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.