29 September, 2009

Toyota's Attractive Prospects and Global Positioning

The car maker from Japan, the country's largest, suffered a drop in August output, but the pride of Toyota City remains primed to continue its automotive leadership worldwide. Global output from Toyota (TM) fell around 9% year over year, but conditions economically are more stable and the additions of government programs, such as the US Cash for Clunkers and Japan's subsidy program, are helping efficient automakers move more units.

In fact, Toyota has reaped the biggest benefit of the majors from such programs and has raised its 2009 calendar year production run. The rise of 8% means the manufacture of 6.45Million vehicles total for this year. It was widely reported that Toyota owned the largest percentage of new vehicle sales under the Cash for Clunkers program in the United States, with the brand owning 3 of the top 5 new car spots, a testament to the message of Toyota as a fuel-efficient, safe and reliable car maker. Moreover, in Japan, Toyota enjoyed a 9% sales rise in August due to the Japanese subsidy program, that similar to the US, offered nearly $3000 towards the purchase of a fuel-efficient vehicle.

Toyota has rallied from lows in the mid 50s with the market since March and had hit a new high in the mid-high 80s as recently as a month ago, however, with the stock sliding below the $80 mark, down 2% Tuesday, it's time to look at Toyota again as the stable play in the automotive sector and the one with the best chance for production growth in its near future as the global economy recovers in 2010.

Disclosure: Author does not own TM

24 September, 2009

Drop In Jobless Claims Fails To Ignite Market

In what by most is seen as good news the job market showcased another data point in its long march towards stability. Jobless claims fell by about 20,000 to 530,000, which was slightly better than the 550,000 expected by economists and analysts.

Another rather important metric, continuous jobless claims (people making claims for longer than a week) fell by 123,000 to 6.14Million. These data points are giving economists positive signals that the job market is getting better, but cautious optimism aside, it also shows how much further there is to go.

The major benchmarks in the US opened slightly positive on the news but have since turned negative with the Nasdaq leading with a 1% decline.

In other news, some technology companies might to ready to appear more attractive to investors as what some call the "Apple rule" has been reversed. The required method of subscription accounting when dealing with hardware and software sales, most notably put into practice by Apple (AAPL) with its iPhone, will no longer be so as part of Generally Accepted Accounting Principles. This change allows Apple to record Revenue and Profit from iPhone sales in real-time as opposed to being force to account for each unit sold over a 2 year period. Amazon (AMZN) uses the same method of accounting for its Kindle e-book reading device and Palm (PALM) had adopted the method for its flagship Pre smartphone.

Why Apple is most noted for this change is relatively simple, it moves a staggering amount of iPhone units, at high margins, fueling renewed growth rates. Under the new standards, Apple is expected to report profitability that is 35-40% higher than it is currently allowed to. Fundamentally, there should be no change to the value of the company, simply a change in the accounting books, but for many P/E based traders and quantitative computer P/E based models, Apple will appear more attractive under these ratios. Amazon, Palm and other companies dealing with this change will not have their metrics altered nearly as much as Apple is expected to.

Disclosure: Author owns AAPL

17 September, 2009

Technology leading market's rally, a pause ahead?

The 52 week high list looks like a who's who of dynamic companies, with the list being dominated by some of the best and brightest in Technology. The Nasdaq has outperformed its peers on a year to date basis and as several analysts predicted, it is the tech sector that is leading the rally.

The Nasdaq's Year to Date performance gains of 34% dwarfs the gains put up by the S&P (18%) and the Dow Jones (11%). Even looking at the gains since the lows of March, the Nasdaq and technology is still the driving story for the market. Nasdaq at 68% leads the gains of the S&P at 60% and the Dow Jones at 51%. Either way, the bull market rally since March, on the back of the idea of recovery, and finally improving GDP numbers has been broad and long. The Bulls have been on a 6 month celebratory train, but will it last and is Tech's run over?

Not quite, the road to recovery, while already swift due to massive government intervention, still has to play its course and incite a recovery in the job market. Unemployment in America is still rising, though not as quickly, towards the psychological 10% mark. If job creation instead of job losses show up in the remaining quarter of the year, market bulls will have more reason to bang their chests, and more importantly, put their wallet where their mouth is.

Secondly, the housing sector still needs to improve. Articles on the Huffington Post and other sources, are already touting that banks are going back to packaging risky loans, and many analysts are waiting for the other shoe to drop when it comes to commercial real estate. While some may scoff at the success rate of the White House loan modification program, the last estimates put the percentage of home owners helped with refinancing at 13-15%, the fact is there are some getting help. Housing starts were lower than expected most recently but this has been a metric that has consistently come in higher than expectations.

Now, about those 52 week high names. Well technology giants Apple (AAPL) and Google (GOOG) dominate the list, while other techs such as Ebay (EBAY) show up, and even others such as IBM (IBM) and INTC (INTC) are just off those levels.

The prudent thing for the market to do and investors to do would be to take a breather after such a scorching rally of late, however, as market participants are keen to know, markets stay irrational for longer than expected.

Disclosure: Author owns AAPL, GOOG

11 September, 2009

In Remembrance of 8 years to the date. 9/11

On the Anniversary of one of the most infamous dates in history we all should take a moment and reflect on just how much was lost for so many on Sept 11, 2001.

8 years have since passed, may the victims of the tragedy be remembered forever.

Can Motorola follow the Palm path?

In a bit of Deja Vu, the conscious feeling not the forgettable Denzel suspense film, Motorola (MOT) is attempting to pick its phone company off of the balance sheet floor with an attractive new handset. Investors have just seen this same story with PDA legend Palm (PALM), as it used hype from its Pre handset unveiled in January of this year to move the stock from $4 to $14 and save a business that was clearly heading in the wrong direction.

The battle in the smart phone marketplace is very heated, with entrenched competitors Apple (AAPL) and Research In Motion (RIMM) slowly gaining market share but gathering much of the mind share, and more importantly most of the profit margins. Recent stats show those two juggernauts grabbing just 3% of the overall cellphone market but an astounding 35% of all industry profits. And for good reason, the companies sell very expensive but heavily subsidized attractive smart phones.

Motorola, which has been in dire financial shape quarter after quarter for what can only be described as forever, hasn't had a hit in the cell phone space since its popular RAZR handset, and is desperately trying to compete in the profitable smart phone segment. By gutting through a lot of the company, and doing away with historically bad Motorola interfaces the company turned to Google's (GOOG) upstart Android platform for its resurgence.

Android, by all accounts is gaining significant traction since the first HTC handset launched nearly a near ago. The platform has been featured in 3 additional phones headed in the US thus far and rumors peg the number of Android handsets at 20 into 2010. This contrasts with the handful of RIM models available and the 2 current selling versions of Apple's iPhone. Motorola is betting with a lot of the industry that the free Android platform can eventually be as compelling and competitive in an industry feeling the need for consolidation in what is becoming an age of mobile applications. If your phone doesn't have applications available its simply not as good, and the beauty of Android, as far at Moto is concerned, is that it doesn't need to worry about pumping resources to create an application hub. The reach of Google is already doing just that, granted it is nowhere near the size of Apple's AppStore, but Android does boast the 2nd biggest mobile application catalogue. Nothing to scoff at.

Enter the Motorola Cliq, the world's first social phone, as the company claims. The phone is built on Android, but Moto's designers have layered an interface that directly ties in a user's Facebook, MySpace and Twitter contacts and status information. The social aspects of the phone are sure to resonate with a younger smart phone buying public and Motorola has shown it can indeed build something of higher quality. Will the phone be able to compete in the space? Sure, but will it gain any significant market share? At least one analyst seems to think so, as a note was published putting 4th quarter Cliq sales at about 750,000 or an estimated 5% of Moto cell sales. 5% may not seem that significant, but with a hefty subsidy, Motorola could start to see some real revenue from its new headlining handset. And after all, Moto essentially bet the company on Android less than a year ago, so we're guaranteed to see several handsets leveraging the new interface.

While specs are impressive, price will be a key differentiator for consumers. In the age of the $99 iPhone 3G and the higher capacity $199 iPhone 3GS, it is sheer lunacy for other players to think they can charge more and gain any sort of traction with consumers. Thus far though, Investors are jumping in and believing in the robot that will eventually have come to save Motorola from the brink. Shares are up 7% today and gained more than 10% since the device was officially announced. Here we go again?

Disclosure: Author owns AAPL, GOOG

08 September, 2009

As more go back to school, less are out of work

The Labour Day weekend in North America was met with a Friday stock rally based on encouraging employment figures that saw 216,000 jobs lost in the month of August. Although 216,000 is still a significant number out of work this trend of a decline in job slashing, a figure that was upwards of 700,000/month at the peak of the recession, led investors into confident buying to start the long weekend. Furthermore, Canada's job picture actually showed job growth in the tens of thousands signalling a shift out of the recession and leading the TSX Composite Index to new highs for the year.

Tuesday's morning action continued the trend, as market's saw green in the early going, this time fueled by commodities, especially gold, with prices around $1000/ounce. Major market benchmarks were all higher between .5 and 1% with the S&P leading the way.

America's battle for Health Care is taking a more dramatic turn this week as President Barack Obama issued a strong pro health care reform speech to the labor force and is set to speak again to Congress on Wednesday as the health debate enters its final stretches.

Kraft Foods (KFT) is taking a bit of a beating today as it issued, and was quickly rejected in a $16Billion bid for Cadbury (CBY). It's clear investors want more out of a takeover bid, with analysts already speculating the Chocolate maker could fetch near $21Billion if another suitor was found to compete. Shares of CBY are up nearly 40% giving a market cap well over $17Billion, so it seems traders are sharing the investor sentiment for now. Shares of Kraft slid 5% on the news.

Also on tap tomorrow is an annual iPod-related event from Apple (AAPL) as it brings the media over to showcase new iPods and possibly a new version of its iTunes software. Rumors have been rampant as usual for an Apple event, and although the fabled tablet computer is unlikely to appear, new iPod Touch and iPod Nanos are expected to the sporting cameras for easy on the go pictures and videos. Shares of Apple are up almost 1.5% today but are expected to fall following the event unless Apple can surprise with a new announcement of some kind.

Disclosure: Author owns AAPL