return territory for the year (about 6.5%) the latter part of the year has become increasing volatile and negative. The credit crisis dominated the market headlines over the last few months and Big Finance has endured billions upon billions of losses in their asset valuations.

These bad bets have cost the big banks plenty as the hit list is broad and plentiful. Since Mid Year highs, there have been nothing but bad news from the Financial sector. (Apart from consistent blowout quarters at Goldman Sachs (GS))

  • Citigroup (C) is down 48%
  • Bank Of America (BAC) down 24%
  • Wachovia (WB) down 34%
  • Merrill Lynch (MER) down 46%
  • JPMorgan Chase (JPM) down 19%
  • Morgan Stanley (MS) down 31%
  • Lehman Brothers (LEH) down 24%
  • Bear Stearns (BSC) down 38%
  • Goldman Sachs down 14%
These numbers are staggering and many analysts are painting an even bleaker picture for the Financials in 2008. While I think there's the potential for big rebound gains into the 2nd half of the year for these companies my major worry is that once Dividends start getting cut, more investors will flee to other safe havens. The rumors of Citigroup needing to cut its dividend by 40% certainly have hurt the stock over the past couple of weeks.

There will be opportunities in 2008 for the Investor, as I feel the recession fears are overblown and selling based on those fears is overdone. The selling was done consistently throughout the past couple months, timed with the Federal Reserve Interest rate moves.

2007 will go down as the year of the iPhone from Apple (AAPL), and the popular mobile phone gadget has helped the technology company to another breakout year by more that doubling since the device's unveiling. Look for Apple to extend its reach with iPhone in the coming months (Europe, Asia etc.). Technology and Oil were the leaders for better parts of the year in 2007 and this will likely continue going into 2008. I believe there is tremendous commodity and trader pressure to get and keep oil above the $100 mark. Should this happen it will continue to put pressure on the consumer and big ticket spending (Homes, Cars) will soften still, putting further pressure on the overall market and North American economy.

Luckily though, all metrics the market has gotten lately have pointed to a stable and growing US economy, and consumers seem to be taking high gas prices in stride. All signs point to a strong Christmas season, led broadly by Technology (Gaming & gadgets), and with this the chip makers should see continued strong demand, specifically Intel (INTC).

It's the first end of year trading session for the WC Power Tech Fund Blog and I'd like to thank all the readers throughout the first few months here.

27 December, 2007

Apple shares pass $200, A new Record

Apple (AAPL), is also enjoying a strong holiday as iPods are as popular as ever and the Mac computers continue to well outpace the computer industry in terms of growth, and that's without even mentioning the other "hottest gadget of the year" iPhone. Apple in fact is one of the main culprits of Amazon's (AMZN) sales success as Mac computers and iPod line ups flock the electronics best sellers lists.

Whispers about sales are starting to trickle in pegging iPhone sales around 5Million units for the year, well above of most analysts 3-4Million estimates. Thanks in part to initial success with European launches and the $200 price cut that the device saw earlier in the fall. Considering that Apple's goals were to sell 10Million units by the end of next year it appears the company, for all intensive purposes, is well on its way. And its only the beginning as the device is officially on sale in only 4 countries. Once confirmed news of iPhone deals in China, Japan and the rest of Europe hits, the early sales goals will, in retrospect seem completely low-balled.

Apple's forgotten, and not so well selling device, AppleTV seems to be in the spotlight again as analysts expect an upgrade to the unit as well as the content available for it with iTunes. Apple's famous MacWorld Expo is just on the horizon and it is this event that usually brings with it product introductions, company metrics and newly minted partnerships. The hope is that Apple will bring aboard more movie studios to iTunes and perhaps expand the sales model to also include rentals. Reports coming in suggest that Fox is the first to sign on for the "rental" model and that this will be announced at the Expo. This feature should give the AppleTV some new life and perhaps force an upgrade, including the long wanted HD content in iTunes. Having Rentals and HD Video in the iTunes store come MacWorld would be 2 very big steps in the right direction to not only Apple but the entertainment giants as well.

Digital Rentals are a market that hasn't taken off yet, with many players attempting to make it work but no one dominating. Microsoft, through Xbox is trying, Amazon is trying, NetFlix and Blockbuster were trying too. The verdict, nothing really works well and each platform simply isn't wide enough. But iTunes, with its Billions of downloaded songs, and 100 million downloaded videos may just be that massive machine to get the ball rolling. Much as the demise of the CD caught the music industry off guard the last year or 2, I see a similar fate coming to DVD, with everything going digital. It doesn't help that the next gen HD disc format is in a war that is dividing consumers and studios either. So, should I get a Blu Ray player? An HD DVD player? a combo player just in case?

Too many questions, no real answer, or could there be? 120Million iPods have been sold, iTunes is seemingly on the majority on computers already, HD rentals would take off on this platform within 12-18 months pushing next gen disc formats aside as Digital content truly becomes King, Broadband expansion will make downloads quicker and that hurdle of "downloading time" will be a thing of the past.

When this rental announcement becomes official, more power to the Studios who stepped up, and didn't try to strong arm the one dominant player in the online Music and Movie sales business.

So is there still upside to the Apple story? Yes, but time frames have to be adjusted now. Forward P/E sits in the low 30s and the company is nearing it's marquee event, and its undoubtedly strongest quarterly report in history. So what's that mean for the investor? It means estimates are still too low and price targets will still continue to climb. Remember current Apple estimates only include 10-12Million iPhone sales by the end of 2008, no real clear idea of the revenue sharing model that will become a monthly cash cow for the company, and absolutely no AppleTV income, as the product hasn't sold well yet. Yes iPod growth is slowing, to only about 20% year over year, but Macs are surging to more than make up for that P/E ratio softening.

Bottom line, Apple at $200 is still a very interesting long term story, dips are great opportunities to accumulate, and this one will likely beat the market once again, by this time next year.

Disclosure: Author is long AAPL

Amazon's Strongest Holiday Ever, Company on fire, Stock still Pricey

A couple high profile Technology names have been making waves over the last couple of days. Amazon (AMZN) and Apple Inc. (AAPL) have both been in the news for the better, with the former seeing record retail sales, and the latter hitting record highs. Christmas has been very good for web-retailer Amazon, as it came out saying that it in fact had its biggest and strongest sales season ever.

For a company that's been an Internet giant for more than 10 years, it definitely seems like Amazon has hit a new stride and is once again riding an optimistic wave. The numbers though are just staggering, but more on that in a second. Yes more and more shoppers are comfortable online, yes there's more product available online than ever, yes Internet penetration is rolling out further worldwide, but still, Amazon's surge in shopping can majorly be credited to its own internal innovations, and with that the simplest form of advertising, word of mouth.

The busiest day this year saw more than 5.4Million items being bought. Highlighted specifically by strong demand for Nintendo's popular Wii game console, the refreshed line of Apple's iPods and Mac computers, GPS systems and HDTVs. Comparing to last year, this was about a 35% increase! Now yes this is a "peak" numeric, but I think it is safe to say that Amazon's on the retail uptrend, rather than just simply enjoying seasonal consumer increases. Even the company's own Kindle e-book reader is reportedly selling well in its early stages. It is news like this that will really boost the company back to its triple digit share price highs, as the retail business is very low margin while the electronics game is something else entirely.

A $40Billion market cap based on a triple digit P/E ratio is still too rich for my liking but the strongest companies have a knack for slowly molding from inflated P/Es and before you know it they even seem cheap. To say that Amazon is growing again would be a tragic understatement, the company is better than its ever been, now if only they can judge that Wall Street expectations game as well as ever, shareholders can rejoice alongside with staff.

Disclosure: Author does not own AMZN

18 December, 2007

WC Power Tech Fund takes week long Christmas Break

Merry Christmas and Happy Investing to everyone.

See you in one week.


14 December, 2007

Markets continue Bearish Tone post Fed, Recession fears creep in again

The week of the last Federal Reserve decision of the calendar year ends on another bearish note. Markets continued to pile up losses after the Fed's 25 basis point rate cut. Major indices in the US fell about 1.3%.

For the week the Dow Jones is down 285 Points, or 2.1%, but from the pre-Fed peak the major average is down over 400 points ending the week at 13340. The catalyst today was the American Inflation Report. Consumer Inflation in November rose by its highest total in over 2 years, led of course by every ones favourite commodity: Energy! Gasoline Prices were the major source in the increase in inflation, which caused today's market sell-off.

The CPI (Consumer Price Index), which is the main measure of inflation rose 0.8%, and even the core inflation number, which does not include energy, rose 0.3%. Traders were spooked by this as the Fed is treading a fine line between doing what's right for the economy and the crumbling credit markets and balancing the inflationary effects of lower interest rates. The dreaded "Recession" word came up again as fear of higher inflation data will lead to a pause in Interest Rate Cuts by the Federal Reserve in the future. When Traders talk Recession, growth stocks are the hardest hit, as the logical thinking is, growth is driven by positive country-wide economics.

The hardest hit sector today was consumer based.
More Logical trader thinking;
Recession fear = Folks Spending less money!
Especially on big ticket items so the big Automakers saw selling. Toyota (TM), Daimler (DAI), Nissan (NSANY), Honda (HMC) all were off more than 2.5%.

Although, most of America is probable concerned with what's gonna happen to "The Rocket" Roger Clemens, after being named in detail in the substantial baseball steroid investigation.

11 December, 2007

Expected Fed .25% Rate Cut Sinks Market on Dec 11

Well, the expected happened. The Federal Reserve cut interest rates by a quarter percent to 4.25%. That was the news the market was looking for, however in the run up to this announcement there was talk of perhaps a 50 basis point cut to stem the tide of recession talk going into next year.

That, however, did not happen and traders sold off in numbers.
Dow Chart

The severe drop just as the announcement came out is truly indicative of trader mentality today. I believe the drop off was overdone. Dow Jones, Nasdaq and S&P were all off about 2.5% today. Canadian markets, portrayed by the TSX Composite Index fared a little better, only dropping 1.5%. The market still has a chance to rally into the New Year on the backing of a relatively strong US economy, and this "expectations blip" or "sell the news" moment, or whatever you want to call it will be just that, a blip. Valuations and Fundamentals are as important as ever during heavy sell-offs so you, as an investor know exactly what is truly On Sale.

10 December, 2007

Markets head higher Monday, ahead of Fed Rate Meeting

The last Federal Reserve decision of this calendar year comes tomorrow, Tuesday Dec 11, and the markets produced another bullish day ahead of the expected rate cut. Investors have priced in a 25 basis point cut already and the Fed has signalled that is exactly what it will deliver. The Dow was up over 100 points to lead the major indices higher.

More bad news on the financial front as UBS (UBS) said it will write-down more than $10Billion in sub-prime exposure. A hefty number that would've had shares tumbling if it wasn't for the news that the company is getting an over $11Billion cash infusion for outside investors, mainly the government of Singapore and Middle East investors. When a government is investing, you know its for the long term!

Washington Mutual (WM), while up 4% in the regular session, fell almost 9% after hours on news of another write-down of over $1.5Billion. This coupled with the news that the company is cutting over 2600 jobs, cutting its dividend, and discontinuing business in sub-prime dealt the big after hours blow.

On a slightly better note in sub-prime, battered NovaStar Financial (NFI), which recently received a waiver from Wachovia Bank, basically giving the company more time to come up with cash, before it would have to face bankruptcy, was up big today. Now NovaStar's stock has been a complete mess virtually all year, yet the daily fluctuations here have momentum traders jumping. NFI has moved between 2 and 4 dollars regularly over the course of the last 2 weeks and today's 25% move to the upside seems more like the rule than the exception. It has come from a low of $1.12 to almost $4 within the last month, so: Potential turnaround play? This is far from it but hope remains that in the long run NovaStar could bring itself out of its current doldrums. At this point it is still a stock that I would stay away from.

Disclosure: Author holds no position in the above mentioned stocks

05 December, 2007

Rally Wednesday for the Markets, Genentech sell-off on Avastin news Sparks Opportunity

Markets were propped up today as economic data came in on the positive end of the spectrum. Employment numbers showed that 189,000 jobs were added, thus giving hope that consumer spending will be stronger than forecast this holiday season. All major US indices were up about 1.5%, with the Nasdaq leading the charge. The Dow gained almost 200 points to end the session close to the 13,500 mark.

Technology, Energy and the Financials were strong in this rally day. Positive sentiment on consumer spending clearly is associated with gadget buying for Christmas and that propped up stocks of Apple (AAPL), Dell (DELL), Seagate Tech (STX), Intel (INTC) and Google (GOOG).

Suffering a setback was bio-tech power Genentech (DNA) as the FDA rejected the use of its oncology drug Avastin. Shares of the company were halted with a loss of 9% already registered. The drug in question was to be used in combination to treat certain forms of breast cancer but the FDA panel voted against approval of the drug for this purpose. Avastin currently bring Genentech sales of approximately $600Million in the first 9 months of the year as it is also being used to treat forms of lung cancer. The approval of the drug for other types of cancer treatment is seen as a major positive for the bio-tech and as such this setback has caused this temporary dip.

Goldman Sachs came out in support of Genentech after the news, as the major Investment Bank said that even without Avastin's approval they saw Genentech being able to sustain 20% Earnings/share growth going forward, and they held out the possibility that given further trials and more data the FDA could still in fact approve the drug for further cancer treatments.

At this valuation I think the selling as a bit overdone and Genentech looks attractive in the mid 60s. While DNA is a bit on the expensive side compared to its peers like Amgen (AMGN) or Teva Pharma (TEVA) the best in breed deserve a slight premium. Avastin's use is continuing to grow in lung cancer use as results for the first 9 months of the year are up 37% year over year.

Investors should take note when the brightest companies are on sale and this is definitely a sale. Genentech is the drug maker on own at these discounted levels. I believe it could be back in the $70-75 range soon but I agree that even without Avastin's approval for Breast Cancer enough growth should be present to propel the stock to its $93/share analyst target within 12 months. A hefty 35% all in premium opportunity on the upside and if Genentech would fall to be valued with its peers at a 20 P/E the downside is $66/share based on estimated earnings of $3.30 next year.

The chance is here and now for this steal!

Disclosure: Author does not own DNA

03 December, 2007

Markets Stumble out of the gate in December, Automaker sales Struggle

The month of giving and receiving started on a bumpy note for North American Markets as major indices were all lower. Nasdaq was the biggest loser on the day with an almost 1% drop, compared with the Dow, S&P and Canadian TSX, all losing between 0.3 and 0.6%. Today's selling was in part due to lackluster Automotive sales numbers.

General Motors (GM) reported a decline of 11% in sales numbers, while its major competitors Ford (F) and Toyota (TM) reported flat month-over-month sales. The only increases were seen in Honda (HMC) and Nissan (NSANY). It is clear that high oil prices are skewing buying towards smaller and more fuel-economic vehicles and that's putting a hefty dent in truck sales for the American brands. Punctuated by GM's 15% drop in Truck Sales.

The big story that is oil keeps rumbling around in the head of the average consumer and it is most evident in consumer spending on cars. In fact demand for smaller cars, more efficient cars, and even hybrids is remaining strong, according to Toyota. Seemingly though, what hope do big time car makers have in the United States? Their consumer is witnessing a de-valuation in home equity, gas prices that make it more than $50 to fill a tank, and a currency that worldwide is eroding faster than the Dolphins chances of winning a game this NFL season.

Truth be told, its a tough time for the car makers, and the executives are well aware of the difficulty. The trick will be, which company can provide the most incentives and the most practical products going forward into next year. From my view owning the automakers is a tough call right now but I like the path of Toyota and Honda, as those companies seem to follow consumer trends better and more nimbly than their American counterparts.

Disclosure: Author does not own any of the companies mentioned above

29 November, 2007

Sears still suffering Retail Blues in Latest Quarter

The magic that was supposed to be a turn-around at Sears Holdings (SHLD) has seemed to fizzle lately with a whimper. Sales are declining, there's nothing to buy on the horizon, and if the only consolation Investors have is stock buy-backs then something is definitely awry.

The run Sears had from 2006 to early this year where the stock almost doubled on the strength and possibilities of cash being used to purchase other retailers and Ed Lampert running the company like a giant hedge fund has now been completely wiped out with the latest quarterly retail set back. Sears at $105 sits at the same point as it was at the end of 2004. All that Investor promise and cheering for Sears to do big things with its cash lately have led to nothing. Earlier Sears was able to maneuver, take in K-Mart stores and tried to wholly take in Sears Canada, but the rumors of further purchases that pushed the stock are now working against the retailer.

The current quarter showed just how dire the retail situation is for Sears. Net Income of only $2Million or $0.01/share versus $1.27/share a year ago (with $196Million in income). Now granted, $101Million last year was due to Lampert's investment gains in highly complex Total Return Swaps, which for reference, is a type of investment strategy where one party gets paid periodically for taking on risk, while another gets an almost fantasy-based fixed payment. For those really interested in these types of investments I suggest looking up Credit Derivatives and Total Return Swaps on Google or Wikipedia as a primer.

The bottom line here is that Revenue and Income are both slowing in line with slowing retail sales. Revenue this quarter was $11.5Billion versus $11.9Billion last year and store sales declined 4.5% year over year. The biggest kick of all to the negative side is that margins are falling further and faster than expected, meaning that Sears is a) having trouble getting people into the stores and b) having trouble selling them even cheaper items.

So somethings gotta give here and if Investors are to continue to have faith in this retailer there has to be some signs of mobility and business sense. The only thing going on with Sears in the backrooms these days seems like more Stock Buy Back plans. In fact in the current quarter Sears bought back almost $1Billion in stock. Which in the short term is without a doubt a positive for the company, but if the retail business can't produce cash flows that have any meaning to the war chest, then there certainly wont be many more quarters left where Sears can afford to keep buying back stock.

Right now I'd avoid Sears Holdings until management says anything meaningful and positive on the retail or acquisition side.

Disclosure: Author holds no position in SHLD

28 November, 2007

Markets extend Recovery Effort to 2nd day Wednesday

Major Market indices got another substantial boost Wednesday as stocks across the board rose higher led by Technology and the Financials. The Dow rose more than 330 points while the Nasdaq rose over 80 points. On the Canadian side the TSX rose more than 260 points.

Investors seemed to rekindle hopes for another Rate Cut as the Federal Reserve statements hinted at the possibility. On the recovery path were major and sub-prime financial players such as Citigroup (C), Bank Of America (BAC), Washington Mutual (WM), NovaStar Financial (NFI) and Countrywide Financial (CFC). Traders were keying on news tidbits that helped ease doubts about liquidity problems for the Financial companies particularly from CFC, which said that its "Cash Lines" are intact. That didn't help the embattled lender on the day very much but it spurred the thinking that the bigger players will turn the ship around soon enough, given their sizable asset and normal banking customer base. Citigroup and WM were among the big turnarounds today, moving almost 7%, while BAC was up 4.5%.

The Canadian markets saw a big rebound in the banking sector as well as the major Canadian Financial Institutions like Royal Bank (TSE:RY), CIBC (TSE:CM), Bank Of Nova Scotia (TSE:BNS) and TD Bank (TSE:TD) were all high percentage gainers.

The bigger news on the day, sparking the rally was talk of the Federal Reserve and its plans, going into the next Rate meeting. That meeting is set to take place in early December and Investors hope comments of "offsetting policy" and the rise of commodities such as Oil and Gold will lead to another cut. The long term effects of a rate cut will also produce negatives but at this point Traders are concerned about having the necessary shorter-term buying catalysts going into the end of the year.

26 November, 2007

Markets Start Post-Thanksgiving with Monday Afternoon Slide

The day started with promise after a Friday market session that had stocks broadly up. Some concerns over consumer spending were eased as reports came out estimating the number of shoppers in the US over the holiday weekend actually increased against last year. The markets were battered later after more credit concerns in the banking world came to light. Specifically from Citigroup (C).

The retail shopping data provided an early boost as a tracking data point (of approximately 50,000 stores) showed a 7% year over year increase in consumer spending. The fears that the credit crunch would curtail spending seemed to be forgotten for the time being. The positive vibe of the market was erased in the afternoon as more bad news poured out of the financial sector.

Citigroup announced some cost-cutting plans effective immediately, which led to speculation of job cuts and further write-downs. The major bank may have to include an over $8Billion write-down next quarter. This bad news trickled throughout most of the financial sector and Citigroup shares fell under $30. This company is surely in bad shape these days and a recovery effort will be a bitter pill to swallow for investors but may be a necessity before the $40s are seen again.

The major averages were all down around 2% Monday, with the Dow losing almost 240 points. The S&P benchmark with today's loss dropped into the negatives on the year and as it is the tracking average for most mutual funds Investors will surely be disappointed in their next statements.

I think there's some hope here for a recovery but the time-frames are shifting every month that's filled with continued bad news. We've heard it several times, that things will get worse before they get better, but investors can't shake off bad news with the fragile state the financial sector is in right now. It's got to be a holding pattern investment-wise until someone, somewhere shines a light on the sector.

Disclosure: Author owns C

19 November, 2007

Amazon unveils Kindle E-Book Reader, Will it Hit with Customers and Shareholders?

Amazon (AMZN) has seen a resurgence on Wall Street this year as the company has tried to change the way it does business with an influx of technology spending. Financial results has been excellent but technology results have been mixed, with the difficult to manage and use Unbox Video Service and the new and promising MP3 store. The latest offering from the Tech department at Amazon in the Kindle E-Book Reader.

It's official unveiling was today, but technology blogs and news sites have been after the device for sometime. Popular spots; Engadget (Link) and Gizmodo (Link) were on top of this latest gadget all morning. CEO Jeff Bezos claimed that he hoped Kindle would do for books what the iPod did for music online. Amazon shareholders certainly hope he's right. The stock has been bid up considerably this year but has since fallen over 20% from highs of $101/share. With a share price just under $80 the company seems like a potential strong buy, but even these discounted levels are coming from loftier highs. Amazon sports a P/E of over 90 and a trailing P/E of over 50. Even poster children for growth, Apple (AAPL) and Google (GOOG), sport ratios that are half of Amazon's.

If Kindle becomes even half of what iPod is, shareholders will have plenty to cheer about, but that is certainly a big IF. The Kindle sports some very nice features, looks small and sleek enough to justify a slight Cool factor. It's obvious Amazon techies spent a long time making sure the thing didn't look like it was beaten with an ugly stick while they shoved all sorts of hardware inside. The Kindle in essence is an electronic book reader, and any one with any sort of personal library could use one on the go for reading. So first let's take a look at the positives.

Amazon's got the content (in this case books) to support this venture, and in time I'm sure a vast majority of the Amazon library will be available for purchase for $9.99 or less. The device works with all sorts of formats but converts them to Amazon's proprietary reader format. The battery will last about 30 hours and a consumer will be able to automatically get subscribed newspapers and blogs sent to the device. That's right, the bright minds at Amazon decided to make this a wireless device that works on the cellular network for free through Amazon's covert WhisperNet. No word yet if WhisperNet is self-aware and may malfunction like its more famous cousin SkyNet. All jokes aside, the technology here is a big selling point. EVDO based cellular Internet will allow users to download books, newspapers and blogs that they have paid for, automatically and without a computer connection. So you're not killing your eyes staring at a screen the whole time the Kindle sports an e-ink screen that isn't back-lit to make reading easier. A definite plus there.

Now some negatives. It's pricey at $400 but compares relatively well to the Sony (SNE) E-Book Reader. Stylistics is a subjective game and rarely are devices or products uniformly praised for their elegance. So there's a fair chance that the public will think it is in fact a pointy, clunky ugly device, but I disagree. By no means is the thing gorgeous but it isn't bad, even if the slanted keyboard keys seem quite awkward. It's difficult to say at this point how the distribution and downloading of content will work but horror and wonder stories should trickle in as the device gets into the hands of the consumers. The real problem I see with the claim that the Kindle will be the "iPod for books" is the fact that one's personal library is as sacred as anything else in the household. The book-reading and book-owning population loves to fill shelves with books as it instills a sense of pride much more than a music collection does.

So the average song is somewhere between 3 and 4 minutes while the average book 300-400 pages. Reading a page a minute requires more than 5 hours of reading for the average book. Music is simply consumed and changed much faster than books. While carrying an entire CD collection during a trip makes little sense, carrying one book isn't all that bad. You can't exactly switch the Kindle to random and read pages from one book than another. Also, it's a well known fact that every iPod is not filled with music from the iTunes store. Majority of this music comes from CD collections that users had purchased throughout the years than ripped to the device for portable use. This process is simply not feasible with books, for obvious reasons, so to be able to take your favourites with you on the Kindle you'll have to buy them again digitally. Something I'm guessing most consumers will not want to do.

While I have serious doubts about the Kindle becoming some kind of iconic reading device, it is a very strong step in the right direction from a company that is also turning itself in that direction. While I think shares are overpriced today, a slide back towards $70 or under would make things very attractive considering there is upside to analysts estimates of $1.78/share in earnings for next year. Provided the economy in the United States stays relatively strong, and is not brought to its knees by the credit crisis and weakening dollar I would have no problem paying 35 times 2008 earnings, with upside to nearly $2/share, for Amazon and its future growth prospects.

To be as ubiquitous as the iPod, the Kindle has a long way to go but the youth of today are living in a digital age and the old adage of being able to hold on to, and feel what you buy is slowing fading away. Content will be king, content will be digital, and Amazon hopes that content will be on your Kindle.

Disclosure: Author currently does not own AMZN

15 November, 2007

Markets Slide Lower Thursday for 2nd Straight Day, NovaStar faces further Problems

Bearish sentiment gains strength for the 2nd straight day in the North American markets. The Dow closed down over 100 points, and is down about 250 points from highs seen earlier this week. The Nasdaq and The S&P indices followed the Dow's 1% loss with the similar percentage losses.

The selling was broad Thursday led by Energy and the Financials. Big US banks continued declining, with the major names dropping between 3 and 4%. The credit crisis reared its head again as NovaStart Financial (NFI) dropped its REIT (Investment Trust) status as it could not afford to pay out its required yearly dividend. The ramifications of this move are not clear yet as in prior reports the company was trying to shift its dividend from cash into preferred shares and try to drop its REIT status for next year. The problems in NovaStar are clear and Investors headed for the exits. The shares dropped over 50% and after hours fell below $2/share. Will the company have enough resources to continue operations while the market for its services is as fragile as it currently is? Investors seem to not have much hope. The company's share price was over $30 late last year, actually $120/share if you include the recent 1 for 4 reverse split. With a market cap of under $20 Million it'll be interesting to see if the company has any flexibility whatsoever to try and survive through trying times. Other risky loan players such as Country Wide Financial (CFC), down 8%, and Washington Mutual (WM), down 4% were also lower on renewed fears.

Starbucks (SBUX) was in focus after hours as it reported its quarter with a mixed bag of results. The premium coffee provider delivered earnings ($0.21/share) and revenue numbers ($2.45Billion) in-line with forecasts but the company lowered its new store openings plan for next year and remained cautious with its outlook. The stock was hit 7% after hours but is a great North American brand that is expanding furiously Internationally. The stock is down 45% from its 52-week high, and now it's worth a closer look after tonight's after market decline.

Disclosure: Author holds no position in the stocks mentioned

13 November, 2007

What a Difference a Day Makes, Markets rebound Tuesday

Four Days of heavy sell-offs for North American Markets were met with enthusiastic buying as earnings, financial executive appearances and economic data supported a more bullish tone. Technology led the rise with the Nasdaq gaining more than 3.5% while the Dow Jones and S&P followed with gains of 2.5-3%.

Earnings from Wal-Mart (WMT) pushed stocks higher at the open as the benchmark retailer said it was expected a solid Christmas shopping season. Investors applauded the earnings beat and forecast and sent shares up more than 6%.

In the financial sector, a day after E*Trade Financial (ETFC) plunged 59%, a somewhat rebuttal to the bankruptcy fears from another analyst sent E*Trade soaring back 40%. A swing trader's dream stock the last couple of days, but the risks with this company still remain. E*Trade has assured it is well capitalized to absorb loan write-down losses and that bankruptcy is not in its future. In other financial circles, Bank Of America (BAC) reported that it will write down $3Billion more in losses, while Goldman Sachs (GS) CEO Lloyd Blankfein spoke at a conference showing the street once gain how brilliant the business and trading side of Goldman is. The context of Blankfein's talk; Goldman will not be taking any more write-downs and is still shorting Sub-Prime sectors. I for one think that Goldman's earnings will once again be stellar and prove to Investors it is not only Best of Breed on the Street but seemingly in its own Pantheon of Investment Banking. Shares of GS rallied heavily today, up almost 9% coming back to $233/share.

Technology was a big winner, as the Nasdaq paced gains, with Apple (AAPL) up 10%, Baidu (BIDU) up 13%, VMWare (VMW) up 13%, Google (GOOG) up 5% and Research In Motion (RIMM) up 9% all regaining some lost ground. I said very recently (Link) that Technology would be back and investors should look for strong fundamentals to find winners during the panic-stricken sub-prime selling crisis. Now by no means does today mean that all that can be forgotten and momentum will continue but it does provide a foundation for bullish sentiment.

There are several economic measures coming, including two key metrics this week; Producer Price Index - (PPI), and Consumer Price Index - (CPI), Wednesday and Thursday respectively. Now although the housing indicator released today showed a slight percentage gain, compared to the estimated percentage loss, the outlook pointed to things indeed getting worse from here on out before they get better for the home building sector.

Disclosure: Author owns GS, BAC, AAPL, GOOG

12 November, 2007

Markets continue slide Monday, Technology leads selloff

The Dow Jones now stands at a 4% loss over the previous 5 sessions. The Nasdaq 7.5% lower and the S&P 4%. In Canada the TSX index slid 6% in total the past week and 2% during Monday's trading session. Technology was the main culprit for the sell-off. Investors were looking for safer havens as the financial sector was rattled again with more credit losses, and the economic outlook seemed to worsen for the United States.

Those hit hardest have been the best performers over the last couple of months, since market lows in mid August. Technology stocks were on a roll for over 2 months as the latest round of earnings for the September quarter provided buying catalysts. Many of these names have come crashing down over the span of a week and a half as the markets have turned negative and traders locked it profits. Just a sampling of the fallen momentum players that were so successful in the run from August lows to October highs.

All Percentages are based on recent highs in these stocks.
Apple (AAPL): Down 20%
Google (GOOG): Down 15%
Baidu (BIDU): Down 30%
Amazon (AMZN): Down 24%
Las Vegas Sands (LVS): Down 23%
Wynn Resorts (WYNN): Down 27%
Research In Motion (RIMM): Down 25%
China Petroleum (SNP): Down 30%

All these names had tremendous runs over a 1 year time frame, many more than doubling in value and as market lore teaches every trader, it's not a profit unless its on the books. Now some Financial names have fallen much further than the above mentioned stocks but they weren't the ones leading the Tech and Growth charge into October. Money and the markets are cyclical in nature and money will return to Technology, but the market outlook these days is very hazy as talks of economic fears and recessions fill trading floors. Traders and Investors alike must be cautious here as the Credit Crisis spills over further than most expected. In times like these valuations and fundamentals play a bigger role in selecting winners for the next 6 month-1 year time frame.

Disclosure: Author is long AAPL, GOOG

E*Trade Sinks on Liquidity worries, Risks continue to mount

Investors fled from E*Trade Financial (ETFC) this morning as rising worries or more loan loss write downs and the possibility of a liquidity crisis hit the stock. Shares fell over 50% in the early market hours on the heels of an analyst report that brought up the possibility of Bankruptcy.

No, this analyst didn't get Wheel Of Fortune re-runs mixed up with E*Trade, there are legitimate concerns here. The Citigroup analyst made the point that the possibility of bankruptcy is only 15-20% right now, but that can certainly rise if things get worse in the loan department. E*Trade's core business is their discount brokerage and if that starts to go it's lights out for the company.

Management is trying hard to reassure the Street that the company is well capitalized and can afford to take an immediate $1Billion hit. While that may be so the lingering thunder-cloud here is that E*Trade's own brokerage customer may flee and demand their cash. If this happens in droves, E*Trade is in real trouble. If things do get so bad that E*Trade will have to go into bankruptcy protection the masses of angry customers and lawsuits will keep the company tied up for years and years and make E*Trade "Uninvestable".

The sheer drop today makes for some potential day trades off of lows but until things get better -and all signs point to things getting worse first- E*Trade has to be ignored as a stock to own. There are no catalysts here for the company right now except for the general North American economy and more potential reassurances. Traders didn't seem to buy today's reassurances so future press releases from Management will have to be much more convincing of a recovery to business as usual.

Disclosure: Author holds no position in ETFC

07 November, 2007

Fear over Financials drags Markets lower Wednesday

North American markets were broadly lower Wednesday as investor fear in the Financials and further credit crisis write-downs caused massive selling. Major indices across America were off between 2 and 3%, with the biggest loser being the S&P 500.

The US Dollar continued to weaken against other major currencies setting a new record low against the Euro. For us Canucks (Canadians, for those not from North of the border), we saw our Loonie hit $1.10 before settling back to $1.07 and change. Great if you're planning a loot shopping session in Buffalo on the weekend, not so nice if you're holding American investments.

The Financials were the biggest victims, whether they deserved it or not. Fear of further write-downs and losses spurred selling that carried throughout the entire day.

The list of victims is as follows:
Citigroup (C) - Down 4.5%
Bank Of America (BAC) - Down 5%
Wachovia (WB) - Down 6.5%
JP Morgan (JPM) - Down 4.25%
Morgan Stanley (MS) - Down 6%
Goldman Sachs (GS) - Down 4%
Lehman Brothers (LEH) - Down 5.75%
Novastar Financial (NFI) - Down 2.75%
Washington Mutual (WM) - Down 17.25%
Countrywide Financial (CFC) - Down 9.25%

Not even high flying Technology could save this session as selling was seen across the board. The amount of trader fear that exists over further credit losses, makes this a scary time as yet to go bargain hunting. If trying to buy on the cheap, do it in blocks and stagger the purchases because this pent up fear carries with it more potential downside.

Cisco Systems (CSCO) reported after the bell, a strong profit quarter, in line with forecasts but their guidance and words sparked further after hours selling. The US Bank debacle has starting to creep into the technology sector according to Cisco, as orders for networking equipment from the Financials were much weaker and comments form Cisco management only stroked further fears. Shares were off 4% in trading and another 9% in after-hours trading, leading major tech futures lower going into tomorrow's trading session.

Disclosure: Author owns and has covered calls in C, BAC, WB, GS

05 November, 2007

Google Opens Up about Mobile Strategy, new Platform called Android shows Promise

Reports trickled in over the weekend that Monday was to be the day that the long awaited "gPhone" announcement would come in some form. Google (GOOG) complied with those rumors and held a conference call announcing an Open Mobile Platform rooted in a Linux based Operating System.

This system, dubbed Android, was announced by Google and several of its partners in the Open Handset Alliance, including Qualcomm, T-Mobile, HTC, Sprint and Motorola. Over 30 partners in all for the Internet search giant, all committed to produce the technology to make a powerful, open Operating System for cell phones a reality. Google will provide the backbone programming for the Linux-based OS and will release an SDK (Software Development Kit) so that developers of all shapes and sizes will be able to create applications for a multitude of devices.

The first of these devices are expected to be available in the 2nd half of next year touting as its main feature a complete full scale Web Browser, much like Apple's Safari on the iPhone or the Opera Mini browser available for certain other smart-phones. Thus far details are scarce and not well known about Android, but next week's sneak peak at the SDK should give several more clues. This open initiative by Google comes right after the announcement of OpenSocial, an open development platform for Social Network sites, with which Google has signed up several partners including MySpace, LinkedIn, Salesforce.com and its own Orkut network.

The power of the mobile Internet is something Google has its sights squarely on, and the advertising platform that that could bring. The world has billions of cell phone users and over a billion handsets are sold each year, which represents a fantastic opportunity for localized and personalized advertising. It just so happens that Google has become a virtual expert at both of those flavors of ad-serving. Analysts and economists are throwing around estimates for growth in the mobile ad space and their particular 'Billions of $$$ by Year X' don't matter just yet, what does, is the resounding emphasis that it is the next great Internet growth sector.

The Android platform will provide Google a foundation to port its Internet software on a multitude of devices, and as CEO Eric Schmidt pointed out during the call:

"This is not an announcement for gPhone, we hope to see thousands of gPhones"

The thinking by Google of course, is that, why make the hardware when so many others already do. Create a platform that will excite partners, can cater to everyone's needs, and everyone succeeds. Google doesn't make the computers that sit at your desk do they? No! But they provide an expansive software platform and a multitude of services that arguably are simpler and better than competitive services. With powerful enough phone hardware and screens that can somewhat do justice to the "Complete Internet" Google can follow the same model with cell phones that they have used to dominate in the Internet space for Personal Computers. Not to mention innovation can foster truly and freely on an open software platform, which Android is touted as being. Google's planning to be there every step of the way and innovate as quickly as they can in this space.

Google shares have risen tremendously since August lows around $500/share, hitting a new all time high of $730 today, closing at $725. The hype built around a mobile push by Google stemmed some profit taking but the potential of this being a major platform and a revamp in mobile industry thinking is too hard to pass up for Investors. The sentiment that phone carriers lock in consumers and halt innovation, both on the hardware and software side, can die a quick and painful death if an open software platform for mobile devices in embraced. Google knows this as do its partners, and most importantly customers are starting to take notice as well.

The mobile space, especially for advertising is still wide open and Google is trying to out innovate its major competitors Yahoo (YHOO) and Microsoft (MSFT). Both companies of course missing from Google's partner list on this project. The simple fact in the mobile industry is that cell phones are turning more and more into little powerful computers capable of doing much more than phone calls and this is no different with the Internet. Consumers will see Internet on their phones much more prominently over the coming months/years and the expectation will be for a complete and encompassing experience.

The quicker that experience becomes reality the quicker Google will be able to grow into a mobile advertising conglomerate. Today's technology consumer is much more mobile than in years past and the thinking is, and I completely agree, that these mobile users will have many more opportunities to use Google products such and Search, Gmail and Maps on the go. With more usage, comes more advertising placement opportunities when it will really matter. Getting advertisements for local restaurants when you're at home is one thing but getting localized and personalized ads for local restaurants when you're hungry and on the town is something completely different. And for this to work well, Android must become the platform of choice.

Disclosure: Author is long GOOG

04 November, 2007

Changes at the Top for Citigroup, CEO Prince steps down

Citigroup (C) Chairman and CEO Charles Prince has resigned. A move that shareholders were seemingly asking for, for more than a year, finally happened, and all it took was a disastrous housing and credit situations that nearly crippled the momentum of the United States economy.

Citigroup stock was recently beaten down heavily as the company was downgraded by analysts who were citing more write-downs due to mortgage loses and the fear that the company may need to cut its dividend in order to conserve its cash reserves. Citigroup had written down $6.5Billion worth of mortgage based investment losses. That's plenty of money to just vanish, but the kicker is that it's seemingly not gonna get better any time soon. The announcement of Prince stepping down was followed by further words of mortgage losses totalling up to $11Billion.

The company tried to reassure investors by claiming that it has no plans to cut its dividend but it'll be wait and see if that in fact is reality. Citi stock peaked earlier this summer and has fallen over 30% from that high. In the midst of these hefty losses and write-downs it was time for a change. The Chairman spot will be taken by Robert Rubin and the CEO title will be held in the interim by Sir Win Bischoff. What's next for the now struggling bank and its stock? Does anyone really know? A company having to make changes at the executive level is usually a company dealing with some kind of turmoil. However, a bank as big as Citigroup, with a reach across 100 countries has to be expected to recover in the coming years.

Holders have taken the hit now, but if the dividend in fact stays where it is, than the powerful yield of over 5% is very attractive at these stock levels. I thought Citigroup would find its floor around the $35 level but we'll have to see how traders react to Prince departure. Had this happened in the months before the credit crisis the response would have been overwhelmingly positive but with the heavy losses lingering on the minds of shareholders I expect he response to be more muted. Citigroup has a ways to go to get back near its highs, and while there are much better banks out there, with less exposure to credit problems, its a company that is so widely held that at levels under $40 it should be owned.

Disclosure: Author is long C

01 November, 2007

Las Vegas Sands posts loss as Gamblers Win and Sink the Casino Growth Sector

The Casino growth story popped severely today. The two poster child's for Macau gambling growth were sold off in bunches. Las Vegas Sands (LVS) posted a LOSS! That's right a LOSS even though its been growing its operations tremendously worldwide. Now some costs of opening new resorts factored into the loss but the bottom line was that the House was beaten this quarter. Gamblers seemed to have their day, not only at the expense of the casinos but their stockholders as well. After hours results from LVS caused shares to drop 15% after an almost 6% decline during the regular trading session. Fellow casino growth brother in arms Wynn Resorts (WYNN) posted a 4% decline in the regular session and was off 8% in after hours trading.

My take on the casino players has always been, through two major articles now, that MGM Mirage (MGM) has the potential to be the most steady and risk averse of the big 3.
From establishing highs recently the high flying momentum casino stocks WYNN and LVS have now accumulated losses of 20% and 30% respectively. Both stocks have more than doubled in the span of the last year so Investors surely must still be satisfied. Now MGM, which also more than double over the past year has only fallen 12% from its high of $100/share. On a foreword P/E basis it is also still the cheapest of the 3 casino players.

Thus MGM is still my Lion in this space and I will be buying if I see the low 80s. I do however think both WYNN and LVS are becoming a lot more attractive on a valuation and potential growth basis after this latest round of quarterly earnings fumbles, but the plan that MGM has is still unfolding in Macau and worldwide and that's the one I want to own.

Disclosure: Author currently holds no position in any of the companies mentioned

Aftermath of Fed Cut creates Market sell-off led by Financials, Citigroup Pressured

The Federal Reserve statements after their Halloween rate cut of 25 basis points, based on further economic instability due to housing issues, signaled that inflation is at the forefront of The Organization's list of concerns. This talk spooked investors Thursday and led to the Dow dropping by over 360 points. The Nasdaq and the S&P followed suit, both dropping over 2% and the Canadian TSX index fell 1.7%.

Worries over inflation signalled to Traders that the Federal Reserve will be much more cautious about further rate cuts; or as Traders read it, No December cut. This put a damper on the extended Fall rally that seemed to continue yesterday after the Fed's decision to in fact cut rates again.

The market was hurt today primarily by uncertainty in the Financial sector and Citigroup (C) was hit the hardest. Downgrades to Citigroup and Bank Of America (BAC) prompted selling in most financial securities. Looking across the Banking and Investment Banking board was not a pretty site at the close of trading as the entire sector was down by almost an average of 4%. Comments made about Citigroup focused on their ability to stabilize their balance sheet amongst the credit turmoil. This led to fears of a cut in the dividend and sellers were immediately very active. What's the point of owning a steady bank if it needs to cut its dividend just to maintain steady?

While the credit crisis poses serious issues and strains on the financial community of stocks, it is an atmosphere that seems to be closer to the bottom than not. With Citigroup falling below $40/share and probably on its way to $35, the buying support should establish itself in the months ahead. The dividend cut rumors may or may not be true but these banks will continue to operate and in the coming years this credit crisis bottom may be one of the best financial stock opportunities, to bottom feed, that has come around in quite some time.

Google (GOOG) broke a milestone yesterday as it crossed the $700/share mark, and today with all the selling still managed to hold onto a closing price of $703. But not before setting an intra-day all time high of $713. Techs are still in season right now for investors and its worthy to note that once again the Nasdaq was the smallest loser of the day amongst the major US indices.

30 October, 2007

Markets slide Tuesday, Proctor & Gamble quarterly disappoints, Tech Stays Afloat

Markets traded lower ahead of the Federal Reserve Interest Rate decision. Consumer staple Proctor & Gamble (PG) was down about 4% as quarterly results disappointed the Street. Technology stayed flat as announcements of announcements from Google (GOOG) and super sales of Apple's (AAPL) Leopard Operating System lifted Techs.

As Halloween approached for the Children, adults focused on the other Wicked Witch of the West; The Federal Reserve. The Fed proved it can move markets tremendously with its last rate cut and Investors are expecting another .25% rate drop this time around. This will be the single biggest trading issue throughout the rest of the week.

Consumer staple Proctor & Gamble fell after it posted results and an outlook that disappointed Wall Street. Traders took the opportunity to get out of this defensive play near its 52-week high. Shares fell almost $3 or 4%. Not to say the selling was only in defensive plays, the expectations game caught up to Casino high fliers Wynn (WYNN) and Las Vegas Sands (LVS). After starting the day higher, nearing $176/share, Wynn drifted lower, eventually closing down almost 3%. Results caused the stock to take a hit in the after market and Wynn gaped down another 5% to $159. While not yet reporting, LVS was hit by the general downtrend, losing 4% in the regular session and another 3% in after hours trading. Steady as a lion MGM Mirage (MGM) lost only a couple percentage points overall maintaining above $90/share.

In Technology news, Google and Apple were both making headlines. Apple announced that it had sold 2 Million copies already of its new Leopard Operating System in its first weekend of release. Pretty amazing considering that an OS upgrade is not something the typical computer user looks forward to, and also given the fact that there are only about 20 Million Mac systems that could upgrade to Leopard. Google announced an announcement of sorts. The Wall Street Journal reported that Google will soon be ready to announce its much anticipated mobile software plans. This was big news to investors and it caused the stock to gap higher approaching $700/share. In fact stopped mere cents from the milestone. Google's well documented attempt to purchase DoubleClick was given the okay in Australia paving the way for further OKs down the line from other Governments.

Tomorrow will bring with it further anticipation, uneasiness and fear regarding the Fed; Investors and Traders alike need to be aware and in fact ready for just about anything. This life brings with it few guarantees and the Stock Market brings even less.

29 October, 2007

Markets Advance ahead of Fed Meeting, Oil hits New Record

Overall trading tones were positive on Monday and stocks advanced on both sides of the North American border. Canada's TSX advanced almost 1% while Major American indices were up about half a percent. Oil prices continued to climb near $94 a barrel.

Markets are almost already fully pricing in a 25 basis point rate cut by the Federal Reserve as American currency slided lower again. The US Dollar is facing tremendous pressures as global economies become stronger and the anticipation of a rate cut further drives the benchmark currency lower. The strong Euro is worth almost $1.45 US and the strong Canadian economy is pushing the Canadian Dollar further past parity and is now worth about $1.05 US. Multi-national US firms are reaping the benefits every quarterly earnings report that the US Dollar slides while International Investors in US companies are feeling the pinch as their holdings absorb the conversion rate loses.

While a rate cut is what the market expects, there has to be a balance here and the Fed knows it. Economy stability and Inflation/Currency issues have to be at the forefront of the Fed policy discussions, as I'm sure they will be. The last time the Fed met and cut rates the market on the whole rallied and this party, with few hiccups, has continued into late October. The market expects more now and a stand by the Fed will likely be met by selling so a cautious stance will be taken by traders in the days leading up to an announcement.

Major financials are holding seemingly steady now awaiting the Fed but the solid Investment Banks are seeing Money flow back in. Goldman Sachs (GS) hit a new high today over $244/share, and Lehman Brothers (LEH) advanced also, both stocks showing gains of over 3%.

Oil continued its upward trek hitting near $94 a barrel. An incredible run so far that has seemingly been pushed by fear of conflicts or worldwide production slowdowns every other week. Even with a milder Fall, than historically seen, in most regions, Oil prices continue to remain high pushing the likes of Exxon Mobil (XOM) closer to new highs.

26 October, 2007

Markets End Week on a high, boosted by further Strong Earnings

Microsoft (MSFT) led the markets higher as its quarterly earnings surpassed estimates. The Dow finished up 1% and the Nasdaq almost 2%. Hope in the Financials was somewhat restored today also as Countrywide Financial (CFC) painted a hopeful picture for Mortgage recovery.

CFC, seemingly America's poster child for the credit crisis situation, rose over 30% as the company provided an outlook that signalled recovery. Investors met this with broad buying in many large and tailored financial names. The big banks, including Bank Of America (BAC) and Citigroup (C), after being pressured all week, recovered a few percentage points.

On the heels of the red hot IPO of VMWare (VMW), parent company EMC (EMC) reported a stellar quarter and outlook Thursday. Shares lifted EMC to new highs and Friday sent the stock to a record of close to $25/share. The company was hovering around $18-$19 when a small stake of VMWare went public recently, and subsequently more than doubled.

Investors will wait for the Fed Rate Decision to come in the week ahead but the hope instilled by CFC has to provide some foundation for recovery in the battered sub-prime sector. The start of a recovery for the big banks and trading houses should filter through as well. All eyes will be on the Fed in the trading days to come.

24 October, 2007

Market Musings Oct 24, S&P Changes add NYX, and Facebook news

The Markets came back strong to the close on Wednesday after being down fairly significantly mid-day. News of the struggling Housing sector and brokerage house Merrill Lynch (MER) writing down over $8Billion due to the Credit Crunch rattled investors and traders. A not so earth shattering outlook from high flier Amazon (AMZN) didn't help Technology stocks either.

The economic news on Existing Home Sales hurt stocks at the start as sales fell 8% year over year, which was worse than most economists had expected. Lots of talk about this "not yet being the bottom" led to further fears and thus more selling. Stocks seemed to bottom out however mid-day and recovered to be only flat or slightly lower. Technology was hurt by Amazon's perception of next quarter margins, which had investors heading for the profit taking fence.

NYSE Euronext (NYX) was up again today, hitting a recent high of $92, before settling at $90/share at the close, on news that it is about to be inserted into the S&P 500 and S&P 100 indices. This news was confirmed earlier in the week but today marked the last trading day before the company was to be officially recognized. Shares of NYX have rallied almost 9% since the announcement. The sheer number of money managers and funds that now have to own the company will likely continue to drive the shares higher going into its earnings report in early November. The stock is still off of its $112/share 52-week high but with a strong report and continued buying demand it may be sooner rather than later that the stock breaks into that territory.

Facebook, everybody's new favourite uber-growth social network, made more headlines today with a couple major announcements by big technology companies. Research In Motion (RIMM) announced a new application for its popular BlackBerry devices that ties in with Facebook, further promoting Rim's plans to nip at the heels of the consumer market segment. Microsoft (MSFT) threw its name into the social network hat as it agreed to purchase a 1.6% stake in Facebook for $240Million. The transaction gives Microsoft better leverage against its main Internet advertising competitors; Google (GOOG) and Yahoo (YHOO), and values Facebook at a lofty $15Billion.

Disclosure: Author is long NYX, GOOG

22 October, 2007

Apple does far more than just Shine with another Record Blowout Earnings Number

Not to be outdone by its Technology peers in the "Blowout earnings" game, Apple (AAPL) came through with a record breaking September quarter. Going against history Apple also guided higher than Wall Street anticipated for the Christmas quarter. The earnings of $1.01/share and the guidance of $1.42/share for next quarter led the stock to gain 7% after hours.

There are blowout earnings and there are BLOWOUT earnings and Apple's quarter certainly falls into the 2nd of the 2 categories. Apple's earnings of $1.01/share beat the street expectations of $0.85/share and Revenue of $6.22Billion was well ahead of the expected $6.02Billion. The company ends its Fiscal Year this quarter and for FY07 the company did over $24Billion in revenue. This first time in its history having a FY with revenue over $20Billion. Guidance from the company surprised analysts as it was very bullish compared with Apple's historic trends.

Apple's typical conservative guidance due to "less favourable commodity conditions" and "product transitions" really was a sly practice for past quarters but I believe the company knows the Street is onto its game and is now ready to step up to the plate and concede that they are in really good shape, regardless of economic conditions, to capitalize on an excellent product mix and unmatched company momentum.

The Mac line of computers was very strong, making record sales during the quarter, and culminating with 2.16Million units sold. The music player iPod line sold 10.2 Million units and the company added sales of almost 1.2Million iPhones. The Phone/Media revolutionary device was stronger than even very bullish analysts had expected. It was clear that the decision by the company to cut the price of the device by $200 late in the quarter helped to spur furthur additional sales. Apple cited a favourable tax rate, favourable component costs, a weaker US currency and good seasonal trends, as all attributing to the record results.

Even with a warning to analysts that some of these trends will become more normalized the company still guided 3 cents higher than the Street had expected. If Apple sticks to its previous trends of posting a guidance number that it is very confident in making than Investors everywhere should feel almost euphoric as to what an earnings result the company could be in for come January. As Apple's stock has rallied to $174 before the results the company growth metric were expanding almost into overvalued territory. Forward P/E and trailing P/E ratios were both inflating and PEG numbers were getting higher than many technology competitors.

Apple's trailing ratios will come down slightly based on Monday's closing price. At $174 the P/E stood at 49 with trailing earnings of $3.55/share. After the results trailing P/E stands at 44 on $3.94/share in earnings. With the stock up to $187 in after hours trading the P/E climbs back up to 47.5. Investors are clearly bullish about growth in all sectors for Apple. The forward guidance for the January quarter puts trailing earnings at $4.22/share. At current trailing P/E ratios that puts a target price of $198 on shares going into January. It's no surprise that analysts have seemingly stumbled over each other of late increasing their own price targets for Apple stock. While all the bullish sentiment can be enamouring the realist trader must re-think future possibilities. Apple hitting $200 by January of next year represents about a 7% gain, and for a stock that has seen a 20% rise in 1 month and a 90% rise in 6 months, that's actually slowing momentum. Keep in mind I am warning momentum traders not long term investors. The belief in Apple's continued execution has benefited investors tremendously over the last couple of years and with this product mix that is almost assured to continue. As such any profit taking dips should be well welcomed by the ever growing base of Apple believers.

With the continued growth successes in the Mac computer line, iPods fresh and ready for Christmas and the iPhone just coming into its own, the future is still very bright for Apple as a company and as a stock. With these positive results and bullish forecasts there seems to be little resistance in Apple's path to $200 and beyond.

Disclosure: Author is long AAPL

21 October, 2007

Earnings Preview: Week of Oct 22nd

To say the Markets took a breather Friday would be a grave understatement. The selling was balanced, on heavy volume and carried on throughout the day. The major indices; Dow Jones, Nasdaq, and S&P were all lower about 2.5%. Earnings season continues this week and more major companies will have the spotlight on them.

The week kicks off Monday with Computer and iPod/iPhone maker Apple Inc. (AAPL) reporting what is wildly expected to be another blowout earnings number for Technology stocks. Drug makers will also see action this week as Merck (MRK) and Schering-Plough (SGP) report Monday as well with Amgen (AMGN) and GlaxoSmithKline (GSK) set to follow later in the week.

AT&T (T) looks to capitalize on the popular iPhone as it highlights a busy Tuesday and software giant Microsoft (MSFT) headlines another busy earnings Thursday. Aerospace will feature also Lockheed Martin (LMT) reports as does Boeing (BA)

Investors and Traders will be looking for earnings to set a positive direction in order to drive further gains well into the Fall. Friday's pause was seen as healthy profit taking with a very cautious undertone. If the general earnings trend continues to be above-expectations than the market should have little resistance upwards, possibly no matter what the Fed does at its next Interest Rate decision.

18 October, 2007

Major Tech Earnings Start Q3 with a Bang Part 3: Google Growth Continues

All eyes were on Google (GOOG) Thursday as Investors had digested a couple days of very positive Technology earnings and some not so positive Financial earnings. Momentum Traders hoping to continue the Tech ride further into the Fall pinned their hopes on favourable numbers from everyone's favourite Internet Giant, Google.

In terms of raw numbers it was an all around exceptional quarter from the Internet Advertising behemoth. Revenue climbed 57% year over year to $4.2Billion, which also represented a 9% quarter over quarter increase. Profit numbers, without stock option expenses, were $3.91/share, beating analyst expectations of $3.78. Google continues to dumbfound analysts when it comes to growth prospects and projections.

All the rage last quarter surrounded a drop in margins from 35% to 29% due to over hiring. Management was adament that hiring would be more disciplined and they re-iterated that same fact during this conference call. Google infact added even more employees this quarter than last. However, these additions were due to pre-signed contracts with University Graduates and 300 employees from the acquisition of Postini. Management seemed to relieve analysts during the call with specifics about hiring and their diligence about keeping an extra eye on hiring practices. Margins improved to 31%, becoming more normalized, however this number is still below year ago levels. This I believe, can be attributed to a tax rate rise from 25% to over 27% this quarter. Google typically projects a tax rate of near 30% and the assumption is that the company wil be paying more with an increased rate in the following quarter. A cause for concern perhaps, but at these growth levels, expected tax levels shouldn't be a real problem.

Google's cash horde is ever increasing and analysts began to question the company on potential uses of that cash. In response management seemed very disciplined in their approach to spending the money on only causes that make seemingly perfect sense strategically. This is clearly a company with a vision of the future, not ready to throw money around to get into businesses that don't fit. I believe this is one of Google's greatest core competencies! The minds at Google have a plan, a broad plan, and things that fit this plan get bought or invested in. They don't go after fliers, buy on whims, or buy things on hype.

Cases in point:
YouTube -> a clear direction in online video and its expansive possibilities into video and TV advertising
DoubleClick -> a clear direction for display advertising and advertising campaign management
Writely -> Online word processing technology to create an online Office suite
Postini -> Strengtening security in Email for Google Apps to break into Enterprise markets heavily
GrandCentral -> Telephone consolidation with online management, another pool for Apps or AdWords campaigns

Capital Expenditures at Google are always a concern for Investors as Google seems to wave its nose at the concept of Cost Cutting/Slowing. It's building a vast network of computing architecture and no one will tell the company differently. Where this comes into effect in the Finances is when the depreciation and replacement of all that computing equipment starts to kick in. The upside though, is that Google's technology is far and wide beyond its competitors and they can't catch up if Google keeps spending more, and more effectively, on development and technology.

Google's AdSense partners are getting less and less of a percentage of revenues. Last year at this time, the amount Google paid out to its partners was 31% of revenues, this year 29%. This percentage has been dropping steadily since Google became a public company. This means that an increasing percentage of revenue is coming from Google's own properties, meaning that all of the advertising dollars are going to Google's bottom line and not its partner sites (Of which this blog is one).

Google is growing still, has its mind set on strategic advancements and search improvements, is leaving its competitors in its Search dust (60% of searches at last count), and is continuing to make money hand over fist. What's next for the company? TV ads?, The Mobile Space?, GPhone? Only management knows and only future quarters will tell. So this isn't a boat to jump off of just yet.

Disclosure: Author is long GOOG

16 October, 2007

Major Tech Earnings Start Q3 with a bang Part 2: Yahoo Shines

Another bell weather in its Technology Sector, Yahoo (YHOO) had modest expectations after quarters of struggles and declining growth. Today's earnings were a pleasant surprise as Yahoo topped expectations, signalling that it in fact may be turning the corner with its Ad platform and new acquisitions strategy.

Income fell slightly at $151Million, $0.11/share, same as a year ago, but revenue on the other hand for its own web businesses came in above expectations at $1.28Billion. Analysts had expected $1.24Billion on the top line number and $0.08/share in profit. Yahoo's guidance for the 4th quarter was within the range expected by analysts and that led to relief, leading shares up in after hours trading.

Although Yahoo is losing search share to Google (GOOG) it is not going down without a fight, in fact Yahoo is actively securing exclusive Internet Ad deals, and highlighted a few new ones at the end of the quarter. The company will now produce ads for WedMD, Forbes.com and Cars.com. A slight coup if you will as WebMD was previously using Google's Ad network. These are the kinds of aggressive moves that will bring Yahoo back into the limelight, as Yahoo notoriously lost out in several high profile bidding wars recently.

New CEO Jerry Yang made it his mandate to do a full review of all business units and he is thus far sticking to his word of trying to turn Yahoo around. This quarter is a start, however Google is still miles ahead of everyone in search. If Jerry and the Yahooligans keep securing more exclusive Ad space and build out their network the fruits of that labor will be seen in quarters and years to come. Yahoo however has to refocus on its core priorities and manage its huge user network. The most visited site on the Internet has to have a clearer plan on how it bring all of its services to all of its users in a cleaner and more efficient manner. This is priority number 1 in order for the company to return to its previously held dominant Web position.

Yahoo's successful quarter signals that Advertising remained healthy even during the credit crisis and housing downturn which is a very good sign for the Major player in the sector Google. In fact Google gained $12 after-hours on Yahoo's news as Investors anticipated even better numbers from the leader in Search Advertising Thursday.

This quarter was a definite sign of relief for Yahoo longs, and as the holiday season approaches its all smiles for the company. If Jerry can continue to tighten operations and secure further Ad deals he'll have a high flier on his hands in the year or 2 to come, but the engineers at Yahoo need to continue to innovate and not let the likes of Google and Facebook keep stealing users away. The results here are promising but Yahoo's valuations are still much higher than Google's on a forward basis and only continuing accelerations in profit growth will keep the company on this perch.

Disclosure: Author is long GOOG

Major Tech Earnings Start Q3 with a Bang Part 1: Intel Beat Estimates, Ups Guidance

The major player in its business segment, Intel (INTC) was looked upon to set a direction for Technology early in this earnings season. And set a direction it did as the companies beat expectations and had its shares move higher in after hours trading. Intel came down the pipeline first, and the computer chip maker left nothing to chance this quarter as sales continued to be strong and CEO Paul Otellini projected further strength ahead.

All things that a market cheers! Intel was able to put a number together this quarter that led it do double digit sales growth for the first time in years. First the numbers.
Income was up to $1.8Billion or $0.31/share vs. a year ago $1.3Billion or $0.22/share (an increase of 40%)
Revenue was up to $10.1Billion, which represented an increase of 15% year-over year.

That all important margin issue, that had plagued Intel for much of the past 12-16 months seems to be forgotten as the company has stepped completely ahead of Advanced Micro Devices (AMD) and into its formerly held dominant market position. Due to heavy price wars with AMD, Intel's margins were dropping quarter after quarter, and with that the stock price went stagnant. However in the past 2 quarters this story changed and Intel proved once again that it has market power when it comes to selling processors. Gross margins at the company rose slightly again and the expectation for the 4th quarter is that Intel will be able to nudge them even higher still above 55%.

Analyst estimates had called for more conservative margin numbers leading to $0.30/share and $9.6Billion. Intel handily beat those figures as demand for the company's products were heavy due to increasing laptop use. The very successful Core 2 Duo line proved a winner again as Computer makers like Hewlett Packard (HPQ) and Apple (AAPL) are stuffing the chips in their systems left and right. A quick look over at Amazon's best selling computers list has 4 Apple machines in the top 5 all sporting Intel's Core 2 Duo chip sets. Hewlett Packard holds 6 of the next 10 spots with 4 Intel powered systems and 2 AMD powered systems.

In all, of the top 15 true laptops on Amazon's list, 12 run on Intel chip sets. Now that's dominance in a sector that is growing much faster than traditional computer desktop systems. The company guided even higher than previously for the 4th quarter, now expecting sales between $10.5Billion and $11Billion; analysts were expecting $10.4Billion.

With the way the computer industry is growing, especially in the laptop sector and emerging markets, it's the hardware that will continue to sell and sell well. While all the fuss has been on piracy when it comes to Software, the makers of the nuts and bolts, so to speak, will continue to be strong. While in the Far East piracy runs rampant as the computer market continues to expand the difficulty involved in illegally copying chip design and computer design innovations is paramount to the tasks involved in copying software. Bottom line is, Intel dominates its marketplace, it is the brains behind the most popular systems being sold today and we are coming to an era of innovation in Computers where customers are becoming excited again about what their systems look like and what they can do. This shines a particularly bright light for the rest of the year and beyond for that company, that more times than not, is truly Inside.

Disclosure: Author is long AAPL, INTC

14 October, 2007

Earnings Week Preview Oct 15 - Oct 19

Busy crop of earnings lie ahead as Major Technology firms and the Financials are set to report quarterly numbers. Citigroup (C) is up first on Monday followed by Bank Of America (BAC) Thursday. The Internet giants lead Technology into the full earnings swing as Yahoo (YHOO), eBay (EBAY) and Google (GOOG) all report on consecutive days.

The Biggest mobile phone maker Nokia (NOK) will have investor eyes squarely on it Thursday and big Bio Techs Pfizer (PFE) and Genentech (DNA) also square off this week. The extended rally since the Fed rate cute has pushed investor confidence higher but it has also made for some weary trading as even slight earnings upside may not be enough to push stocks much higher past record levels.

As Technology has led the rally of late, all eyes seem to be on those uber-growth firms, and whether they can maintain their lofty valuations by trumping street expectations for yet another quarter.

11 October, 2007

Markets Experience Sharp Selloff after hitting New Highs

Thursday began as another bullish day in the extended rally for the North American markets as the Dow Jones set record highs on sales guidance from mega-retailer WalMart (WMT). Technology also got off to a good start as earnings estimates and price targets were getting bumped higher virtually across the board.

Apple (AAPL) received two price target bumps this morning from analysts at Merrill Lynch and Goldman Sachs pushing shares to an all time high above $170. Similar highs were seen in momentum favourites Research In Motion (RIMM), Google (GOOG), Baidu (BIDU) and VMWare (VMW).

Just before 2pm in this afternoon's trading the markets were up over half a percentage point. It appears whispers travelled and the buyers dam broke and flooded into a massive sell-off. Within minutes the Nasdaq was in the red and major technology stocks saw their new highs evaporating. Cautious comments from JP Morgan regarding Chinese Internet portal Baidu's revenue for the upcoming quarter sparked slight profit taking which seemed to snowball throughout the technology sector. Further adding to the panic were comments made in Europe by European Central Bank Council member Axel Weber who insinuated that 1) the ECB may need to raise rates in order to keep inflation in check, and 2) that inflation should be priority number 1, not economic stability.

There was concern with the Federal Reserve's half point rate cut that the action signified a more worrisome approach to economic stability, rather than inflation. These comments out of Europe show that the ECB seems to be standing firmer towards the side of inflation concerns.

These comments seemed to rekindle trader fears of Inflation and pushed the selling further. A rally that was built around the Fed cutting rates by half a percentage point will certainly not hold up well if there's talk of a potential rate hike being needed to curb inflation. The sectors that have been gaining the most during the rally were the ones hit the hardest; Technology and Energy.

Investors should take heed that the indices were brought back after the drop, meaning that the Dow was able to hold and close above 14,000. If inflationary comments come further to light this could add tremendous volatility for the markets ahead, but investors should be concerned with specific company fundamentals, especially as the earnings season gets into high gear.

Disclosure: Author is long AAPL, GOOG

08 October, 2007

Markets Lull Ahead of Earnings but Tech Continues to Sizzle

An overall negative market day in North America was propped by continued strength in Technology stocks. The Dow Jones and S&P were both lower but the Nasdaq managed to eek out a quarter percent gain. Volume levels were lower across the board as earnings from major companies are seemingly around the corner.

Technology was at the forefront all day as many new all time highs were not only reached but breached once again. Google (GOOG) most notably passed the $600 mark closing at $609.62.
Apple (AAPL) and Research In Motion (RIMM) continued to show strength with gains of 4% and 3.7% respectively. Previously beaten down names like Akamai (AKAM), up 8.4%, and Garmin (GRMN), up 4.5%, made rebounding strides today.

The winter season has so far been mild, which has put a dent in oil prices, dragging down Exxon Mobil (XOM) and Co. Gas Prices however, have sustained at high levels and that re-ignites investor fears that consumers will take their holiday spending down a notch. It'll be a battle between the bulls and the bears over the next few weeks as the markets seeks a true direction throughout the winter months. So far the Bulls are proving they have the edge, especially in Technology.

Disclosure: Author is long AAPL, GOOG, AKAM

05 October, 2007

Jobs Report puts Market in a Bullish Mood

The US Labor situation got a much needed boost last month as payrolls in September increased by 110,000. The Market feared dipping into a recession as the August report showed a decrease of 4000 jobs. This number was actually revised upwards to show a gain of 89,000 jobs. These macro-metrics put the markets in bullish territory early and the indices never looked back.

The Nasdaq led the way with a 1.7% gain and the Dow, S&P and Canadian TSX were all up between .7 and 1%. Canadian Technology power and BlackBerry maker Research In Motion (RIMM) led the way on the Canadian side as the company's strong earnings and guidance going forward lifted shares over 12%. The optimism surrounding the company and its popular line of electronics helped prop tech stocks for the entire trading session.

Investors go into the weekend on a high and as the Americans are back at it on Monday their Canadian counterparts get the day off to Celebrate the Thanksgiving Holiday.

04 October, 2007

WC Investing Q&A: Session I

Well its time to introduce something new to the WC Investment Blog. The best way to offer feedback I think is through Q&A Sessions. So here we are with the first one, of hopefully many more.

I've been fortunate enough to have generated a level of interest in my Investment Writings and because of this I've been asked a variety of questions on an amalgam of stock topics. So I thought instead of burying some of my responses in commentary and outside sources I would bring them to the forefront here, officially. Just so there's no confusion, this isn't a lightning round by any stretch, (I'm pretty sure Jim Cramer's got that trademarked) but I will try to keep responses relatively brief.

So let's get started.

1) Talked before about Diageo (DEO) as an Alcohol play, is there anything riskier and more obscure out there?

One company is Central European Distribution (CEDC) and what they do is distribution of, you guessed it, alcohol into and throughout Central Europe. They also produce and sell vodka throughout Poland and distribute an overwhelming number of other brands through the region. One year chart looks beautiful here and I first mentioned this play when shares ran from $18 to $39. I thought then part of the boat had sailed but the company is still worth a look. Forward P/E of 19-low-20s and a Price to Earnings Growth ratio estimate at about 1.40-1.5. If speculative plays in the alcohol space is the name of the game this is one of the only games in town.

2) Akamai and its upcoming Competition?

Akamai's (AKAM) a solid tech company. I like it and own Call options in it. It got really crushed when it reported its previous quarter numbers and now its earnings season again for this company. While it's had a pullback, I think AKAM remains stronger positions than its competitors in the Internet back-end bandwidth game. Major League Baseball is seeing a resurgence of traffic now as the playoff races finished up and the post season has begun and AKAM's sure to benefit. Limelight Networks (LLNW) seemed to be up and coming but it faltered heavily over the late summer months. There are concerns over margin contraction due to competition , but I still think AKAM it is the best company in this space.

3) VMWare IPO and beyond?

I talked about my thoughts on VMWare (VMW) and its IPO here (Link). I was weary of overpaying if VMWare jumped to $60 on its first day. I thought EMC (EMC) was the better play since they still hold 89% of VMWare all to themselves. VMWare has got it going though and as it breaks $90 and heads for $100 its even scarier. But the business that its in will be a big one in corporate circles and it is the only game in town right now when it comes to virtualization. On any pullbacks I would like to own it, but till then EMC still gives you great VMWare exposure with less risk.

4) How does Ebay go about increasing listings? And How is Ebay affected by Macroeconomics

Ebay's (EBAY) most important business is the core auctions business. They are seemingly the only one and as such have major control over pricing. Ebay was losing its core business to its own stores/Amazon's personal stores and other such merchants online. This was due to Ebay increasing prices too much. This drove down listings. When Ebay earlier this year reshuffled their pricing schemes it seems to regulate the business back and hence led to an increase in listings. So that's one way, a second is advertising. Ebay does a lot of it, but to further increase listings they need to do more. Ebay ran a pretty successful I think "It" campaign through TV and print ads but I havn't seen anything like that in quite a while from the company. Third, Ebay needs to further expand into more worldwide markets. They've made some strides in Europe but there's still a lot of room for growth there. The East markets are tougher for American companies to crack since they have traditionally had a hard time understanding the consumer and cooperating with regulations.

As for Ebay's macroeconomic issues, it like all technology stocks is susceptible to factors like inflation, interest rates, employment, consumer confidence etc. Interest rates, while not seemingly a factor in terms of core business for Ebay do have a big effect on general market trends. When the Fed cut rates earlier the market rallied in relief that the sub prime crisis could be further averted. Had rates not been cut Ebay would've tanked hard with the rest of the market. The employment issue is also a broad market issue, but Ebay feels the effects. Sellers of merchandise on Ebay will have a hard time getting rid of their things if the people who were just buying have suddenly lost jobs. The same goes for consumer confidence. People will only feel free to use their loose cash if they feel their economic situation warrants it. Hence they need to feel confident that they have enough to get by regardless of some casual spending.
The biggest issue for Ebay and other highly valued technology companies is that macroeconomic factors have a direct correlation to P/E ratios. When the economy is strong and macro-economic data points to growth and continued strength the leaders in the markets enjoy P/E premiums, so a company like Ebay can be valued fairly at 40-50 times trailing earnings. When these macro-economic indicators start to shift negatively and fears of a recession in the economy loom its very easy for those P/E premiums to contract sharply, and even though Ebay's growth could be consistent the company would trade at 25-30 times earnings rather than 40-50 times.

5) Altria and the Philip Morris International spin-off, what to do now?

I've liked Altria (MO) in the past and its done well. I liked it going into the run up to the Kraft split and now also before the PMI announcement was finalized.
I think PMI is much better to own as a pure smoking play that actually has some growth.
Smoking in North America is all but dead in the growth department. That's the main reason why I'd be hesitant with Altria. I do think owning it is a good idea for the PMI spin. I think people will jump into that when it becomes fully PMI. Only way to do that initially will be to own MO. I can see MO coming into the $75-77 range at the end of the year from its current $69 range.

6) Fund Holding Performance through the last quarter?

I'm working on something that should be up very soon.
I intend to publish the fund's largest holding, gainers, losers and trades that were closed during the September quarter.