30 December, 2008

Ironic Headline of the day: GMAC's Here we go again

Today's Ironic Headline of the day comes via the New York Times and their humorous and insightful take on GMAC. Granted this is the first 'headline of the day' post ever written for WC Power Tech Fund Investment Blog but reading the NYT article (Link) the irony was too pronounced to ignore.

Here's the New York Times Headline: "With Needed Cash, GMAC Will Ease Lending Rules"

Seriously?? GMAC, whose automobile financing business has been in utterly dire straits as the credit crisis unfolded in the 2nd half of 2008 in step with domestic auto maker General Motors (GM) own struggles on its way to the brink of bankruptcy, now starts back on the same path? Let's hope these firms learned a few lessons along the way.

It was the ease of lending restrictions that got infamous mortgage houses Fannie Mae (FNM) and Freddie Mac (FRE) into such a mess in the first place. Armed with $5Billion of Government Bailout money the auto lending business can get back into full swing, or so thinks GMAC. According to the New York Times, the company is lowering its credit score from 700 to 621 for Americans to qualify for financing in order to stimulate business and expand the current potential customer base.

Credit scores of 620 or below are considered by the credit bureau to be "higher risk transactions" so at the very least GMAC is steering clear of those for the time being. It has been a tumultuous few days for the financing company, which is jointly owned by GM and private Cerberus Capital Management, its last second win or approval to become a bank opened the possibility for bailout funds in order to keep the company afloat. The Federal Reserve gave tentative approval for GMAC to become a bank holding company and thus allowed it to tap into a portion of the $700Billion bailout passed by US Lawmakers those months ago.

Clearly the infusion of cash gives GMAC invaluable time and monetary room in which to conduct and grow a broken business, but for investor sake, the company had better not be on a path of 'Here we go again'.

Disclosure: Author holds no position in above mentioned companies.

19 December, 2008

Happy Holidays from WC Power Tech Fund

Wishing everyone a Merry Christmas and a Happy Holidays 2008!

16 December, 2008

Apple says 2009 MacWorld to be its last, Keynote sans Steve Jobs

Spin the panic wheels and beat the panic drums, Apple (AAPL) is pulling out of MacWorld. For years the marquee event for most Apple faithful, 2009 will unfortunately be the company's last hurrah.  On top of that, stock holders should feel some momentum pain as Steve Jobs will not be giving the Keynote speech at the final circling of the wagons.

The reasons given by the company were clear. Apple's too big now and too global to succumb to the whims of trade shows. Granted the corporate speak was a little more amiable.  With iPhone sweeping the globe, the AppStore a certified hit and Mac's selling in record numbers in a multitude of demographic and geographic segments, the company is actually right on the money.

The rumor-mills and press brigades will be sad to see the company go from the spotlight of MacWorld, but if this year has been any indication Apple continues to innovate and send out their darling press invites for more intimate Q&A sessions to show off new products or services. There's nothing in today's announcements to suggest these will not continue either.

While this announcement will cause a bit of a sell-off, likely led by the lingering questions of Steve Jobs health, it is clear Apple is shifting the power structure, or more so the perception of the power-structure of the company. The last press events have seen Jobs take a much smaller role in presenting and explaining. Even though I feel Apple is a much stronger stock and company than say Microsoft, I do see Apple taking a similar approach in moving Jobs into a "Chief Apple something" role in the future so that the company can be eventually transitioned with someone else as CEO.

Yes Jobs is a huge part of Apple's uprising and a huge part of the vision of the company, however with its market position, its small (albeit growing push and need for the enterprise) and its multiple product platform (iPods, computers, phones, music distribution, application distribution etc.) and its massive cash horde the prudent thing to do would be to position this "flier-momentum" company into its next phase of growth on a more even plane.  And that's shifting away from shows, doing product releases and showcases on their own terms and moving along with other potential acquisitions.

All Apple faithful love Jobs for everything he has done for the company and I don't think this is directly related to his health at all, but rather a move to begin to transition the spotlight to others at Apple. The sheer shock from "change" is enough to send Apple lowered, but investors should stay confident for a stronger than expected 2009 and beyond for the stock and the company as a whole.

Disclosure: Author is long AAPL

Electronics a tough sell yet Best Buy stands by forecast

Oh to be a Electronics Retailer during a recession, roughly as sought-after a profession as 'Big 3 personal flight crew', after that first trip to Washington. But Best Buy (BBY) is holding on in the midst of turbulence while its main competitor has all but bowed out. With Circuit City Stores (CCTYQ) trading OTC and trying to stay afloat, BBY would seem to be serving for the match. If only customers would come to the stores and buy that is.

With profits down 77% year over year in the latest quarter it appears on the surface Best Buy is facing some troubles of its own. But the company is being run effectively despite consumer spending reports that are on record as the worst since the early 30s.

So to the numbers: Quarterly profits of $0.13/share ($0.35/share excluding special items) were better than expected. Analysts had the numbers pinned at $0.24/share excluding special items. Revenue also topped expectations at $11.5Billion vs. $11Billion estimated. For retailers the all important same-store-sales metric was watched closely and Best Buy numbers fell about 6% for stores open longer than 1 year. Now in this environment, a 6% drop has to be put in perspective and seen as a slight positive. Overseas sales rose slightly, fueled by growth in mobile phones. So, somewhere, somethings, have people buying. Nonetheless Best Buy is taking a cost cutting approach to share price appreciation, offering buyouts to thousands of employees and slowing store growth in North America and China. Best Buy hopes to cut capital costs by 50% over next year. Certainly ambitious!

For those workers who don't accept the buyouts, there will certainly be job cuts ahead at Best Buy Corporate. The outlook is much brighter for shareholders though, as cost cuts will certainly help profitability in a tough 2009 and the fact that Best Buy kept its lowered profit forecast in tact over the Christmas helped matters as well.

The company expects to meet its range of $2.30-$2.90 (a wide range to be sure for the year through February) and falls in line with analyst estimates of $2.47 for the year. The positives in this report propelled shares higher by $2.50 at the end, and the Fed rate-cut fueled shares to close higher by 18% ($4.21/share). This also notched the BBY P/E ratio to near 9, which is reasonable in most respects but perhaps not in this climate.

Nonetheless, the retailer should trade in a P/E range of high single-low double digits going into 2009, so while today's rise (and its recent climb from $17) makes Best Buy a less attractive on a valuation basis, the competitive landscape clearly leans heavily towards BBY, making it an attractive hold for when America rises from the consumer spending blues.

Those on the fence, it will likely be available for the mid 20s soon, which makes it a steal for the next year and a half.

Disclosure: Author is long BBY

15 December, 2008

Investor eyes to be on Goldman Sachs tomorrow

2008 will be remembered as the year Wall Street ceased to exist! The Investment Banking model essentially died with elaborate, excessive and downright dangerous investments in poor credit. The companies that have survived on their own, Morgan Stanley (MS) and Goldman Sachs (GS) had to change their business structure and take government money. A year to forget for all financial companies.

Write-downs have been aplenty, but somehow Goldman Sachs has been able to keep everything on the profitable level. While profitability has been in substantial decline for the firm lead by Lloyd Blankfein, Goldman was the one investment bank that could claim profits quarter after quarter. This time however, investors expect the party to end.

With Goldman on tap to report its quarterly results tomorrow morning, analysts are giving no chance of profitability by predicting about a $3/share loss. As bad as things were, Goldman was prior still expected to eek out a tiny profit. But with the market's latest downturn, the worsening of the US economy and the lack of business deals in a quarter marked with losses that eek has turned from black to red by those same analysts.

According to MarketWatch, analysts expect a $2.83/share loss for Goldman Sachs, while a similar number is seen from Zacks Investment Research, with an average loss of about $3.30/share expected. Goldman shares have been on a steady decline, but were propped from lows in the $50s to a near term high of about $80. Investors should note that Goldman has surprised before, and can surprise again. The first quarterly loss during the public history of the company seems inevitable via the collective of analysts but the size of the loss will determine Goldman's direction going into 2009. With shares sitting in the mid 60s, a positive (relatively speaking) result may spark shares back to near term highs.

While economists and market analysts expect 2009 to be tumultuous to say the least, the common perception is that the latter half of 2009 will proliferate a US recovery, spurred by President Barack Obama's infrastructure initiatives and a return to typical lending practices for the major banks. Goldman will be primed for a recovery rally with the market, but as it is transformed further into a bank, expectations will be muted for sometime to come.

With that in mind is Goldman a good investment? A resounding yes! The smartest folks on Wall Street work for a company that has seen all but one of its competitors go bankrupt or be bought up by larger financial institutions. MarketWatch analysts have an average target of $135, but $100 may be more reasonable over 2009, based on market recovery, which potentially finds Investors of Goldman netting a 54% gain.

The competitive landscape has surely changed but Goldman was left standing. It had always been the strongest in its field, and after investors digest tomorrow's results a case can be made whether it will continue to be.

Disclosure: Author owns GS

09 December, 2008

Markets pause for breath after 2 day rally

Spurred by low valuations, the prospect of the Auto bailout culmination and President-elect Barack Obama's massive infrastructure plan, stocks finished last week on a high and continued that trend Monday, tacking on about 700 points for the Dow during the 2 day span.

A new wave of profit warnings and profitability downgrades have turned Tuesday into gut-check trader's day with the Dow hovering lower by about 250 points into the close. FedEx (FDX) plunged today after its forecasts took a hit due to current and forward looking economic troubles. FedEX shares were off about 14% after citing "significantly weaker" economics and talking about profit expectations that were lower than Wall Street was anticipating.

National Semiconductor (NSM) predicted a quarterly revenue drop of 30% and Texas Instruments (TXN) followed up by reducing internal quarterly estimates for Revenue and Profit. NSM and TXN were able to shake off the negativity and closed higher by 13% and 4% respectively.

This certainly goes to show that even though recovery is on the radar and the minds of traders, the valuation game will still be played on a day to day basis and stocks, which appear cheap, continue to downgrade their own profitability.

Disclosure: Author holds no position in above mentioned companies

03 December, 2008

Apple's holiday quarter shackled by Good problems, high iPod demand

When Steve Jobs came on Apple's (AAPL) conference call the last go-round it was designed to put analysts and investors at ease. That it did, his presence calmed questioning and glossed over a then shockingly broad and conservative forecast for the holidays: Earnings of between $1.05 and the $1.30s per share of Cupertino fruit.

Introducing the Non-GAAP method for earnings was equally brilliant and needed, as analysts couldn't shake their traditional valuation methods of the company. The curve ball thrown by the iPhone's subscription accounting led to steady devaluation of the company stock, which then was taken brutally by the whirlwind of economic turmoil alongside the market. Bullish Cross (Link) did some of the most notable work recreating Apple's earnings for FY2008 putting "actual" earnings at around $7.50 vs the $5.36 reported in the standard GAAP way. A difference of over $2/share in earnings and about $40/share in price at a P/E of 20.

However, this subscription method which undervalued the company tremendously during the early stages of the Bears, will help propel the company forward in the troublesome economics that exist today. Steve's worker zealots could completely take the holiday months off and still count 1/8th of a year and half of the incredible selling iPhone revenues and earnings. But Apple folk aren't taking any time off and the expanding retail chain will be busier than ever this Christmas. Unfortunately it appears some of the company estimators forgot 2 important facts when placing Christmas build orders.

1) Apple products are hotter than ever and
2) People buy iPods as gifts no matter what

According to some work by long time Apple researcher Shaw Wu, Apple's experiencing wide shortages on iPods of all shapes and sizes. While analyst work can fall into several quality categories, most notably the work done by Gene Munster is always carefully calculated, checking shipping lead times on several web sites just doesn't qualify as ground-breaking research. It does however provide a simple barometer for demand if the sites you're checking happen to be some of the biggest in America (Sites like Amazon.com, Best Buy and Wal-Mart). As an aside, Wu, has been a constant on the Apple analyst providing reports to clients almost constantly.

When these retailers are showing shortages of select colour/storage combinations and long shipping times of other models it does qualify as cause for concern. Did Apple ship pessimistically along the lines of its forecast? Did it simply underestimate strong demand for its ubiquitous music players?

I believe the answer lies somewhere in the middle. Apple is being incredibly prudent in its cost controls these days, and after revealing to the world its new line-up of MacBook and MacBook Pro laptops and their new all-aluminum design process the R&D costs are aplenty. Couple this with the on-going work on the next version of its operating system OS X Snow Leopard, which is expected in early-mid 2009, iPhone/iPod Touch continuous software updates and whatever surprises are in store for MacWorl 2009 in January and some cost prudence is almost a necessity.

The company may have overshot it though in assuming current economic conditions would make the $230-$400 iPod Touch a tough sell. The reality is that the "Funnest iPod Ever" is performing exceptionally well and there are several reasons for it. Apple's online store has plenty of stock and has the Touch as a top seller. The App Store however, is near the top of the list if not at its peak of reasons to get the Touch. The Software marketplace pushed heavily by the iPhone in all adverts is also on and available for all iPod Touch devices, making the device far more than an iPod. As for the other models, iPod Nanos and Shuffles continue to make a great stocking stuffer year after year.

Amazon.com's list of top selling MP3 players is dominated by Apple, currently holding the top 10 spots, and 15 of the top 16. Dominance like this is incredibly hard to achieve, and even harder to maintain, as Apple has now done for the last several years. So with that research in hand, Wu's estimates call for 21Million iPod units to be sold, a little short of last year's record of over 22Million, but nonetheless a very successful holiday given current economics. Given the premise of over 20Million iPods, driven primarily by iPod Nano and iPod Touch devices, the logical thing for analysts to do would be to project a very healthy stream of iPod related revenue and earnings in the quarter.

Analyst conclusions on iPhone sales also represent the type of growth the company saw in the early years of the iPod rise. Last year's 2Million+ unit number is expected to nearly triple through the combination of in-store activations and iPhone specific gift cards. Corresponding AppStore sales will also be ready to incline in step, thus its safe to say the phone division is on solid ground for 2009. If China ever gets works out, the addressable iPhone market could potentially growth by another 600Million users.

So, all that's left for Apple to do is to prove the new Mac portables are as popular as they've started out being and you've got a company that will spend another conference call giving each other "corporate-speak" high fives, trying to step around analyst typical questions on how Apple bucked all these devastating economic head-winds. Year ago earnings of $1.76/share seemed so far away during the conference call and its accompanying guidance. With these latest analyst reports there is plenty of room for the consensus estimate to move higher.

The Vegas Line stands at $1.46 and I expect it to move to the 1.50-1.60 range as Jolly Saint Nick nears.

Disclosure: Author is long AAPL

02 December, 2008

Sears Holdings: Retail Blues equal Stock Greens?

A consumer environment at the apex of, what can only be described as the very definition of fragile doesn't lend itself to positive business results at retailers. Specifically retailers which struggled even before the US went recession-official. Sears Holdings (SHLD) was one of those retailers. And after this morning's quarterly results it still is.

While not suffering the doomsday fate of electronics retail specialty chain Circuit City, the department store giant and its approximate army of 3800 stores reported a loss of $1.16/share ($146Million). Hedge Fund impresario Edward Lampert was known to make magic happen with the cash horde at Sears in years prior, however in today's economic and financial climate it is getting harder to keep ahead of the curve. The company did make some gains in hedge transactions with Sears Canada but it also took a charge with the closing of 14 'under performing' stores.

Excluding all special items the loss ran to $0.90/share, which still almost doubled the analyst predictions of a loss $0.49/share. Revenue was down year over year by 8% ($10.7Billion) and the all important same-store sales metric was down over 10%. Sears did however do some trimming around its bulging edges, chopping almost $600Million in inventory and installing another $500Million share buyback. And yes, those that have followed SHLD's share price descent know all too well about these buyback announcements. They, the buybacks, come practically quarterly as Lampert and co. try to resurrect a failing share price and a company that still sits on over $1Billion in cash.

Forecasting is proving to be an increasingly difficult endeavor for retailers and Sears is no different. Offering the public the unsparing sentiment that previous forecasts are 'no longer relevant'. The economic difficulties just add to the struggles of an already battered Sears retail operation. Going into Christmas and 2009, the analysts covering the company aren't ready to sell a turnaround story just yet. Forecasting earnings of $1.10 on average for next year, Sears sits at a forward P/E ratio in the low 30s. Far too high in this climate, as general merchandise competitors Wal-Mart (WMT) and Target (TGT) have forward P/E ratios in the 15 range. On the lower and higher end of clothing and appliances, J.C. Penny (JCP) and Home Depot (HD) respectively, sport forward multiples of 13.

Why does Sears deserve such a premium? Perhaps the market knows, as it has been able to stay irrational for much longer than anyone anticipates, but today all these Retail Blues have turned into Stock Greens for Sears. SHLD has rebounded with the market to the tune of 13% to price around $36/share in today's trade. Sears can and surely will survive the economic turbulence of North America, but the question for Investors is where can it possibly go?

To put it in perspective, Sears as a retailer, is executing far less successfully that either Wal-Mart or Target, and would have to beat estimates by 100% in the next year to be valued by the market the same way. But Sears is not just a retailer some will say, its also a holding company! Sears as a holding company, doesn't appear to be doing much of anything of late, except of course buying shares of Sears.

This one will continue to under perform its peers in the year to come.

Disclosure: Author holds no position in the above mentioned companies

25 November, 2008

Markets find 3rd day in the green. Thrice a trend?

For Wall Street the last month has been a mixed bag somewhere between bearish disaster and depression era sell-off, so when some optimism floats in Traders are left to revel within themselves whether the terms "turnaround" or "dead-cat bounce" are most appropriate.

On the heels of some optimistic news, which the market has used to bid up stocks, the Dow finished in positive territory for the 3rd day. It began with President-elect Barack Obama naming members of his economic team, initially naming New York Federal Reserve head Timithy Geithner as Treasury Secretary. This followed a weekend of talks that led to the $300Billion-plus Government guarantee of Citigroup (C) assets, sending Citi shares up 60% yesterday, finally culiminating in a subdued, yet rebound worthy, day for the markets as a new Fed stimulus plan hit the news-wires.

The Technology-laden Nasdaq was the only major to finish in the red, down about half a percentage point capping its 2 day rally to 11%, while the Dow and S&P extended their gains to 12% and 14% respectively over the 3 day period. So are traders seeing thrice as a trend and these extended government backed plans as a sign of turnaround hope? That's the question of the hour, and if the "bleeds it leads" media is to be believed it could very well be. To be sure the major media outlets aren't producing nearly as many gloomy headlines as in the past, however the news story is still mixed to say the least.

The Associated Press (Link) reported American consumer spending fell to the worse levels in 28 years during October, which was even worse than expected and initially extimated (3.7% spending decline versus an expected of a 3.1% fall). GDP was also worse than economists expected (0.5% drop in GDP versus an expected 0.3% decline), however initial reports of consumer confidence metrics for November were on the rise after all-time lows in October.

This is a significantly better sign to everyday market participants, compared to the non-stop bearish headlines that flew across magazines and newspaper for most of October and early November. Now can this translate into a December Santaesque Rally? While opportunities are certainly there for gains on over-sold stocks, to say this is a Bullish trend yet remains to be seen.

But with Obama capturing headlines for plans, partners and policies on "recovery", the mindset of the everyday consumer/investor will begin to shift from profoundly bearish to slightly bullish, and that's where the opportunity will lie. Notice how there's no more American Auto Industry on the verge of failure headlines just like that?

21 November, 2008

Markets let down by Washington as Lawmakers delay auto bailout for American Carmakers

For the second time a needed bailout that was, wasn't. Yesterday's market session traded higher by mid-day as Traders were looking for US lawmakers to outline a plan to bail out the American automotive industry. Instead they got grand-standing and lecturing from US senators bent on making automotive executives look foolish in the political spectrum.

A $25Billion package for the big 3 American automakers seems like small peanuts compared to the $700Billion package passed to bail out banks and mortgage lenders, however Ford (F), General Motors (GM) and Chrysler were forced to beg hat-in-hand at the feet of Washington's might.

It doesn't take a rocket scientist to see trends that had been developing in America. Big Trucks and SUVs selling furiously taking up all showroom space, and more importantly development time and dollars within American factories. All the while strong smaller Japanese and European models made their imprint within the buying habits of American consumers.

Then oil spiked higher and credit froze. The big 3 were unable to resell virtually any of their gigantic fleet of leased vehicles, mainly because even Americans were not buying Trucks with gas at $4/gallon. This led to substantial write-downs and quarterly losses, and a situation where the companies were burning through cash so quickly they are unable to sustain themselves any further. To complicate matters more, Union contracts that have been crippling the business slowly for years are now coming to the forefront showcasing just how much money is spent on pensions, insurance and benefits for American Autoworkers. Oh and then of course Americans went into full out Recession mode in October and stopped buying cars at all.

Chevrolet's answer to the problems, the Volt, coming in 2011, could be too little too late. Ford is trying to put "hybrid" on just about every model and seemingly can not find the wisdom to bring some of their more successful small European cars into the American market. All the while Toyota (TM) and Honda (HMC) continue to lead in fuel efficient vehicles while Germany's big 3 dominate mind-share in the luxury segment.

So Detroit went to Washington for help and got smacked around by lawmakers trying to look political as markets around them fell further with every word. The United States Auto Industry is broken, everyone knows it, Senators in a special session will not have uncovered the Lost Ark by saying so. The grand-standing under the guise of "protecting the tax-payer" is all well and good but wouldn't those tax payers be more concerned if their retirement packages, employee stock plans and investment accounts were worth half as much as they were last year?

Did these not people learn anything the first time around when the initial banking bailout failed to pass? Senators and Congress made a lot of speeches about concerned citizens calling worried about their tax dollars going to bailout Wall St. Then the market dropped 700 points in the span of a couple of hours and Joe Q. Public started calling not about his taxes but about his retirement account.

Now Lawmakers have every right to ask Detroit for a turn-around plan before they give them any handouts but this type of thing can not be all or nothing. Authorize an influx of $9Billion to keep the companies and all their workers solvent till the end of the year and then reconvene later to authorize another $16Billion contingent upon seeing evidence of new company direction in the face of a changing industry. And like everything political in America, of course the $25Billion in question had already been set aside for the Auto Industry to use for other means.

But Lawmakers did a lot of shouting and finger pointing but little else thus leading the S&P to an almost 50% decline year-to-date. Amonst the trillions in market losses already sustained by economic and recessionary pressures what's another $25Billion if it will instill some hope to the millions of workers employed by the industry, the markets and the US economy in general.

But then again gas prices fell below $2/gallon so maybe Trucks will sell again. Once this pesky recession subsides that is.

Disclosure: Author holds no position in any aforementioned companies

17 November, 2008

Citigroup brings out a bigger Ax

A shell of its former cash-loaded banking self, Citigroup (C) delivered another blow to its workforce today with the announcement of over 50,000 job cuts. The cuts are all part of an effort to reduce costs by 1/5th at the bank, which has seen its shareholders lose 67% of their value year-to-date.

CEO Vikram Pandit told reports of the plans to reduce company headcount to 300,000 in the "near-term". This latest round of cuts come on the heels of a worsening economic climate and an already slashed workforce by 23,000. The company which has struggled to capitalize itself amidst massive write-downs and losses paid only a $0.16/share dividend at the end of October. For comparison, the company paid $0.54/share in 2007 and $0.32/share earlier this year.

On the bright side for Citi, its situation is not unlike most other major banks over the course of the year. If that can even be considered a bright side. The turbulence in the credit markets and the sub-prime mortgage meltdown has left its fair share of well documented casulties. With Citi shares hovering under the $10 barrier Investors are sending a powerful message that something has to be done and soon or they will completely lose faith in the turn-around story Citigroup wants to champion in the years to come. If these drastic cuts are any indiciation, its that Citigroup is doing as much as it can to shore up its books, remain afloat, and capitalized enough to continue doing business well into the future.

Disclosure: Author owns C

13 November, 2008

Wal-Mart Optimistic on Economy as others slash outlooks

The clout and reputation of Wal-Mart (WMT) precedes it even in the most trying consumer and economic times. Not only is WMT the only component of the Dow to be in positive territory for the year it is one of those American bedrock companies that span the nation and its shopping consciousness.

With Wal-Mart reporting an almost 10% rise in year over year profit for the quarter it is becoming crystal clear that even a tight-wallet shopper needs the inexpensive wares provided by his or hers neighbourhood Sam's mega-store. Now not totally economy-proof, Wal-Mart was forced to make some forecasting concessions itself, however nothing in the drastic realm of Electronics retailer Best-Buy (BBY) from just a day ago.

Wal-Mart for the quarter earned $0.80/share ($0.77/share excluding items) compared to analyst expectations of $0.76/share. In the upcoming quarter Wal-Mart forecasts called for profit from $1.03-$1.07 per share, which came slightly below analysts average estimates of $1.11. However CEO Lee Scott's recorded comments of being "optimistic for the holidays" leads Investors to believe that the company banks on its pricing power and essential shopping wares as a way to flatten out the economic downturn.

Of course it is true that people will still have to buy all sorts of things! The positive for Wal-Mart is that it sells just about everything. As Best-Buy's economic comments put a damper on the future of electronic consumer spending, citing a "seismic" downturn of the consumer, no such epic troubles seem ahead for Wal-Mart stores across the country and abroad. Granted in trying times, shoppers on a whole may stall big-ticket item purchases but Wal-Mart's base of essential needs products and cost-effective middle-wares will likely attract shoppers who scale back from more boutique retailers.

While Wal-Mart may seem like one of those boring stocks, in this type of market boring is productive. A dividend yield of about 2% is sombering as other attractive companies being taken down by the stock market sell-off sit at yields in excess of 5-6%. The fact remains that Wal-Mart has been steady all year and will likely continue to be steady in the year to come.

Call it boring all you want, but in the down-turns its the tortoise that continues on less scathed.

Disclosure: Author is long BBY, holds no position in WMT

10 November, 2008

Stock Gains from China Economic Plan evaporate in Afternoon Trade

In this continuing seemingly unprecedented global crisis the next stimulus injection attempt is being carried out by the Chinese. China announced a $586Billion US stimulus package it will use to try to guide that nation through the perils of today and tomorrow's economic pressures. The package, which was designed to boost business and consumer confidence, and hence bolster the economy was seen as a light for Asian markets.

US stocks began the day climbing about 2% at the open, but those gains were short lived as the realities of the harsh conditions facing many of America's most fundamental and historic firms flew across the news wires.

AIG (AIG), which was the recipient of an already large bailout from the Government, got a revamped agreement that bolstered it's rescue package up to $150Billion. This coming on the reports that AIG's quarter swung from $3Billion in profit last year to a $24Billion loss in the current frame. Not to be outdone by the atrocious market conditions and poor financial performance of its peers the now-infamous mortgage house Fannie Mae (FNM) posted a $29Billion loss for its quarter and reported the need to tap into the Government funding that it had earlier received.

Things are just as rosy for the American Automakers, with Ford (F) struggling operationally, posting a quarterly loss of $3Billion and having its financial future in jeopardy. Economic pressures are keeping buyers away from big ticket items, and Ford's formerly successful fleet of gas-guzzling SUVs and Trucks now sit on lots unable to be sold at today's gasoline prices.

If Ford's troubles were the only problems facing GM (GM), management may be able to crack a smile or two, however General Motors is much worse off from an operational standpoint. The company says it may run out of cash by the end of the year and it just had a Deutsche Bank analyst downgrade the stock and set a price target of $0. The analyst projected a path for GM that ended with little option other than bankruptcy. GM stock fell to its lowest levels in over 60 years after getting trimmed by nearly 30%.

The American consumer is facing tremendous pressure and these type of headlines flying through the business pages just add to the hurt. With unemployment in the US at its highest in 14 years and the election behind the Country a new direction is needed, and needed quickly in order to restore some confidence and needed stability to the markets.

Disclosure: Author holds no position in the above mentioned companies.

04 November, 2008

Stocks Gain Early on Election Day

The moment of truth is here for Americans, as all over the nation blues and reds visit their polling stations to cast their ballot for the next 4 years of policy, control and decision making. While Democratica Senator Barack Obama continues to show a wide lead in National polls (almost 10 percentage points), Republican Senator John McCain is not giving up the fight just yet.

Stocks rallied this morning in anticipation of the election and what is represents as the closure of a long, stressful and attack-filled campaign. The richest political campaign in US history featured a little bit of everything including Senator Obama's half an hour television infomercial. Although the Republicans by all accounts have been badly outspent in this election they continue to move valiantly from city to city in battleground states in hopes of achieving a possible electorate number necessary for another 4 years in office.

Stocks gained ground on results from Mastercard (MA) as the world's second largest credit card company turned in an analyst-besting $2.37/share exclusing items, vs. the $2.25/share estimate. On the top line Revenue was $1.3Billion vs. the estimated $1.27Billion. Although seemingly every company reporting has a murky view of 2009, Investors are getting wise to the game and realizing that the kind of growth previously expected is just not viable in a down-trend given today's economic outlook. Mastercard was no different offering 2009 growth below their previous projections but by keeping expenses flat and under control MA was able to put a positive spin on next year. The stock rose nearly 11% in early trading.

What America needs and what the Stock Market needs is a decisive Presential victory so as to have the ability to set forth and push an agenda of economic and fiscal policy that will see growth return to the biggest market on the world stage. Judging by the National and State-wide polls, the electoral map and the market's advance, I would wager that the market will get its wish.

For investors, that wish needs to translate into a clear vision of recovery.

Disclosure: Author holds no position in MA

28 October, 2008

Tuesday brings in Valuation Hunters, Stocks Rise 10%

The headlines were set to spook once again: "Consumer Confidence at all-time low" (CNN). "Home prices see record plunge" (Reuters). But the bargain and valuation hunters were out and about nonetheless. When Stocks get this cheap the big-time and small-time Investors stand up and take notice.

Aluminum maker Alcoa (AA) fell to its lowest P/E ratio ever-recorded and today observed value-investors jump in cautiously in early-morning trade but emphatically as the day moved forward. Alcoa gained almost 18% on the day as both the Dow and S&P gained a full 10 percentage points.

In other good news, Boeing (BA) Investors took a deep sigh of relief as the company struck a tentative deal with its Machinist workers. A strike that, at the worst possible time, plagued the company for weeks on top of economic-driven market sell-offs. Boeing shares recovered 15% on the day.

Wireless Carriers in North America had a particularly positive rebound trading session. Verizon (VZ), up 15%, jumped for the second straight session and AT&T (T), up 13%, followed closely as Investors are taking heed of Wireless growth prospects despite economic woes. Devices like Apple's (AAPL) iPhone and RIM's (RIM) Blackberry Bold and Storm models are creating value-propositions that customers are willing to engage in. As Apple announced their quarterly results last week, headlined by almost 7Million unit sales of iPhone 3G, Carriers around the world are now beginning to see a customer set willing to spend more on combined Voice and Data plans.

In Canada, Rogers Communications (RCI.B) announced its quarterly results, which of course were headlined by iPhone sales of over 250,000 units. The battered Canadian Wireless company stock rebounded 11% on the day.

Investors, analysts and the media in particular, like to beat the doom and gloom drum on bad days and the euphoric relief drum on good days, but for those observing and waiting on the sidelines it is easy to get caught into the hype. Companies still trade on fundamentals and valuations, and while attractive valuations are observed all over the market these days I'd be much more comfortable seeing sustained positive moves over a number of days, rather than a valuation-based up day that now prices in complete expectations of a further half-point Federal Reserve Interest Rate cut.

This market will need some more positive reinforcement, so until then, as great as it feels to be euphoric about stocks again, the euphoria will have to wait for now.

Disclosure: Author owns AAPL, T, RCI.B, BA

24 October, 2008

Global Market Fears Return Friday, Sell-Off Continues

Corporate Earnings results have trended towards the "not too bad" and "above lowered expectations" columns more times than not this quarter, however the expectations game and fears of a drastic 4th quarter slow down have stocks reeling worldwide. From Europe to Japan, the sentiment this morning was profoundly negative, causing a halt in Dow futures trading as contracts dropped significantly in the early-hours.

At the open, American markets led off with a 500 point drop in the Dow, and while some Traders have bought off the bottom the morning is still holding to about a 400 point decline, roughly 4.5%.

Major corporations have been forced to plan layoffs, amongst other cost-cutting ideas, to not only shore up business capital but to provide Wall Street investors with any-type of strategic plan to try to hold down sellers. More recently it was Yahoo (YHOO) and Goldman Sachs (GS) announcing a round of firings.

As all the headlines surrounding the markets paint the gloomiest of pictures, it should be a time to make the sideline Investor think of potential opportunities. But this is one of the types of attitudes that has not worked recently. The Dow continues its slide and has dropped to 10,000....9,500....9,000.. down to its current levels of 8300. As this credit and financial crisis has expanded, it's become abundantly clear that its effects have been and are worse than anyone in the economic field imagined. The fear of the typical market participant and consumer are at all-time highs. A feeling confirmed by action in metrics such as the Volatility Index.

As the US approaches the Federal Election, perhaps the hope of a change in policy will divert the economic fears enough to showcase a plan of action and a call for change. While Barack Obama continues to lead in most polls, running on a platform of change, John McCain still finds himself within striking distance as the race closes in on Election Day. Americans will determine on November 4th who will lead them away from these economic fears and into a future of change and prosperity.

The resolution of some uncertainty and a Call to Action from a newly elected President could be the catalyst the market needs going into the finale of a rough, tumble and volatile trading year.

20 October, 2008

Tale of Two Cities in Internet Search

As Yahoo (YHOO) prepares another quarter analysts are looking ever more skeptical about the company's turnaround plans. Job cuts and salary cuts are being covered with increased scrutiny around Yahoo by major media outlets signaling the planning stages are well in the works. As the once proud Internet giant continues falling not so gracefully to its current second fiddle role in Internet Search and Advertising, Google's (GOOG) juggernaut keeps growing.

Yahoo has always had success in branded display advertising, which typically is the focus of big, established corporations and in times of economic slow-downs it is those businesses that are likely to soften their budgets. Yahoo's Finance pages have been decimated as trading houses and banks continue to shutter their doors or merge with each other for survival. Google's strength lies in its search advertising which is available not only to the giant corporations, but millions of small enterprises and basement shops around the world. Got a website? Want advertising? Bid on a few keywords and drive traffic, and that's not even mentioning the massive breadth of "Ads by Gooooooooogle", or AdSense in corporate speak.

Yahoo's next generation Panama Ad system hasn't been to glowing success yet that the company had hoped for and as the stock tumbles into the $12 range, how grand does the $31/share offer from Microsoft (MSFT) earlier this year look now?

Granted Yahoo generated almost $7Billion in Revenue in 2007 and had net profits of over $600Million but it still has not found effective ways to turn its huge user base into a profit generating machine. While the rumors of lay-offs, cuts and salary readjustments are making the rounds within the Yahoo mills, it's toughest competitor just finished blowing the doors off of another highly profitable quarter. Google reported earnings (excluding items) of $4.92/share, beating estimates that had earnings pegged in the $4.70s ranges. Income for the period for Google was $1.35Billion ($4.24/share with special items) and executives at the company made certain to claim, several times, during the conference call that those millions of seemingly little ad clicks are considered as "recession-proof" as advertising can be because of the sophisticated performance and accountability metrics that are available as part of Google's AdWords toolbox.

It seems that as Yahoo continues to harp on the economy as the cause of its slowdowns, mostly in the bread and butter display area, the bigger brother at Google finds ways to be more efficient and more effective. Something has to change within the culture and structure of Yahoo to stop the bleeding. Maybe wholesale cuts are the beginning or maybe they are desperate measures in trying times, but if anything is certain Yahoo needs to put focus back on its user base, and it has to draw up interest within that base to use or try out all the tools in the company's arsenal.

Bottom line: The company is not doing an effective job in convincing its huge pool of Mail and Messenger users to search at Yahoo or to use Yahoo Calendars and other services. Luckily for Yahoo, it is not alone in this problem as Microsoft is unable to drum up any significant interest in its Live Search platform either, standing in a distant 3rd place in search queries.

The heralded premium web portal that once was Yahoo needs to show some Internet savvy at a time when individuals all over the country are zipping up their pockets. While analysts estimate earnings of $0.09/share this quarter and $0.53/share for the full year, and the same $0.53/share for next year, Yahoo's growth story is all but over in the eyes of Wall Street. But it doesn't have to be if Yahoo puts its users first and plans for tighter user experience and integration over the next couple of years.

Yang and company need something to pitch to Investors of Yahoo, and growth plans revealed months earlier that are surely for naught now with the latest economic troubles will not stop the bleeding. To convince the traders these days, the company will need a real surprise in results in addition to job cuts across most if not all its divisions. Get back to a core user focus and have a 2 year strategy ready to restore the luster of the once crowned King of the Internet. As a once proud Yahoo shareholder, if only for nostalgia sake, this company needs a turnaround story the Internet public can get behind.

Disclosure: Author owns GOOG, holds no position in YHOO, MSFT

14 October, 2008

Apple eyes Successful Holiday Season with new Mac Notebooks

As per the norm, rumor-mills were ablaze with blurry photos, leaked specs and incredulous claims about Apple's (AAPL) upcoming surprises in the computer space. Just about a month after it refreshed its iPod line for the school and holiday seasons the Mac maker returns to the stage to unveil an entire new line of laptops, with enough bells and whistles and marketing glam to gleam into the eyes of affluent America regardless of those pesky "economic headaches".

Will it be enough to satisfy Investors and bring ever-increasing tight-wallet parents out of the woodwork and into Best Buy (BBY) or Apple retail stores?

The run-down of new products, in short prose will follow, as they'll cleverly be splashed across technology publications all day and likely all week. The important thing however is that Apple is using the rumored "Brick" design process to make cases for the entire laptop line. A process that is able to carve an aluminum case for each laptop out of a block of metal, saving all excess to be reused in the process at later stages, this is in fact not a wasteful process at all. Apple getting high environmental marks for its latest products is also a change for the company over the course of the last couple years. The new laptops also now have glass track-pads without individual buttons. A new feature of today's laptop line is that the glass track-pad acts as a button and introduce more multi-touch capabilities including 4 finger actions. Not to mention the innovation of having its Pro line of laptops driven by not 1 but 2 graphics cards, that can be turned on and off for better battery performance or better hardcore video performance.

But without further delay:
-> MacBook: Original White Model price drop to $999. Apple just barely entering the sub-$1000 market, it may not be enough to convince analysts but the $999 price point is nonetheless an actractive one for the core Apple market demographic and engaging those further beyond it.
-> Aluminum MacBook: In 2 configurations at $1299 and $1599
-> Refreshed MacBook Air: In 2 configurations with spec bumps at $1799 and $2499
-> Aluminum MacBook Pro: Multiple configurations for 15" and 17" models: 15" models in 2 configurations at $1999 and $2499
-> Apple also introduced a new 24" Display for $899

So, now that the current round of rumors may be put to rest, what does the future and the holiday season hold for Apple. By all accounts of the crowd at the notebook event, the reactions to the new laptops was very positive. Will the $999 MacBook continue to be a best-seller or will Apple have to dive deeper into netbook price territory?

It is my belief that Apple's brand has for years developed a premium stigma to it and that the design prowess of the company can not be underestimated. While other computer makers may struggle with economic conditions, putting pressure on margins, Apple's pressure is offset by its current target demographic, which mainly consists of youths with disposable cash and many parents of that youth segment. Apple made big points in its presentation today about its growth in the retail segment of the US and its market share gains across college campuses. This will resonate in the years to come as well as the short term. Of all those feeling the pressure of an economic slowdown the last truly feeling the pinch will be the more affluent and wealthy of which Apple demands a significant amount of technology/gadget attention with its iconic product line of iPods, iPhones and Macs.

That is not to say Apple shares wont feel the pressure, in fact Apple suffered as large a drop as any large tech company over the past month as fear of consumer spending shortages spread throughout markets. With Apple the volatility comes with the secrecy and the cult-like following. But markets, as forward-looking as they are generally aren't wrong for very long.

Apple is expected to reveal quarterly results on October 21st following a quarter mixed in terms of news coverage, events and economic activity. While it is a big back to school season for Apple at this time of year, analysts and Investors are fearful that the economic uncertainty facing the US could have had a significant impact on casual spending. Apple has proven to be recession-proof in the past but the company will have to prove itself again with results, and prove itself yet again with guidance that doesn't scare off the institutional buyers.

Till results are revealed, Analysts, Investors and Fan-Boys have a brand new slate of Apple laptops to go and check out at Apple stores all across the country.

Disclosure: Author owns AAPL.

13 October, 2008

Markets Rebound Monday on Government Plans for Financials

Rebound Day? Or the start of something market-wide? That was the question facing Traders Monday morning following a wild weekend where Finance heads of the G7 met and came together on ambitious plans to cure economic ills around the world.  European governments vowed to guarantee all inter-bank lending and the US Treasury announced its intentions of buying into healthy banks to shore up liquidity and get credit moving throughout the economy.

Coming off the worst week for the stock market in a lifetime, and a Friday which saw the Dow see-saw over 1000 points in a single day brought analysts out of the woodwork uttering "capitulation". The market term is the English equivalent to Gold for Bullish Traders as it signifies the end of the end.  In other words, capitulation days typically lead to a buying rally in the short term.

It seems to have all come together for buyers over the weekend with Europe's unified stance on the banking sector, including Germany, France and Spain coming together to pledge $1.3Trillion to guarantee loans between banks and to purchase stakes in Financial companies. This dramatic effort was seen as necessary to avoid the kind of Financial failure throughout Europe that was seen over the last months in the United States.  The unified commitment in Europe led to further plans coming from the US Treasury leaving Monday morning trading in an almost euphorically positive frame.

By no means is the situation going to correct itself in a day.  The credit situation is hitting businesses of all sizes, causing stagnation in the job market, stagnation in productivity and in-turn sales.  The steps by Governments around the world are the beginning, and as money precipitates through the system it will eventually come out of the system as new loans to businesses and individuals. Credit will loosen, productivity and job growth will turn back to the positive side of the spectrum. The big question is when the little guy sees the results?

Markets, always look forward and the positive signs are aplenty today, with the Dow up nearly 600 points, the Nasdaq up 120 points and the S&P up 60 points by the middle of the trading day.  It'll be important to see whether the Bearish tone of late doesn't overcome the early gains towards the end of the day.  If buying like this can be sustained on high volume Traders will see that as a big positive, signalling that last week's downturn was in fact the result of fear-mongering rather than trading to valuation.

With two and a half months left in the trading year, and plenty of Investors sitting still on the sidelines, is now the time to think about getting back into your favourite stocks on the cheap? Was Friday indeed that day of capitulation? Will the Government plans begin to take form and alleviate the credit problems suffering the nation in the short term? All valid questions that only the next few weeks will tell. However, seeing the signals today, it's clear more Traders are starting to lean towards 'Yes' across the board.

09 October, 2008

IBM doesn't hear of 'Global Economic Slowdown'

The Technology Services and Computing Blue-Chip pre-announced its quarterly earnings Wednesday in an effort to boost confidence in not only its 52-week low stock price but also to provide a window into the upcoming economic effects facing 'Big Technology'. IBM (IBM), or Big Blue as it responds to in business circles offered a reassuring look into its future profitability despite the economic fears that have plagued all industry.

IBM told investors to expect at least $8.75/share in profits for the year, which is in-line with previous forecasts from the company, and a quarterly profit of $2.05/share beat analysts estimates of $2.01. The news had IBM stock up about 5% in the after-hours market, and the company continues to hover with a 3% gain this morning at the open.

While IBM is well represented on the technology side within the Financial Industry, the company hopes its long-term contracts hold up well against the failures in banking. Clearly as banks go belly up so do their IT departments and eventually so would all of their IBM server hardware. IBM is not immune to a global business slowdown but the company appears to be weathering the latest storm rather well. Although Revenue came in below average expectations, those numbers were in the midst of being adjusted downwards for the current economic situation. Nonetheless Revenue climbed 5% year over year to $25.3Billion.

The IBM news will spread some good faith across the technology sector and you can expect the usual suspects to be in line for positive openings, Intel (INTC), Microsoft (MSFT), Oracle (ORCL) etc.

As the S&P struggles to finish in the green just one of these October days so far, it could just be Big Blue that will push markets with a new found confidence into earnings season and allow a sliver of buying to turn into bargain hunting Investing on a large scale. With yesterday's positive afternoon turned into a sea of selling late in the day, Investors will want to wait and see if this holds.

One thing is holding and that's IBM's profitability!

Disclosure: Author holds no position in any mentioned companies

06 October, 2008

Panic Selling Continues Post-Bailout, World Markets Plunge

No Hibernation for these economic bears even after the US Congress passed the $700Billion bailout plan, the second time through.  Fear spread throughout the world markets as Europe had to act in the wake of its own financial problems with big banks.

When the American Senate added a few popular tax incentives to the bailout bill the hope was that 2nd time's a charm for Congress. Indeed it was as the Bill passed and was quickly signed into Law by President George Bush.  However, selling on the News, coupled with additional Economic fears and a weekend of news coverage outlining Europe's banking problems spooked even the most Bullish of traders.

Jim Cramer himself came on this morning telling every day Investors to pull out money they need since the ship is sinking.  Time magazine has a depression photo on its front page and newspapers all over the country are headline their copy with "Disaster". Isn't it kind of an un-written secret that once Main St. starts talking about how bad things are the bottom is in sight? True enough, but we are in the midst of an economic crisis not seen ever in global Financial History.  There's no precedent for a credit crisis like we're seeing now! However, the US plan is a start, and if executed correctly will slowly but surely allow money to flow through to businesses and individuals throughout the US and globally.

That notion and a quick acting Global Financial System, bringing a co-ordinated quarter-half point rate cute is the only solace Investors have for a turnaround in the near term. Investors have to keep their heads down and brace for impact, but should take some faith in that fact that bigger players than myself and yourself have multitudes more capital on the line and at some point soon the great companies we've pooled our dollars together to fund will become or already are too cheap to ignore.

Days in the worldwide market-place like today are incredibly frightening to the everyday investors. When Britain falls 8%, France 9%, Germany 7%, Japan 3%, China 5%,  Canada 5% and so on, and so on, the pressure to throw the hands up and bail is all too great.

Tread slowly and wisely Investors, but be on the look-out for where the money's moving and when it starts to return. It'll happen quicker than you may think today.

30 September, 2008

Apple in the Bargain Bin around $100

Tumultuous turmoil in the marketplace has left Traders and Investors on a selling spree as the US Financial crisis spreads through the credit markets and begins to lurk in the nooks and crannies of Main Street economy. While several incredibly leveraged and debt-ridden names deserve to be under the knife of their own implosion other great companies are just being swept into the sandstorm of negativity. Apple (AAPL) is surely one of those names!

Granted, Apple was and may still be a high P/E stock and as markets contracted of late, Apple's multiples have moved in kind, despite the company's growth outlook. The supplementing downgrades near this latest bottom offer a hope that this is a bargain basement price for this still solid growth company. When analysts start piling up the downgrades like Morgan Stanley and RBC did against Apple yesterday, during the Market's worse point loss, its time to reconsider that this may in fact be a bottom.

Coupled with the White House push to get some sort of Bailout Plan passed through Congress and you've got a recipe for a potentially big turnaround. Let's take a quick look at the Apple "downgrades". The RBC analyst cut his Mac sales estimate from 3.0Million to 2.9Million units, which all things considered is still a stunning sales pace when a year ago the company shipped just over 2.1Million Macs. iPhones sales estimates, well RBC actually rose those from 5Million units to 6Million units in the quarter.

As the 3rd iPhone rollout begins, which in early October should include Russia there is very little, if any, doubt now that Apple will blow past its own goal of selling 10Million iPhones this year. It's also poised to be a 10Million Mac year, which of course will be a record for the company, not to mention the 10+Million iPods shipped every 3 months. With Apple holding an iPod event earlier this month to announce new Nanos and reduced pricing on iPod Touches the company wants to place itself within a comfortable range of consumer spending, even as that spending starts to deteriorate.

While its true a new computer favourite with consumers is the "net-book", the small screened sub $500 machines for the budget-conscious shopper on the go, but even as Apple gets more mainstream with its computer business it is still a premium niche design brand. Tiffany's doesn't suddenly start selling cubics does it? Brand recognition and popularity especially among the youth market is critical to businesses in a consumer downturn and Apple has it. All signs earlier in the quarter have pointed to a record back-to-school shopping season despite economic perils. Not to mention Apple's own claims of margin-cutting new devices coming soon, which likely include either lower priced entry laptops or the ever-rumored Tablet device.

The iPhone is the next big growth phase for Apple, as iPod users upgrade/replace existing iPods with new models or iPhones, the company will continue to see the incremental revenue from not only those device sales, their booming iTunes online music business, but now also from the sharply growing Application download business. The latter of which, providing $30Million in revenue on its first 100Million downloads in the first 2 months of operation.

As Apple's quarter comes to a close, earnings are right around the corner and as always analysts will be looking towards guidance more than anything. This is where Apple's biggest problem may be. Given the current economic climate Apple's typical lowered and comfortable guidance may hurt more now than it would help later. The important thing to remember with Apple's upcoming results is that its future is sound, with 10s of Billions in cash and deferred revenue from iPhone sales the company isn't looking at any debt, has the flexibility to still innovate and negotiate tough economic climates, especially as it captures the press in another "Steve-note" later in October to unveil new lowered price MacBook and MacBook Pro laptops (as the rumors go).

But consider this. After this quarter, cumulative iPhone sales will likely be close to 11Million units, and at $400/device on average (pre-subsidy) that's close to $4.5Billion in revenue of which an 8th will show up on this quarter's books, $550Million. When you consider a year ago Apple had total sales of $6.2Billion for the quarter, the iPhone piece is becoming ever more significant. And when Investors think about the additional $4Billion that will be padding Apple's cash horde in the upcoming quarters it will certainly make them breathe easy even in the most crimped economic spending scenarios.

Apple's cheap, it's a steal, and there are very real catalysts in the next few months (Earnings, Mac Event, Christmas Sales, MacWorld, Christmas earnings). This is a stock that could climb 50-60% from here in the next half-year.

Disclosure: Author is long AAPL

29 September, 2008

US House defeats Bailout Bill. Markets plunge.

The controversial $700Billion bailout plan being pushed into the House today was to be the tipping point for the US economy and financial markets. With optimism swirling on the weekend that agreements had been finally reached on the bill, the one thing left to do was the most important. Vote on it.

The vote they did, the elected House narrowly defeated the bill, sending markets into a selling frenzy by mid-day. As traders learned of the tallying votes against the bill, sellers rushed through the electronic order desks and buyers were heading for the exits. The Dow fell 700 points during the early afternoon while the Nasdaq led all decliners (off about 7% at the bottom of the session).

With politicians on both sides of the spectrum resonating the importance of the bailout package with regards to the fragile nature of the US economy, it is crucial lawmakers do something substantial soon. President George W. Bush urged for the passing of the bill, as did Federal Reserve Chairman Ben Bernanke, but their pleas fell on a deaf House. Democrats did not get the overwhelming show of support they needed and Republicans held firm with their ideas and showed virtually little support even when implored by their President and House leaders. The final tally stood at about 60% of Democratics voting to pass the bill, along with about 30% of Republicans. Pitting the vote at 228 against, 205 for. Ending a tumultuous debating session in Washington that will surely leave politicians scrambling to draft a more "commonly-acceptable" solution soon.

The key is of course, that chances to rescue the financial system in America are few, and with another bank on the bubble, having to sell its banking assets, the focus has shifted from Bailout optimism to, who is next on the chopping block.

JP Morgan Chase (JPM) salvaged Washington Mutual in what became the biggest banking failure in US history, and today Citigroup (C) bought the banking assets of Wachovia (WB). Citigroup has insurance from the FDIC against Wachovia losses if they exceed $42Billion. A truly remarkable number, that will stretch Citi's already thin resources in the coming quarters. The company had to issue another set of preferred shares to the FDIC, as well as slash its own dividend down to $0.16/share.

As the day drew up a close the Dow continued to drift lower falling over 600 points just after 3pm. The Nasdaq continued to be the biggest decliner of over 160 points and the S&P followed suit down 90 points.

25 September, 2008

US looking to President and Nominees to push bailout plan

Dire times call precisely for dire measures, and the proposed US Government bailout of the Financial Crisis is certainly one of those times. A crisis which has been called one of, if not the worst financial implosions in history. President George W. Bush went on Television to reassure Americans and to pledge support of the historic $700Billion plan to rescue the financial system and the markets.

Bush, also planned meetings with candidates Barack Obama and John McCain to detail, not only the urgent need for passing the proposed bill, but also to outline a strategy for moving forward to sustain economic activity. And furthermore to appeal to the American people that such a drastic monetary package is necessary to avoid a long and likely complete economic slowdown, the likes of which not seen in decades. The word collapse has been thrown around far to often in these discussions but it strikes an important chord as the emphasis on the swift approval of a bailout is seen as vital for market recovery.

Treasury Secretary Henry Paulson, a former Goldman Sachs (GS) chief, was the driving force behind the broad outline of the bailout plan and negotiations with lawmakers on Capitol Hill have been ongoing for days now. As these talks languish, in turn so do the buying trigger fingers of the investor community. President Bush speaking to the population is a direct result of the waning attitude towards the bailout package and its needed swift passing.

While the Dow experienced a two day gain of nearly 1000 points following the announcement of the Bailout proposal, the sentiment has been mixed since. The old adage of 'When government gets to talking the whole process stalls' had been floating around, while it may be unfair to pigeonhole that complaint here, it still provides the media a talking point. Something this drastic and this complex needs to be thoroughly discussed and with issues ranging from individual consumer tax protection, executive compensation, and specific borrowing terms there is bound to be differences of opinion in any Congressional discussion on these topics.

Today's news brings with it the optimism that the bailout package is just about complete, and all major details have been worked out. To that end, the Dow and the other majors are seeing Bullish activity. This morning, the Dow averaged stood higher by almost 200 points (1.8%), with equal percentage gains also present in the Nasdaq and S&P.

18 September, 2008

Markets eye huge open as SEC bans Short Selling Financials

Following Thursday afternoon rally, which led the Dow to a 400 point gain, the US SEC stepped in announcing a temporary ban on short selling 799 Financial stocks. A move that had been called for by Investors and members of the industry for the last few days. A move that is certainly seen by Investors as curbing the tide of massive profiteering by manipulators betting with the Financial collapse.

The news, along with the Federal Reserve's talking points about a sweeping plan to fix things in the tumbling financial sector, gave traders a renewed optimism. On this day the bull wins in the morning. The usual finance suspects are making the most waves as buyers are coming back in full force in pre-market trading.

Before the open some of the big names in the sector were looking well up.
Citigroup (C) up 34%
Goldman Sachs (GS) up 32%
Bank Of America (BAC) up 26%
Morgan Stanley (MS) up 49%
JP Morgan Chase (JPM) up 19%
Wachovia (WB) up 65%
Washington Mutual (WM) up 58%

An incredible buying turnaround from where these companies were just a few days ago.

Uncertainty remains within Brokers Morgan & Goldman

Last of a dying breed? Morgan Stanley (MS) & Goldman Sachs (GS) remain Wall Street's 2 independent brokerage houses, and for that fact, their shares are being sold off heavily day in and day out. Despite the fact that both companies beat reduced earnings expectations for the quarter, they are being lumped into the same selling frenzy as their industry com padres due to their heavy reliance on leveraged investments.

Goldman profit fell 70% year-over year but the company still managed to make ends meat. The yearly comparisons are not pretty considering Goldman's record 2007 financial year. $810Million in profit ($1.81/share) vs. $2.81Billion ($6.13/share) last year. Overall revenue was down also from $12.3Billion to $6.04Billion.

Morgan Stanley, which had its own set of difficulties over the year reported profit that fell 3% year over year, $1.43Billion vs $1.47Billion, which translates into $1.32/share this quarter. With net revenue reaching $8Billion, a 1% year over year increase, Morgan showed it can still deliver results, however the pressure on the company to make a deal with a bank is staggering.

The old leverage issue again, as Investors feel the only way to shore up capital and assure broker survival is to pair up with a bank and the giant vault of deposits that go along with it. When Merrill Lynch (MER) made the deal with Bank Of America (BAC), followed by Lehman Brothers (LEH) bankruptcy, both of which followed JP Morgan Chase (JPM) rescue of Bear Stearns the Street was down to 2 stand-alone investment houses.

The rumor-mill has run wild of late regarding Morgan, with reports of conversations with Citigroup (C), Wachovia (WB) and China Investment Corporation, which if done would leave Goldman Sachs as the sole big name brokerage left on Wall Street. Investor publications have held a positive opinion so far on BAC's deal for Merrill, so for Citigroup or Wachovia picking up Morgan Stanley on the cheap would also feel like a win.

However, in the turbulent times that are continuing, with a financial crisis unseen in most Investors lifetimes, the "Let's make a deal" talks are very cautious to say the least. If Morgan does join with a bank, and signs are pointing more likely recently that they will, Goldman will find itself in a unique position, having its main competitors under the corporate shells of some of the largest financial institutions in the country. The optimist finds that this will allow Goldman to thrive as the economy strengthens and underwriting and M&A advisory work become more prevalent, but the pessimist finds a single brokerage model struggling to survive in these economic tidal waves.

As Markets see-saw between down 400 point and up 400 point days, the successful trade is being on the optimist/pessimist part of the see-saw on the correct day. Lately though, the pessimism has run rampant.

Disclosure: Author owns GS, C

15 September, 2008

Finance Fails Again! Dow Drops 500 points

Monday started poorly and ended worse for Markets as the weekend turmoil of Lehman Brothers (LEH) and AIG (AIG) weighed heavily on the financial sector and stocks as a whole. As hope for a bailout of Lehman, or at least heavy asset sales dwindled Sunday, leading suitors heading for the exits, the company had no choice but to file for the bankruptcy protection.

Still standing, but sharing the negative spotlight is AIG, the insurance giant, which said that it may need $40Billion to keep moving forward. A remarkable number, when considering the company is reportedly backing nearly $60Billion ($57.8Billion according to Bloomberg) in sub-prime mortgages. AIG is looking to raise about $20Billion in capital and sell off another $20Billion in assets. New York has allowed the company special permission to access $20Billion in an effort to shore up some liquidty. The mathematics are still working heavily against AIG as shares plunged 60%, cutting half of AIG's market cap. Still not as bad as Lehman though, which lost 95% of its value due to its bankruptcy plans.

As Bank Of America (BAC) and Barclays (BCS) walked away from Lehman bailout talks on the weekend, BAC was busy getting another deal done as it agreed to purchase Merrill Lynch (MER) for about $50Billion, valuing the firm at $29/share. While Merrill jumped at the open the market's selling sentiment dragged it down to $17 from a high of $22.

And the rest of the financial doghouse followed:

Citigroup (C): down 13%
Bank Of America: down 21%
Wachovia (WB): down 25%
Washington Mutual (WM): down 26%
JP Morgan Chase (JPM): down 10%
Goldman Sachs (GS): down 12%
Morgan Stanley (MS): down 13%

The markets have seen down days like this before, albeit not to this extent, and many traders start talking themselves into the so-called bargains, but as former Fed chariman Alan Greenspan put it, and I paraphrase, 'This is the worst economic situation I've ever seen'.

Even the strongest of financials can still go lower from here, but for the ones who can ride it out, show they can stay afloat and show they can stay profitable, bargain basement prices wont be around for that long. That's a big reason why the Street will be looking so closely at Morgan and Goldman earnings.

Disclosure: Author owns C, GS

11 September, 2008

Marvel Entertainment holding up well in Turbulent Markets

It's been a hum-drum year for the Entertainment business as the US economy sputters along, dealing with high oil, housing prices, unemployment and inflation. Even though the big Summer Box Office totals were in line with records set last year, the higher average ticket price was what kept up the pace. There's only so much a Man of Iron and a Dark Knight can do!

One company that has gone against the trend this year has been Marvel Entertainment (MVL). Year-to-date the stock has risen almost 30% on the strength of its first independently financed films. Marvel took a big gamble financing its own movies and so far the endeavor has gone about as well as the company and shareholders could have hoped. The success of the first Iron Man movie, which has now grossed over $570Million at the worldwide box office, has prompted a quick sequel scheduled for 2010, along with a film about another hero, Thor, the same year. Marvel also planned 2 films thus far in 2011, including a Captain America story and a cross-over super hero film about The Avengers, a team which will likely include Iron Man, Thor, Captain America and the star of Marvel's second summer bow The Incredible Hulk.

While Marvel's Hulk didn't capture the same movie-goer enthusiasm as Iron Man, the stigma of the previously panned Hulk film was a tough hurdle to overcome. Nonetheless the film is nearing $250Million at the worldwide box office, and poised to get a 3 version treatment on DVD and Blu-Ray.

While the Christmas season is typically a sales boom for most industry, Marvel is well positioned to capitalize on its fan base, with not only DVD releases of Iron Man and The Incredible Hulk, but also updates to their respective toy lines along with the staple of the company, the comic book publishing and video game licensing business. Marvel has also recently entered into an agreement with Japanese anime studio Madhouse to create a version of the Iron Man story within the anime design guise. This push into International markets, with films and comics, with Marvel at the helm instead of other Licensees, will draw in a much wider fan-base than ever in the company's storied history.

The characters that make up the Marvel Universe are compelling enough to draw interest from Millions around the world, and as Marvel seeks to control more of its own creative domain it also stands to reap the benefits. Marvel's rise over the past year was a direct result of its move into the film business, and with its success established along with 4 other films planned the resulting revenue growth will lead the stock higher in the years to come.

Marvel will become a dramatic growth story and with a P/E of 17 and a forward P/E of 17 based on next year's earnings of $2/share the stock is certainly not overpriced. Not to mention that these estimates do not yet included the guaranteed success of DVD and Blu-Ray sales for Iron Man and to a lesser extent The Incredible Hulk. With it's main comic book rival DC Comics sitting as a subsidy of Time Warner (TWX), Marvel stands as a pure-play stock in the comic-book publishing and film licensing business. Marvel's only a $2.7Billion market cap company right now, which provides it an attractive platform for growth investors in the coming years as the expansion opportunities ahead of it come to fruition.

But what about 2009? Marvel isn't releasing anything itself! What happens then? The company will continue to ride DVD sales in a manner similar to Dreamworks Animation or Pixar during their 1 film per year business models. Oh and of course the company still sells a lot of comic books and related toys, along with licensing its characters to big movie studios for upcoming pictures such as Lions Gate's Punisher and next year's blockbuster Fox's X-Men: Wolverine. As if the whispers of Spider Man Parts 4 and 5 coming down the pipeline in the coming years wasn't enough.

Are you sold yet?

Disclosure: Author owns MVL

10 September, 2008

Lehman Bros losses put it at the edge of Massive Asset sale Cliff (Update)

Less than 24 hours after losing nearly half of its Market Cap, Lehman Brothers (LEH) gave Wall St. another reason to be somber about the future and health of the investing house. The whispers that Lehman was in dire financial straits have been resonating for some time, but as they grew louder so did the negotiations with Korea Development Bank, which eventually halted.

The end of those negotiations was the prologue of Lehman's 40% sell-off on Tuesday, and the announcement of a $3.9Billion quarterly loss is another driving stake into Investors spirits regarding the firm. Write-downs totaled $5.6Billion, causing the massive loss, which was even worse than analysts had expected ($2.2Billion). The company is also trying to shore up capital by auctioning off over half of its asset management group, cutting its dividend and setting up a spin-off of real estate holdings.

While all that looks dire, and Investors are still licking their wounds from the end of talks with KDB, Lehman has bought itself a little time by outlining this strategic plan on the heels of massive losses. Investors are willing right now to give the company a little bit of rope, but the first sign of additional trouble, in the form of further losses, an uneventful auction process or whispers of unattractive sale prices for some of its assets, will see traders and investors alike moving swiftly to other companies and other sectors.

A tough task is facing management these days; as headlines mount clients and employees are more likely to leave, which would make an already unstable liquidity position all that more turbulent. However some deals have already been outlined by Lehman, including a $4Billion formal engagement with BlackRock Inc. to sell UK based residential mortgage holdings and the spin-off of a commercial real estate public company named Real Estate Investments Global in the first quarter of 2009.

Oh and Lehman also slashed the dividend from $0.68 to $0.05, and the market's history with banks cutting their dividends and their correlated market performance over the last year has been well known. But in trying times for the financial industry, drastic measures must be taken to keep liquidity at somewhat reasonable levels.

It wasn't that long ago that with the help of the Fed, Bear Stearns had to be saved, but now it is closer than ever that Lehman stands near that same edge. I think Lehman will be alright as the market rights itself eventually, given it survives the fire sale, but with it being in this sector with these problems it'll still be able to be gotten for cheaper than $8/share.

Update: Sept 11/08 correction to Bear Stearns rescue details.
Disclosure: Author holds no position in LEH

08 September, 2008

Fannie and Freddie plunge as Government takeover confirmed

US Treasury Secretary Henry Paulson announced Sunday that both Fannie Mae (FNM) and Freddie Mac (FRE) were being placed under government-operated conservatorship.  The executive branch was ousted and dividends eliminated.  Not good news for the embattled mortgage dealers whose hands are tied into about half of the nation's $12Trillion in mortgage debt.

The news sent stock soaring this morning, led by the Financial sector, as investors saw this as the "beginning of the end" of mortgage related turmoil in the US. While the banks led the Dow to an over 200 point gain out of the gate, the Tech-heavy Nasdaq lagged behind, by midday being up only a third of a percent.

While banks like Citigroup (C), and Bank Of America (BAC) were enjoying gains of 4 or 5% the same could not be said for Fannie and Freddie. The selling off was swift, and very ruthless with Fannie dropping 83% and Freddie following closely behind down 79% by midday.

While Investors assumed the worst case scenario for F & F, even the US Treasury was unable to put a price tag on the bailouts. Paulson came on television earlier Monday and admitted that the final cost is an unknown and will depend on several factors including the ultimate turnaround of the housing market. At least one estimate by William Poole (St. Louis Federal Reserve Bank President) has the bailout costing about $300Billion, according to Forbes.

A hefty price tag indeed, but certainly not something any Investor of the F & F twins surely will be to happy about.

Disclosure: Author does not own FRE or FNM

05 September, 2008

Markets continue slide as Jobs data weighs

North American markets continued to sell off in the beginning of the end of a week that has seen Politics at the forefront of American minds and Employment at the forefront of Wall Street. Today's news, not surprising in the least, continued the slide. America's unemployment rate rose to 6.1% in August as payrolls were cut yet again by businesses.

That marks the 8th straight month of job losses and a 5 year high rate of unemployment in the United States. August's numbers, and those of the previous months paint a fading picture for American workers. Job losses in August are estimated at 84,000, compared to economist projections of 75,000. Adding fuel to the fire, estimates for June and July were revised up to 100,000 and 60,000 in losses.

While talk of a "deteriorating economy" is flying through economic and investing circles, the emphasis continues to be on the Federal Reserve to keep Interest Rates steady and low for longer than the organization would probably like.

Off, another 100 points before the lunch bell even sounds, the Dow has run up its losses in this shortened Labor Day weekend to about 700 points (about 6% in the red for the week). The other majors were hit even harder with the Nasdaq off almost 200 points (around 8%) and the S&P off 80 points (6%).

While the economy continues to fizzle into the holiday season, businesses will have to do more to lure customers, putting the squeeze on margins. So far the Bears have had their way, and with no clear signs of turnaround Bulls have to pick their spots carefully.

02 September, 2008

Google throws its hat in the Browser & OS ring with shiny Chrome

Joining a "war" is neither a decision taken easily or for that matter lightly, especially one that historically has seen incumbents muscle and push out thriving rivals, (see Microsoft (MSFT) and Netscape) but Google (GOOG) is not just any company, and it hopes that in the future of web computing Chrome wont just be any browser. And with it perhaps change completely the role of the browser from presenting web pages, to managing web applications in the computers of tomorrow.

Lofty ambitions I know, but this is the same company that has plans to index the entire web, present a photographic view of the entire world, create renewable energy cheaper than coal, and house the complete archive of human information since the start of the written age. Google's getting well compensated for the lucrative advertising network it pioneered in Search and with that comes radically thinking about ways to out-innovate, out-maneuver, and out-class anything offered by main competitors.

Google's newly released "Beta" Chrome web browser is another hat in the ring that contains Microsoft's Internet Explorer (70% market share), Mozilla's Firefox (20% share) and Apple's (AAPL) Safari (6% share). However it has the potential to avoid the also-ran results of other browser efforts and truly usher in an age of web-computing. If this sounds like techno-babble, that's because it is, and Chrome is definitely not any sort of catalyst for Google's ailing stock right now.

Unfortunately only blowout quarterly reports can do that for this richly valued company. The company is down significantly from all-time highs and Chrome will not get them back there anytime soon. This is an evolutionary step that just might end up being revolutionary when all is said and down.

Google's cash cow of serving up targeted advertising works now because it can collect information on users, their web habits and their searches. The more people who have Google Accounts and the more searches they do, helps Google tailor all those ads. Throw in the popular Google toolbar collecting user information and viola you've got an incredible breadth of information in which to base ad serving decisions on. However, browsers are evolving, not only from a functionality perspective but from a privacy perspective as well. Microsoft's newest browser will incorporate an InPrivate feature which will not store anything users do on the web if they choose to use it. If Google can't know what you've been doing on the web for the last 6 months those ads could start looking less and less attractive and Google will have to only rely on what users search for, assuming of course they use Google for search. Chrome has a similar feature but getting users on the Google experience is priority number 1 for the company.

While the above is a minor detail for browser technology, it is the main driver of Google profitability. The next driver of profitability, Google hopes, will be Web Applications, and their Google Apps suite which is shaping up with constant improvements to become a true Microsoft Office competitor. The difference of course is that Office you install on your own computer, whereas Google Apps, and the online suite of Productivity software, can be accessed from anywhere and collaborated on in real-time.

Industry people believe the browser will become the Operating System of the future!

Considering Microsoft's Windows is on 90% of computers, it is almost an impossible mountain to climb for someone new to create an Operating System. For Google, and looking into the future of web based applications the most logical step to creating an Operating System would be to create the Web Browser of the future. And in a matter of speaking they did.

Where previous browser were a single application that served up web pages and ran applications within itself, Chrome spawns processes for each web page or web application, and includes a task manager to manage them. If something crashed on one web page, only that web page would fail while others would remain perfectly isolated. Process Task Management, Individual Processes for each web application sounds a lot like an Operating System to me. If Google wants to get serious about challenging Microsoft in the OS and Business Software games in the years to come it needs to control how users will access their web applications. A Web Browser that controls each web application individually, and even each component of each web application individually, is exactly the steps Google has to take.

By creating Chrome they've started this journey, and by making the entire project open-source and given out for free, they can quickly and nimbly adapt suggestions, improvements and changes from the developer community at large. As with a first release there will always be kinks to iron out, however the prognosis looks really good, and with a feature set comparable to the fastest growing browsers, in terms of popularity, Firefox and Safari, Google has the brand power and the clout to make a real dent in this industry. It is hard gaining market share in anything, and in the browser-war it is notoriously difficult so by throwing its hat into thing ring, Google's also throwing caution to the wind and hoping they'll be early enough for the web revolution.

Just don't expect the revolution to happen overnight Traders!

Disclosure: Author owns GOOG