Tuesday, March 16, 2004
Tuesday Watch
Earnings Announcements
Company/Estimate
FDS/.41
GIS/.66
KBH/1.59
LEH/1.67
LEN/.83
Splits
ATVI 3-for2
BRL 3-for-2
CEC 3-for-2
GWR 3-for-2
Economic Data
Housing Starts for February estimated at 1930K vs. 1903K in January.
Building Permits for February estimated at 1900K vs. 1899K in January.
FOMC expected to leave rates unchanged.
Recommendations
Goldman Sachs says ITW seeing broad-based improvement, raises estimates. GS raised estimates on MMM. Goldman reiterates Outperform on BAX and $40 target.
Late-Night News
Ericsson says Nokia's new walkie-talkie handset won't work with other suppliers' network software and it may take years to fix, the Wall Street Journal reported. Merrill Lynch was hired to manage China Power's IPO.
Late-Night Trading
Asian markets are mostly lower, ranging from -1.0% to +.20%.
S&P 500 indicated +.11%.
NASDAQ indicated -.04%.
BOTTOM LINE: Not much in the way of late-night news. I will look for more concrete signs of a short-term bottom as we are approaching very oversold levels. The Portfolio is currently 25% net long.
Company/Estimate
FDS/.41
GIS/.66
KBH/1.59
LEH/1.67
LEN/.83
Splits
ATVI 3-for2
BRL 3-for-2
CEC 3-for-2
GWR 3-for-2
Economic Data
Housing Starts for February estimated at 1930K vs. 1903K in January.
Building Permits for February estimated at 1900K vs. 1899K in January.
FOMC expected to leave rates unchanged.
Recommendations
Goldman Sachs says ITW seeing broad-based improvement, raises estimates. GS raised estimates on MMM. Goldman reiterates Outperform on BAX and $40 target.
Late-Night News
Ericsson says Nokia's new walkie-talkie handset won't work with other suppliers' network software and it may take years to fix, the Wall Street Journal reported. Merrill Lynch was hired to manage China Power's IPO.
Late-Night Trading
Asian markets are mostly lower, ranging from -1.0% to +.20%.
S&P 500 indicated +.11%.
NASDAQ indicated -.04%.
BOTTOM LINE: Not much in the way of late-night news. I will look for more concrete signs of a short-term bottom as we are approaching very oversold levels. The Portfolio is currently 25% net long.
Monday, March 15, 2004
Monday Close
S&P 500 1,104.49 -1.43%
NASDAQ 1,939.20 -2.29%
Leading Sectors
Oil Service +.82%
HMO's +.35%
Homebuilders -.05%
Lagging Sectors
Iron/Steel -3.22%
Networking -3.41%
Airlines -7.05%
Other
Crude Oil 37.46 +.05%
Natural Gas 5.72 +.09%
Gold 400.50 +.23%
Base Metals 109.20 +.56%
U.S. Dollar 88.77 -.39%
10-Yr. Long-Bond Yield 3.76% -.40%
VIX 21.13 +15.46%
Put/Call 1.02 -.97%
NYSE Arms 2.78 +595.0%
After-hours Movers
JILL +8.8% after boosting 1Q guidance significantly.
MXT +8.9% after reporting better-than-expected 4Q.
PFCB -8.2% after announcing that it was restating 01,02 and 03 earnings.
SAFC Halted after announcing that its Talbot Financial life insurance division would be acquired for $1.35B.
MGM +12.79% on announcing that it is considering a one-time dividend of as much as $9 a share.
Recommendations
Friedman Billings analyst said he likes BR, KMG on CNBC. CNBC had analysts on that were positive on security stocks, favorites are DRXR, VRNT, MAGS, IDNX and OSIS.
After-hours News
U.S. stocks closed at their lows for the day as major indices broke through their recent lows set last week. Rising energy prices and terrorism fears provided the catalyst for the sell-off. The S&P 500 is now down 4.6% from its recent high. The index has not declined more than 5% in over a year, the longest such stretch in 8 years. Crude oil jumped to a one-year high as oil ministers from Venezuela and Qatar said OPEC will proceed with a production cut in April. Bank of America and FleetBoston reached a record $675M settlement with the SEC and Eliot Spitzer over illegal mutual fund trading. The U.S. Dept. of Agriculture will increase the number of cattle it tests for mad cow disease by up to 12-fold to help restore confidence in the safety of the beef supply, Bloomberg reported. 3M(MMM) raised 1Q guidance after the close citing strength in its core industrial businesses.
BOTTOM LINE: The Portfolio was down today as my market exposure was too high. I incorrectly anticipated a follow-through to the rally on Fri. Instead, the major indices made new short-term lows, thus forcing me to exit some recent longs and bring the Portfolio's market exposure back down to 25% net long. Volume was light again today, with indicators of fear continuing to rise. Signs of a bottom are starting to surface, however I am not ready to get aggressive. A short-term bounce is likely at any time, but a few more weeks of corrective action will likely follow.
NASDAQ 1,939.20 -2.29%
Leading Sectors
Oil Service +.82%
HMO's +.35%
Homebuilders -.05%
Lagging Sectors
Iron/Steel -3.22%
Networking -3.41%
Airlines -7.05%
Other
Crude Oil 37.46 +.05%
Natural Gas 5.72 +.09%
Gold 400.50 +.23%
Base Metals 109.20 +.56%
U.S. Dollar 88.77 -.39%
10-Yr. Long-Bond Yield 3.76% -.40%
VIX 21.13 +15.46%
Put/Call 1.02 -.97%
NYSE Arms 2.78 +595.0%
After-hours Movers
JILL +8.8% after boosting 1Q guidance significantly.
MXT +8.9% after reporting better-than-expected 4Q.
PFCB -8.2% after announcing that it was restating 01,02 and 03 earnings.
SAFC Halted after announcing that its Talbot Financial life insurance division would be acquired for $1.35B.
MGM +12.79% on announcing that it is considering a one-time dividend of as much as $9 a share.
Recommendations
Friedman Billings analyst said he likes BR, KMG on CNBC. CNBC had analysts on that were positive on security stocks, favorites are DRXR, VRNT, MAGS, IDNX and OSIS.
After-hours News
U.S. stocks closed at their lows for the day as major indices broke through their recent lows set last week. Rising energy prices and terrorism fears provided the catalyst for the sell-off. The S&P 500 is now down 4.6% from its recent high. The index has not declined more than 5% in over a year, the longest such stretch in 8 years. Crude oil jumped to a one-year high as oil ministers from Venezuela and Qatar said OPEC will proceed with a production cut in April. Bank of America and FleetBoston reached a record $675M settlement with the SEC and Eliot Spitzer over illegal mutual fund trading. The U.S. Dept. of Agriculture will increase the number of cattle it tests for mad cow disease by up to 12-fold to help restore confidence in the safety of the beef supply, Bloomberg reported. 3M(MMM) raised 1Q guidance after the close citing strength in its core industrial businesses.
BOTTOM LINE: The Portfolio was down today as my market exposure was too high. I incorrectly anticipated a follow-through to the rally on Fri. Instead, the major indices made new short-term lows, thus forcing me to exit some recent longs and bring the Portfolio's market exposure back down to 25% net long. Volume was light again today, with indicators of fear continuing to rise. Signs of a bottom are starting to surface, however I am not ready to get aggressive. A short-term bounce is likely at any time, but a few more weeks of corrective action will likely follow.
Mid-day Update
S&P 500 1,106.67 -1.24%
NASDAQ 1,949.22 -1.79%
Leading Sectors
Oil Service +1.05%
HMO's +.49%
Energy +.25%
Lagging Sectors
Biotech -2.56%
Networking -2.60%
Airlines -6.43%
Other
Crude Oil 36.94 +2.07%
Natural Gas 5.68 +1.50%
Gold 399.00 +.86%
Base Metals 109.55 +.88%
U.S. Dollar 88.96 -.19%
10-Yr. Long-Bond Yield 3.75% -.70%
VIX 20.44 +11.69%
Put/Call .94 -8.74%
NYSE Arms 2.23 +457.50%
Market Movers
INVN +19.7% after takeover by GE.
PDLI +8.08% after saying its phase II trial for its daclizumab treatment for asthma was effective in tests on humans.
DAL -14.8% after it warned 1Q losses will be larger-than-expected on high fuel costs and terrorism concerns.
KDE -11.26% after disappointing 4Q results.
NTES -8.7% after saying it received SEC "Wells Notice" for restatement that occurred 2 1/2 years ago under previous management.
NT -14.0% after putting CFO and controller on paid leave.
Economic Data
Empire Manufacturing came in at 25.33 in March vs. expectations of 38.0.
Industrial Production for Feb. rose .7% vs. expectations of a .4% rise.
Capacity Utilization for Feb. was 76.6% vs. expectations of 76.4%.
Recommendations
Goldman Sachs is reiterating its Outperform on PAYX ahead of Thur. report. GS raising ALK to Outperform. GS says concern over an inventory build in notebooks and seasonally mixed PC data points from Taiwan are fully priced into semi stocks. They reiterate Outperform rating on ATYT and INTC. GS remains bullish on tower stocks, favorites are AMT and CCI. GS reiterating Underperform on EDS. GS reiterating Outperform on KMT. GS says HRB continues to lose market share. GS reiterating Underperform on BMY. GS reiterating Outperform on KRB. Goldman says to Overweight select Financial sub-sectors, focus on IT for alpha, consider indexing consumer staples, healthcare offers the best combination of growth and value and energy is their highest ranked sector for EPS revisions. Bank of America upgrading MNST to Buy. Citi Smith Barney is reiterating Buy on GE. GR and UTX raised to Buy at Deutsche Bank. APOL raised to Sector Outperform at CIBC. MRK raised to Outperform at Thomas Weisel. ATYT raised to Buy at Bear Stearns.
Mid-day News
U.S. stocks are down mid-day on terrorism concerns and rising energy prices. GE agreed to buy bomb-detection company InVision Technologies for $900M in cash. Hotel chains are investing more money in their own web sites and guaranteeing that clients will find the same room prices on their sites as elsewhere, the NY Times reported. GlaxoSmithKline will run commercials on U.S. primetime t.v. that promote the difficult work of its scientists to seek to ease public anger at drugmakers, the Philadelphia Inquirer reported. Nortel(NT) put its CFO and controller on paid leave, pending completion of an accounting review. Crude Oil rose after oil ministers from Venezuela and Qatar said that OPEC will proceed with a production cut in April, Bloomberg reported. Martha Stewart resigned from Martha Stewart Living Omnimedia's board and from her role as Chief Creative Officer, Bloomberg reported. U.S. industrial production rose a larger-than-forecast .7% in February as companies made more cars, electronics and business equipment. This strong showing followed a .8% rise in January, resulting in the strongest 2 month performance since 1999.
BOTTOM LINE: The Portfolio, with 75% net long exposure, is down as the markets hover near their lows for the day. I am selectively adding a few long positions here as I think the selling is overdone short-term, however if today's lows do not hold I will sell longs and lower market exposure to 25%. The markets are testing the levels hit a couple of days ago. If they can hold these levels, a short-term rally will likely ensue. However, if the markets break through those lows convincingly, further weakness is likely in the short-term.
NASDAQ 1,949.22 -1.79%
Leading Sectors
Oil Service +1.05%
HMO's +.49%
Energy +.25%
Lagging Sectors
Biotech -2.56%
Networking -2.60%
Airlines -6.43%
Other
Crude Oil 36.94 +2.07%
Natural Gas 5.68 +1.50%
Gold 399.00 +.86%
Base Metals 109.55 +.88%
U.S. Dollar 88.96 -.19%
10-Yr. Long-Bond Yield 3.75% -.70%
VIX 20.44 +11.69%
Put/Call .94 -8.74%
NYSE Arms 2.23 +457.50%
Market Movers
INVN +19.7% after takeover by GE.
PDLI +8.08% after saying its phase II trial for its daclizumab treatment for asthma was effective in tests on humans.
DAL -14.8% after it warned 1Q losses will be larger-than-expected on high fuel costs and terrorism concerns.
KDE -11.26% after disappointing 4Q results.
NTES -8.7% after saying it received SEC "Wells Notice" for restatement that occurred 2 1/2 years ago under previous management.
NT -14.0% after putting CFO and controller on paid leave.
Economic Data
Empire Manufacturing came in at 25.33 in March vs. expectations of 38.0.
Industrial Production for Feb. rose .7% vs. expectations of a .4% rise.
Capacity Utilization for Feb. was 76.6% vs. expectations of 76.4%.
Recommendations
Goldman Sachs is reiterating its Outperform on PAYX ahead of Thur. report. GS raising ALK to Outperform. GS says concern over an inventory build in notebooks and seasonally mixed PC data points from Taiwan are fully priced into semi stocks. They reiterate Outperform rating on ATYT and INTC. GS remains bullish on tower stocks, favorites are AMT and CCI. GS reiterating Underperform on EDS. GS reiterating Outperform on KMT. GS says HRB continues to lose market share. GS reiterating Underperform on BMY. GS reiterating Outperform on KRB. Goldman says to Overweight select Financial sub-sectors, focus on IT for alpha, consider indexing consumer staples, healthcare offers the best combination of growth and value and energy is their highest ranked sector for EPS revisions. Bank of America upgrading MNST to Buy. Citi Smith Barney is reiterating Buy on GE. GR and UTX raised to Buy at Deutsche Bank. APOL raised to Sector Outperform at CIBC. MRK raised to Outperform at Thomas Weisel. ATYT raised to Buy at Bear Stearns.
Mid-day News
U.S. stocks are down mid-day on terrorism concerns and rising energy prices. GE agreed to buy bomb-detection company InVision Technologies for $900M in cash. Hotel chains are investing more money in their own web sites and guaranteeing that clients will find the same room prices on their sites as elsewhere, the NY Times reported. GlaxoSmithKline will run commercials on U.S. primetime t.v. that promote the difficult work of its scientists to seek to ease public anger at drugmakers, the Philadelphia Inquirer reported. Nortel(NT) put its CFO and controller on paid leave, pending completion of an accounting review. Crude Oil rose after oil ministers from Venezuela and Qatar said that OPEC will proceed with a production cut in April, Bloomberg reported. Martha Stewart resigned from Martha Stewart Living Omnimedia's board and from her role as Chief Creative Officer, Bloomberg reported. U.S. industrial production rose a larger-than-forecast .7% in February as companies made more cars, electronics and business equipment. This strong showing followed a .8% rise in January, resulting in the strongest 2 month performance since 1999.
BOTTOM LINE: The Portfolio, with 75% net long exposure, is down as the markets hover near their lows for the day. I am selectively adding a few long positions here as I think the selling is overdone short-term, however if today's lows do not hold I will sell longs and lower market exposure to 25%. The markets are testing the levels hit a couple of days ago. If they can hold these levels, a short-term rally will likely ensue. However, if the markets break through those lows convincingly, further weakness is likely in the short-term.
Monday Watch
Earnings Announcements
Company/Estimates
CHP/.16
CTAS/.39
DG/.34
IMCL/-.32
L/.05
THC/.02
VXGN/-.15
Splits
CTX 2-for-1
Economic Data
Empire Manufacturing estimated at 38.0 for March vs. 42.05 in February.
Industrial Production for February estimated up .4% vs. up .8% in January.
Capacity Utilization for February estimated at 76.4% vs. 76.2% in January.
Weekend Recommendations
Louis Rukeyser's Wall Street had featured guests that were positive on MRX, WPI, ZBRA, FISV, HDI, CECO, EOG, SHW, AXP and AIG, while they had negative comments on cyclicals and bonds. Forbes on Fox had guests that were positive on OPSW, JBLU, PFE, AZN, MRK and JNJ. Bulls and Bears had guests that were positive on JNJ, EBAY, SYMC, PFE, mixed on C and negative on SMH. Cashin' In had guests that were positive on XOM, BP, UPL, WM and mixed on MSO and MCD. Goldman Sachs reiterated Outperform on POL and $8 target. GS reiterated Outperform on A and WFC. GS raised EBAY 1Q earnings and revenue estimates and reiterated Outperform. Fortune has a positive article on homebuilders. Barron's has positive articles on C, CUB and a negative article on MAMA. GE's new interest in solar power has many becoming bullish on the solar sector, NY Times reported. Changes in the S&P indices will cause selling pressure in WMT and buying pressure in XOM and GE, the San Francisco Chronicle reported.
Weekend News
Qualcomm customers are complaining about long lead times and partial shipments. OPEC looks set to apply the oil production cut, there's talk of a new higher price band, reported Channelnews Asia. The Economist.com has a very good article that I highly recommend reading. The impeachment of South Korean President Roh Moo Hyun may impact Japanese exports and negotiations toward a free trade agreement between Japan and South Korea, Bloomberg reported. U.S. companies are scrounging for scrap metal as surging demand from China is keeping U.S. metal supplies tight, and dealers busy, the New York Times reported. Chinese Premier Wen Jiabao said economic imbalances such as transport bottlenecks energy shortages and rising consumer prices present as big a challenge to the government as SARS did last year, Bloomberg reported. NYC agencies are increasing their use of technology, including satellite-tracking devices and handheld computers, in an effort to cut costs, boost efficiency and improve services, the NY Times reported. About 1,000 NYC firefighters, police, medical experts and other emergency personnel will participate today in a "weapons of mass destruction" drill, the NY Post reported. Three buyout firms agreed to buy a unit of EDS for $2B, the Wall Street Journal reported. Spain's government received a video-tape, hours before their elections, purportedly from al-Qaeda claiming the terrorist group was behind the Madrid bombings. Subsequently, the Socialist party unexpectedly ousted the ruling Popular Party that had been in power for 8 years.
Late-Night Trading
Asian indices are mostly higher, with the exception of Taiwan. Gains range from +.5% to +1.5%. Taiwan is down 2.36%.
S&P 500 indicated -.14%.
NASDAQ indicated -.10%.
BOTTOM LINE: The message the Spanish people sent to al-Qaeda, by unexpectedly voting the ruling party out of power, is that terror pays. This may result in a lower open for U.S. stocks as investors contemplate the possibility of an al-Qaeda led attack on our soil before U.S. elections in an attempt to influence the outcome here, as well. I will buy on any significant weakness in the morning as I believe it will be short-lived. The portfolio is 75% net long heading into the week.
Company/Estimates
CHP/.16
CTAS/.39
DG/.34
IMCL/-.32
L/.05
THC/.02
VXGN/-.15
Splits
CTX 2-for-1
Economic Data
Empire Manufacturing estimated at 38.0 for March vs. 42.05 in February.
Industrial Production for February estimated up .4% vs. up .8% in January.
Capacity Utilization for February estimated at 76.4% vs. 76.2% in January.
Weekend Recommendations
Louis Rukeyser's Wall Street had featured guests that were positive on MRX, WPI, ZBRA, FISV, HDI, CECO, EOG, SHW, AXP and AIG, while they had negative comments on cyclicals and bonds. Forbes on Fox had guests that were positive on OPSW, JBLU, PFE, AZN, MRK and JNJ. Bulls and Bears had guests that were positive on JNJ, EBAY, SYMC, PFE, mixed on C and negative on SMH. Cashin' In had guests that were positive on XOM, BP, UPL, WM and mixed on MSO and MCD. Goldman Sachs reiterated Outperform on POL and $8 target. GS reiterated Outperform on A and WFC. GS raised EBAY 1Q earnings and revenue estimates and reiterated Outperform. Fortune has a positive article on homebuilders. Barron's has positive articles on C, CUB and a negative article on MAMA. GE's new interest in solar power has many becoming bullish on the solar sector, NY Times reported. Changes in the S&P indices will cause selling pressure in WMT and buying pressure in XOM and GE, the San Francisco Chronicle reported.
Weekend News
Qualcomm customers are complaining about long lead times and partial shipments. OPEC looks set to apply the oil production cut, there's talk of a new higher price band, reported Channelnews Asia. The Economist.com has a very good article that I highly recommend reading. The impeachment of South Korean President Roh Moo Hyun may impact Japanese exports and negotiations toward a free trade agreement between Japan and South Korea, Bloomberg reported. U.S. companies are scrounging for scrap metal as surging demand from China is keeping U.S. metal supplies tight, and dealers busy, the New York Times reported. Chinese Premier Wen Jiabao said economic imbalances such as transport bottlenecks energy shortages and rising consumer prices present as big a challenge to the government as SARS did last year, Bloomberg reported. NYC agencies are increasing their use of technology, including satellite-tracking devices and handheld computers, in an effort to cut costs, boost efficiency and improve services, the NY Times reported. About 1,000 NYC firefighters, police, medical experts and other emergency personnel will participate today in a "weapons of mass destruction" drill, the NY Post reported. Three buyout firms agreed to buy a unit of EDS for $2B, the Wall Street Journal reported. Spain's government received a video-tape, hours before their elections, purportedly from al-Qaeda claiming the terrorist group was behind the Madrid bombings. Subsequently, the Socialist party unexpectedly ousted the ruling Popular Party that had been in power for 8 years.
Late-Night Trading
Asian indices are mostly higher, with the exception of Taiwan. Gains range from +.5% to +1.5%. Taiwan is down 2.36%.
S&P 500 indicated -.14%.
NASDAQ indicated -.10%.
BOTTOM LINE: The message the Spanish people sent to al-Qaeda, by unexpectedly voting the ruling party out of power, is that terror pays. This may result in a lower open for U.S. stocks as investors contemplate the possibility of an al-Qaeda led attack on our soil before U.S. elections in an attempt to influence the outcome here, as well. I will buy on any significant weakness in the morning as I believe it will be short-lived. The portfolio is 75% net long heading into the week.
Sunday, March 14, 2004
Chart of the Week
30-year Current Price/Earnings Ratio Chart for the S&P 500
BOTTOM LINE: The S&P 500 P/E on current estimates is 22.5 and falling on the fastest GDP growth since the mid-80's. In the late 80's, the current P/E was at similar levels, yet the 10-year long-bond yield was 155% higher than today's rate of 3.76%. While the S&P 500's P/E in the mid-70's to mid-80's was lower, the U.S. economy was mired in the worst recession of our time and the 10-year long-bond was on its way to an astronomically high yield near 16.0% in 1981.
BOTTOM LINE: The S&P 500 P/E on current estimates is 22.5 and falling on the fastest GDP growth since the mid-80's. In the late 80's, the current P/E was at similar levels, yet the 10-year long-bond yield was 155% higher than today's rate of 3.76%. While the S&P 500's P/E in the mid-70's to mid-80's was lower, the U.S. economy was mired in the worst recession of our time and the 10-year long-bond was on its way to an astronomically high yield near 16.0% in 1981.
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