Earnings season continues, Markets head higher Thursday

As the earnings numbers continued to be reported, several bell-weather names were in focus Thursday. The markets shrugged off early selling by turning into "mid-day rally mode" before closing the day with between .6% and 1% gains for the major indices.

North of the border, the selling in commodities and industrials was somewhat offset by a rally in the banking sector but the TSX found itself lower by 3 quarters of a percentage point.

Starbucks (SBUX) was slashed after-hours Wednesday after coming out and lowering full year profit expectations, the company lost over 10% as a weakening US economy is plaguing sales of its gourmet coffees.

Amazon (AMZN) reported another strong quarter, with over 30% earnings growth, but the stock was lower by 4%, as expectations for growth going forward were highly over-valued. The company sits with a 35 Forward P/E for 2009 earnings, at 51 Forward P/E for 2008 and an almost 70 trailing P/E ratio. The company is poised to deliver significant growth still, but Investors needed to for the moment, pause the momentum.

Biggest news of the trading day however, was Ford's (F) shocking profitable quarter. Automotive sales were strong worldwide, and the turnaround plans for the automotive giant seem to be going ahead of schedule. Analysts were expecting another quarterly loss, and as such Ford shares rose almost 12% on the posted $100Million profit.

Disclosure: Author owns SBUX

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

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

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

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

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

Disclosure: Author does not own AMZN

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

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

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

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

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

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

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

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

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

Disclosure: Author currently does not own AMZN

Markets up Wednesday, Dow gains 99 led by General Motors

American Markets enjoyed another positive day with the Dow Jones finishing to the plus side by 99 points. The big push was provided by General Motors (GM) as it enjoyed a 9% gain. GM and the United Auto Workers Union reached a deal to renew auto worker contracts and restructure GM obligations to workers and the union. The threat of a long-term strike was lifted from the shoulders of GM and the stock jumped accordingly.

Also enjoying positive sentiment were the Investment Banks as Bear Stearns (BSC) jumped over 7% on reports that the big man himself, Warren Buffett is eyeing a stake in the company. These reports went on to say that several big banks are also interested in purchasing as much as 20% of the company. This news had investors feeling pretty good about the potential for these companies, specifically the investment banks, to overcome the losses and the mistakes that were made during the sub-prime credit situation.

In technology stocks, momentum for Research In Motion (RIMM) kept going strong as the company continues to defy gravity and bloated P/E valuations. The rule of 80-leads-to-100 was in full effect for the BlackBerry maker as it hit a high of $100.75 before settling to close at $99/share. Apple (AAPL) this morning opened to an all-time high and continued to $155 before drifting down and closing slightly lower just under $153. The recently opened Amazon (AMZN) DRM-Free MP3 store is making its rounds and while there hasn't been much of an effect on Apple's stock yet the consensus has been that this can emerge as a true competitor to iTunes.

With the quarter coming to a close investors will be keen to be placed in the right companies as the earnings season kicks into high gear.

Disclosure: Author is long AAPL

Amazon Rewarded for Earnings Beat, but is the Party Over Now?

Amazon (AMZN) has stepped back into the good books of Wall St. with a run of increasing profitability that's making all those short sellers very nervous and is leading the stock to highs it hasn't seen since the Internet boom. Prior to yesterday's post-market-close earnings results, Amazon held an outrageous P/E in the 140s. Now that's paying for growth! But the company is delivering on this growth promise as it reported $0.19/share vs. the estimate of $0.16/share, and handily topping last year earnings of $0.05/share during the same quarter.

Current year-end estimates, which are bound to be raised by analysts soon enough put earnings just north of $1/share, which at current levels has Amazon sporting a P/E in the 80s when it reports for the December quarter. Do growth prospects continue to justify this valuation or is this a classic example of a tightly held company in a sudden short squeeze after a solid quarter. About 15% of outstanding shares were shorted as of mid June and it seems like that has something to do with today's 25% spike northwards. There has been contention over the last couple of years that the company is spending too much on internal technologies and off-shoot ventures like the UnBox movie downloads and the ever-popular music store in development rumors. A deal with TiVo to stream movie downloads to owners of the popular DVR device in tow and consecutive blowout quarters with ever increasing guidance has certainly silenced the critics.

Back in April when the company blew earnings out of the water it upped guidance to $13.40-14 billion in revenue for the year, and with the latest results lifted guidance to yearly revenue of $13.80-14.30 billion. Notice the pattern here? Everything seems rosy here doesn't it, but as any growth company can attest to, playing the ever increasing expectation game can be like walking a tightrope with a safety net made out of razor wire. Not only would the fall hurt, but the landing would as well.

Amazon's Prime service seems to be a big hit, it allows customers to pay a yearly fee for free shipping, and it is ideas like this that will eventually drive margins higher as Amazon cuts prices to sell more goods. The brick and mortar retailers, especially on electronics have been pushing these high-margin extended service/care warranties for years. Best Buy and Apple, through the ProCare program, love the revenue these services bring their respective companies.

All in all, while a compelling story, I for one think the Amazon boat has sailed for now and needs to dock before I would board. There was a great opportunity here for stock and option players and it should be time to profit take as I can surely see a downward spike coming before another one happens that would continue the climb. The market stays irrational for much longer than people usually think and while there might still be something here, I don't like the odds at these levels with a P/E that can seemingly only come down. If Amazon were to double profitability next year to $2/share you're still looking at a company with a forward P/E right now of almost 50. Now with Analyst estimates, likely to rise for 2008 from $1.30 per share the company has a lot of work to do to justify its price tag.

Disclosure: Author holds no position in AMZN