31 March, 2008

Markets close March with Small Rally

The Dow ended up 46 points during the Monday session putting its March totals at -3.5 points or a whopping -0.03%. A similar story for the Nasdaq as the 18 point positive day put its month returns at +7 points or +0.3%. Not exactly eye opening moves for a month long period that saw some heavy volatility, especially in the Financial and Energy sectors.

Making news in market action today were a couple Drug names as Vytorin, a cholesterol drug from Merck (MRK) and Schering-Plough (SGP), was mixed-up in a high-stakes sales and research scandal. News came out that an investigation into the drug research revealed the companies delayed and withheld information about the drug due to its potential impact on sales. It goes without saying that the research in question was overtly negative towards the drug.

Investors don't like scandals and the resulting publicity and sales hit was taken harshly as Merck was hit by 15% while Schering-Plough fell 24%. The resulting sell-off made some Pharma-Sector money move around with a main beneficiary today being Pfizer (PFE), with its own set of positive news, up 2%.

Disclosure: Author owns PFE

24 March, 2008

Markets continue Rally on Home Sales and Bear bid

US Markets continued their rally today as the market opened after the Easter Weekend.
On a weekend highlighted by an exciting opening 2 rounds of the NCAA College Basketball tournament it was Cinderella in the form of Bear Stearns (BSC) that provided the market's initial spark.

Due to the backlash over its steal of a bid for Bear last weekend, JP Morgan (JPM) agreed to raise its bid from $2/share to $10/share. This made Bear's stock double in value, setting the firm at over $1Billion in valuation. Clearly JP Morgan realize it couldn't get away with its initial valuation as the oncoming Bear shareholder displeasure and potential lawsuits started gaining momentum.

Housing Sales rose in February giving the market further hope that the Fed interest rate action of the past months was indeed creating a bottom in the credit/housing market and that the US economy could turn itself around. This positive outlook propelled stocks even higher leading the Dow up 1.5%, the Nasdaq 3% and the S&P 1.5%.

As the market was led by Technology stocks today, it's important to note a major announcement that wasn't built as such. Google (GOOG), having lost the 700MHz spectrum auction to Verizon obviously had other backdoor plans of its own. All the speculation pointed to Google bidding to lose the spectrum just to see the Open Access guidelines pass, came to a major head today. Google announced that it had sent a letter to the FCC outlining its plans for using the White Space (spectrum between the analog TV channels currently not used) for broadband Internet access. What a score this would be for Google, having the ability to use Android phones on Verizon's expensive 700MHz network due to Open Access policies and then turning around and asking the FCC to look into its own devices that would use the White Space between the spectrum of analog TV channels. It'll be interesting to see how it plays out but Investors were clearly pleased with Google approach sending shares up over 6% to $460/share.

Disclosure: Author owns Google.

20 March, 2008

Markets end week with Rally as March Madness begins

It's that time of year again. College Basketball's best take the court all month long for a chance at a National Basketball Championship. The NCAA March Madness tournament begins this year at the onset of a long weekend for Traders.

With markets closing and options expiring this week, Trading was in flux but positive. Following a rough day for the Dow Wednesday, a rebound rally carried on as Investors poured money back in, sending the major indices higher by over 2%. Money flowed into the Financials once again as they continued to be the most volatile investments of late.

Good luck with your brackets Traders!

18 March, 2008

Investment Banking Earnings start the Rally, Fed rate cut kicks it into Gear

Markets came out to a flying start this morning as Goldman Sachs (GS) and Lehman Brothers (LEH) showed the Street that in fact all is not dead in the world of Investing. Lehman, which was creeping into talk circles of being the next Bear Stearns, showed just how well it can keep itself going with a better than expected quarter.

More of the same came out of Goldman Sachs, which beat estimates again, providing the guiding light for buyers jumping back into the financial sector. The earnings numbers were sharply lower than a year ago at both firms, but both also registered upside surprises on top of beaten down analyst opinions. Lehman earned almost $500Million of $0.81/share vs. the expected $0.72/share. More importantly the company on the conference call downplayed any cash strapped concerns by announcing that Lehman has a strong balance sheet with $30Billion in cash on hand as well as $64Billion in very liquid assets. A very strong foundation that'll keep it afloat, by any measure!

Shareholders and investors rejoiced at the quarter sending depressed Lehman stock up almost 50%. At the other end of Wall Street, Goldman Sachs shares gained 16% to $175, following a better than expected quarter. Goldman earned $1.51Billion, $3.23/share in profit vs. the expected $2.59. Management gave speeches of confidence in the cash position at Goldman and investors were very impressed at the raw numbers and the ease at which GS seems to maneuver around the economic landscape.

The market momentum continued throughout the day and once the news hit the wires that the Federal Reserve cut the Interest Rate in the US by .75% the market seemed poised to go nowhere but higher. The day finished at the peak of the session, and the Dow (420 points, 3.5%), the Nasdaq (90 points, 4.2%) and the S&P (54 points, 4.2%) all recorded substantial gains.

Disclosure: Author owns GS

17 March, 2008

Bear Stearns Fall from Grace

The story that will makes the rounds of the Investment Banking Boardrooms, and business school curricula alike, will be that of the fall of Bear Stearns (BSC). The once proud up and comer on Wall Street is now being scooped up for $2/share by JP Morgan Chase (JPM).

Just to put things in perspective, Bear's all time high was last year's $159/share, giving it a market cap of over $18Billion. The stock closed today down 84%! at $4.80, giving it a market cap of $560Million. JP Morgan's buyout offer values the firm even less at just over $200Million.

A Staggering almost 99% loss in value from highs reached less than a year ago. A dramatic fall indeed! Bear made headlines at the end of last week when it took on more debt to keep itself liquid. JP Morgan and the New York Fed provided financing to the troubled Investment Bank, as the news incensed the Street dropping Bear by almost 40%. News broke of the buyout on the weekend and Bear Investors had no chance to get out prior to open this morning.

The company's heavy write-downs from the mortgage crisis have left it battered, bruised and now forced to take on more debt. All that was left was for JP Morgan to pick up the pieces at a substantial discount. Although not much is clear about the shape of Bear's books, they probably have never looked worse. The $200Million buyout by JP was a clear indication that Bear was more than likely headed to bankruptcy protection and the firm behind the Chase banking brand felt like there are valuable assets worth salvaging.

It'll be interesting to see how it all plays out, as Investors cheered the "buying bargains" strategy of JPM, sending shares up 10% today. I think JP Morgan will be paying for this one for many months to come, not only with the write-downs that are surely to follow Bear's funds from this quarter to the next, but also the string of shareholder lawsuits that will ultimately find their way to Class-Action status.

Disclosure: Author holds no position in BSC, JPM

11 March, 2008

Markets Experience Rebound Rally as Government pledges $200 Billion

Well that good old trusty Government in the United States decided to up the ante in the credit recovery debacle. The US will pump upwards of $200Billion to ease liquidity worries throughout the Financial sector. Is this too late? Maybe, but traders didn't seem to think so as major indices jumped much higher on the news.

The Dow jumped over 400 points, closing up 3.5% while the Nasdaq up 4% and the S&P up 3.7% followed suit. The Financial sector was especially active today as Citigroup (C) up 9%, Bank Of America (BAC) up 7% and Wachovia (WB) up 13%, experienced hefty gains.

Several recent battered technology names also staged recoveries on the day, with one of the most notable being Google (GOOG) up $26 or 6.3% as news surfaced from the European Union blessing its acquisition of DoubleClick. This clearance allows the search giant to finally start to integrate DoubleClick into its own operations and being to expand DoubleClick display advertising technology in an attempt to supplement its market leading position in search based textual advertising.

05 March, 2008

Goldman Sachs Future rewards outweight Current downward pressure

Goldman Sachs (GS), the darling of Wall Street when it comes to Investment Banking, those smart guys who were shorting bad loans when everyone else was hiding from losses, have been feeling economic pressures as much as any other company on the Street. At this point, with the stock in the mid $160s it is a bargain if Investors expand their time lines.

Weakness in the overall economy has brought a wave of selling, cutting the best performing market stocks, contracting P/E ratios and pessimistic earnings outlooks have been the main culprits over the last quarter and Goldman Sachs has been no exception. Although Analysts still hold a high regard for the company, it has been difficult getting any momentum back for the shares. Falling from a high of over $250 to its current values makes for a 40% valuation hit. While that is in line with virtually all of its peers in the financial business Goldman has proven with its track record to just simply be more flexible, better managed, and in fact Smarter than the other Investment Firms.

While earnings expectations have been toned down this year to around $19-$20 and $22-$23 next year, there is no reason for Goldman to be trading in the 7 P/E range. Even though 2008 profitability is expected to be lower than 2007, it still only values Goldman with a FP/E in the 8/9 range. This is a company that had over a Trillion Dollars worth of assets on its balance sheet at the end of 2007. It made almost $12Billion in profit on revenue of $88Billion. Just staggering at the money machine that is this bank, moving in all sorts of Investment directions.

Recent investments into Mexican Highways, Asian Manufacturing and the rumbling of wanting to invest $800Million Euros into Eurotunnel (The connecting tunnel between the UK and France) has broadened Goldman's investment portfolio, all the while management continually signals that through tough times in the US the company will continue to be intelligently short. Not a bad bet to take given current economic headwinds. For these reasons, Goldman is the best player in the Investment Banking game and I think, while sideways trading may keep this good name down for longer than most would like, the opportunity is there to use current weakness to build up or start positions in this name.

The company is known to keep its business close to the vest, which may be a turnoff for some Investors but the company has executed so well in the past, it is hard to argue with this method. Furthermore, their track record demands a certain trust in the company direction. Analysts are similarly dumbfounded as the range of estimates for the current quarter ($2 low, $6 high, $3 average) and the current year ($16 low, $25 high, $19 average) prove exactly this point. The lack of transparency in the Investment business provides a small stumbling block for Institutional money to really drive buying. I think this block can be avoided and once Goldman presents its current quarter numbers on March 18th, Institutions will have another data point, and more importantly another level of trust in just how well Goldman executes on its business objectives.

I expect a good quarter, because as the credit situation has further deteriorated I think Goldman kept being short and curbed its own losses as much as it could. This driven by other fees and a very diversified investment strategy, especially in overseas markets will allow it to handle the US economic storm not only swiftly, but profitably as well.

Disclosure: Author is long GS

04 March, 2008

Small Cap Stock Investing For Beginners

This Article is provided as a primer to Small and Micro-cap Investing by Mike Zhmudikoff, writer and PR advisor for Invest Source Inc.

Most stock investors trade in the small cap stock market with the same chance, but only few of them make really good money in penny stocks. Many of these people, who don't make enough profit don’t possess a high level of small cap market understanding. Before your first steps in micro cap investment, it's vital to understand the great advantage and risk of trading stock of companies with a market capitalization of between $200 million and $2 billion.

The main advantage of small caps trading, is the opportunity to outperform institutional investors. Because mutual funds have restrictions that limit them from buying large portions of any one issuer's outstanding shares, some mutual funds would not be able to give the penny stock a meaningful position in the fund. To overcome these limitations, the fund would usually have to file with the SEC, which means tipping its hand and inflating the previously attractive price. So now it's the time to shed some light onto these terms.

The term "micro-cap stock" applies to companies with low or, so called, "micro" capitalizations, meaning the total value of the company's stock. Typically, penny stock companies have limited assets. They tend to be low priced and trade in quite low volumes.

When we are talking about the penny stocks, we can define them as stocks that have very low value, highly speculative stocks, unlisted on the stock exchange, and with small market capitalization. If a stock has any of these it can be called penny stock.

Although penny stocks do have a very low value, it is very difficult to say how low the value should be for some stock in order to be described directly as penny stock. There are a lot of opinions about the price of the stocks. They're not listed on the stock exchanges, they have a low market cap and, as it was said before, are highly speculative.

Disclosure: Opinions shared in the above article are strictly those of Mike Zhmudikoff of Invest Source Inc., the online directory of top performing micro-cap companies and provider of the latest news and analytics on small-cap investing.

03 March, 2008

Late Session Recovery helps Stocks End Flat

After another lackluster trading session, following Friday's overwhelming bearish day, stocks held up in the afternoon and rallied to finish mainly flat. The Dow Jones finished the day own 7 points while the Nasdaq was down 12.

Technology and Financials were the biggest sectors in the red as Oil surged towards a $104/barrel record. Oil closed at around $102, a couple dollars off of the high. More economic metrics were on tap for today as well, most notably US Manufacturing Activity (48.3 vs 48.1 expected). This indicated a lesser contraction than the market expected but not enough to woo anyone in the Trader's seat that we're through this economic slowing period.

Of note in the world of the WC Power Tech Fund Investment Blog; Tomorrow a post comes from a guest contributor with regards to Small-cap and Micro-cap Investing.