Stocks Mostly Higher into Final Hour, Led by Tech Shares and Homebuilders

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Internet longs and Computer longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are gaining and volume is above average. The U.S. Dollar Index is up 0.17%. The euro is breaking below its 50-day moving average vs. the dollar today. I continue to believe the U.S. dollar has likely bottomed for the year. Shanghai copper inventories rose another 16.8% last week to the highest since April 2004, however copper is 2.3% higher so far today. I still believe any meaningful rallies in the metal should be sold. Google (GOOG) is surging 7 points from session lows to $474 on a report from Netratings that it had 55.2% of April U.S. search share vs. 21.9% for Yahoo! (YHOO) and 9% for MSN/Windows. U.S. growth stocks are the cheapest vs. value stocks in over three decades. Google is arguably one of the greatest, if not the greatest, growth stocks on the planet. It has never traded at a lower valuation relative to its future earnings estimates as now. I view these estimates as conservative. Moreover, it trades at a discount to its Internet peers. I sense the Google train is leaving the station once again. I remain long the stock. I expect US stocks to trade modestly higher into the close from current levels on short-covering, lower long-term rates, investment manager performance anxiety, buyout speculation and more economic optimism.

Today's Headlines

Bloomberg:
- Blackstone Group LP, the manager of the world’s second-largest buyout fund, boosted the amount it plans to raise in its IPO to $4.75 billion. The company plans to sell as many as 153.3 million shares for $29-$31 each.
- Brazil will turn 53% of its cane into ethanol this year.
- Barrick Gold Corp.(ABX), the world’s largest gold producer, said it will spend $10 billion expanding its existing operations and developing new mines to take advantage of a “buoyant gold market.”
- The avian flu virus that threatens to spark the first pandemic in almost four decades may be nearing the end of its natural cycle after it killed fewer wild and migratory birds this year, an international veterinary body said.
- Crude oil is rising $.94/bbl. on rising speculation by investment funds and more economic optimism.
- Boeing Co.(BA) plans to begin final assembly of its 787 Dreamliner today, opening a new production line north of Seattle that is scheduled to roll out the first plane in 49 days.
- President Bush said Attorney General Alberto Gonzales continues to have his full support and called an attempt by Senate Democrats to hold a no-confidence vote on him “pure political theatre.”
- Former President Jimmy Carter said remarks he made about President Bush’s foreign policy were “careless or misinterpreted.”
- Rupert Murdoch’s News Corp.(NWS/A) may be preparing to walk away from a $5 billion bid for Dow Jones(DJ) after trying without success to win support from the controlling Bancroft family, Pali Research analysts said.

Wall Street Journal:
- Alcatel-Lucent is introducing a device designed to allow organizations to maintain tighter security on employees’ laptops.
- Merrill Lynch(MER) is taking a minority interest in GSO Capital Partners LP, an $8-billion hedge fund and investment firm, known for helping private equity-firms to finance transactions.
- Wal-Mart Stores(WMT) pulled its designer apparel line from more than 3,000 outlets after the world’s largest retailer ran into difficulties making its mark in fashion clothing.
- Google Inc.(GOOG) and Salesforce.com(CRM) are discussing an alliance that might help them compete against Microsoft(MSFT).
- India’s push to industrialize has set off a rural backlash from villagers whose land is being taken to build factories.
- Nasdaq Stock Market(NDAQ) is starting an introduction service to connect companies with potential directors as the NY-based stock market seeks to win trade from the larger NYSE.
- The US Financial Services Roundtable, American Bankers Assoc. and other groups representing the financial industry are planning to assist subprime borrowers.

Financial News:
- Cerberus Capital Management LP, the private equity firm that bought US automaker Chrysler last week, raised $7.5 billion to invest in companies in financial difficulties.

Women’s Wear Daily:
- Kohlberg Kravis Roberts may take footwear brand Skechers USA(SKX) and retailer Genesco(GCO) private in separate transactions.

USA Today:
- The wealth gap between Americans age 55 to 59 and those 35 to 39 is about $200,000, suggesting generational rather than class disparities account for the divide. The older group has seen its median net worth grow 97% over 15 years to about $250,000 in 2004, while the younger generation’s wealth has fallen 28% to about $50,000, Federal Reserve and Census data show. Younger households are postponing careers to gain more education, marry later and have children later.

Daily Telegraph:
- Fidelity Investments, the world’s biggest mutual-fund company, plans to enter the private-equity business.

Valor Economico:
- Dow Chemical(DOW) is seeking financing to build refineries in Brazil that will process sugarcane-based ethanol into chemicals.

Al-Hayat:- Yemen’s oil reserves rose to 10.4 billion barrels this year, up from 4.7 billion barrels in 2000, citing the head of the country’s Oil Discovery and Production Agency.

Economic Releases

- None of note

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Monday Watch

Weekend Headlines
Bloomberg:
- China’s pledge to allow greater fluctuation in its currency’s exchange rate failed to appease US lawmakers, who said they will push ahead with punitive legislation unless the yuan appreciates at a faster pace.
- Treasuries fell the most since January as signs of US economic strength reduced bets on a cut in borrowing costs by the Federal Reserve this year.
- The US dollar rose to the highest level in almost three months against the yen and advanced versus the euro as signs of a strengthening economy prompted traders to cut bets the Fed will lower borrowing costs this year.
- Finance ministers from the Group of Eight leading industrial nations said higher oil prices are a threat to the global economy’s best performance in more than three decades.
- Michael Moore’s documentary “Sicko” was unveiled to cheering critics at the Cannes Film Festival today. It is an attack on the US health-care system.
- Pink Sheets LLC, which runs a market for over-the-counter stocks, is selling to Chinese firms a trading platform enabling companies to sell shares in the US without having to comply with the Sarbanes-Oxley Act.
- Hologic Inc.(HOLX), a maker of medical-imaging equipment that diagnoses women’s diseases, agreed to buy Cytyc Corp.(CYTC) for $6.2 billion in cash and stock to add a line of products that screen for cervical cancer.
- “Shrek the Third,” from DreamWorks Animation(DWA), made $122 million in weekend sales, breaking the record for animated films held by the last “Shrek 2.”
- The 00’s stock bull market has some important things going for it that the ‘90s version lacked – more meat and potatoes, less pie in the sky. Its best days may still lie ahead.
- The so-called regional brokerages are confronting a trend that may signal the end of their independence and give them one more chance to reward their shareholders in a bull market.
- UniCredit SpA, Italy’s biggest bank, agreed to buy Capitalia SpA for $29.5 billion, creating the biggest bank by market value in the 13 nations using the euro.

Wall Street Journal:
- Wal-Mart Stores(WMT) has reached an agreement with ShareBuilder Corp. to offer low-cost investment services. The service, call Wal-Mart Easy Investing by ShareBuilder, was unveiled earlier this month on the retailer’s Web site.
- TPG Inc. and Goldman Sachs Group’s(GS) private equity unit are near a deal to purchase Alltel Corp.(AT) for about $25 billion.

Barron’s:
- The CIA gives regular briefings to members of the SEC on terrorists and other criminals involved in global financial markets.

NY Times:
- US Senator Hillary Rodham Clinton, a leading candidate for the 2008 Democratic presidential nomination, doesn’t talk much about her six years as a director on Wal-Mart’s(WMT) board.
- Weeks after tainted Chinese pet food ingredients killed and sickened thousands of dogs and cats in the United States, this country is facing growing international pressure to prove that its food exports are safe to eat. But simmering beneath the surface is a thornier problem that worries Chinese officials: how to assure the world that this is not a nation of counterfeits and that “Made in China” means well made.

Washington Post:
- FDA inspectors rejected 298 shipments to the US from China in the first four months of 2007, compared with 56 shipments from Canada in the same period. Canada exports about $10 billion in regulated food and agricultural products to the US compared with Chinese exports of about $2 billion. FDA inspectors, who monitor less than 1% of regulated imports, detained 107 imports to the US from China last month alone, along with more than 1,000 shipments from China of tainted dietary supplements, toxic cosmetics and counterfeit medicines, citing FDA reports.

NY Post:
- Donald Trump won’t return to the NBC television reality show “The Apprentice” this year, which may have sealed the sagging program’s fate. Trump said he is moving to a “major new TV venture.”

Business Week:
- Even Yahoo!(YHOO) Gets The Blues. CEO Semel’s next turnaround task: Boost morale and keep employees from leaving.

Chicago Tribune:
- Cerberus bullish about Chrysler. A company that is losing money and market share, carries enormous pension and healthcare burdens and faces difficult union negotiations is just another fixer-upper for private-equity firm Cerberus Capital Management LP.

MarketWatch.com:
- Warren Buffett and Carl Icahn, influential investors with very different stock picking styles, have hitched a ride on the same sector – railroads.

AP:
- Former President Jimmy Carter said President Bush’s record on international relations is “the worst in history.” The 39^th president, who is promoting his audio collection of Bible lessons, singled out Bush’s doctrine of pre-emptive military strikes.

Mercury News:
- Google Inc.(GOOG) has licensed sensing technology from Stanford University students that will allow it to create three-dimensional maps of cities.

Financial Times:
- China agreed to invest $3 billion of its foreign-exchange reserves with private-equity firm Blackstone Group LP, suggesting it’s moving from US Treasuries into riskier holdings.
- JPMorgan Chase(JPM), Lehman Brothers(LEH), Goldman Sachs(GS) and other investment banks are seeking to recruit more women on career breaks as they struggle to find enough skilled workers.
- British Airways Plc plans to start all-premium fights between the US and Europe, part of a strategy to meet increased competition from European rivals.
- Investment banks have become less disciplined in their dealings with hedge funds, the Bank for International Settlements will warn on Monday. The warning will come as efforts to introduce stronger controls over the hedge fund industry increased over the weekend.
- A Shanghai city housing agency has ignored rules restricting equity investments to become a top holder in at least three listed companies, booting concern that the government may be affected by a market slump.
- Global markets have seen a dramatic surge in IPOs by emerging-market companies this year, with $53.7 billion raised so far in such deals.
- Merrill Lynch(MER) plans to introduce a flatter leadership structure for its markets and investment banking operations that will split responsibility between a group of senior executives.

Daily Telegraph:
- The 17 tons of gold and silver coins discovered by Odyssey Marine Exploration(OMR) probably came from the English ship Merchant Royal that sank off the nation’s southwest coast in 1641, citing Alison Kentuck, Britain’s deputy receiver of wrecks.

Sunday Telegraph:
- Yahoo!(YHOO) is considering buying British social networking site Bebo for $1 billion, citing “Silicon Valley Bebo is the UK’s most popular social networking site. gossip.”
- YouTube has teamed up with Hollywood film maker and distributor Eros International Plc, citing Kishore Lulla, chairman and CEO Eros.

BBC:
- Former US President Jimmy Carter criticized UK Prime Minister Tony Blair for his support of the war in Iraq. Carter said he hoped that Blair’s successor, Gordon Brown, would be less enthusiastic in his support for it.

Nikkei English News:
- Sharp Corp., Japan’s largest maker of LCD televisions, will build a new plan to meeting rising demand for large-screen TVs.

Le Journal des Finances:
- Saft Groupe SA Chieft Executive Officer John Searle said the market for hybrid-car batteries may be valued at $4.1 billion within six years.

South China Morning Post:
- China Huaneng Group, the nation’s biggest power company, plans to boost renewable energy capacity more than 1,000% by 2020 as the country seeks to cut fossil-fuel consumption.

Economic Times:
- Oil & Natural Gas Corp. plans to invest an additional $2.9 billion to boost oil and gas output in the western Indian state of Gujarat over the next five years.

Hindu Business Line:
- Crude oil prices may decline to $45 a barrel within 18 months as investments in exploration and production of hydrocarbon increase supplies, citing Petroleum Secretary M.S. Srinivasan. India has invested $7.3 billion in the last seven years to increase the country’s refining capacity. India’s refining capacity may increase to 240 million tons from 160 million tons within four years.

Weekend Recommendations
Barron's:
- Made positive comments on (USG), (AMGN), (PFE), (GNW), (CLX), (COP), (DVN), (APC), (APA) and (DCX).

Citigroup:
- Reiterated Buy on (SBUX), target $45.
- Reiterated Buy on (GGC), target $23.
- Reiterated Buy on (COH), target $57.

Night Trading
Asian indices are +.25% to +.50% on average.
S&P 500 indicated -.06%.
NASDAQ 100 indicated -.05%.

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Earnings of Note
Company/Estimate
- (APOL)/.47
- (CPB)/.41
- (LOW)/.49
- (NTES)/.26
- (PSUN)/-.04
- (SKS)/.16

Upcoming Splits
- (IEX) 3-for-2
- (BPO) 3-for-2

Economic Releases
- None of note

Other Potential Market Movers
- The JPMorgan Tech Conference could also impact trading Monday.

BOTTOM LINE: Asian indices are higher, boosted by technology and automaker shares in the region. I expect US stocks to open mixed and to rally into the afternoon finishing modestly higher. The Portfolio is 100% net long heading into the week.

Weekly Outlook

Click here for The Week Ahead by Reuters

Click here for Stocks in Focus for Monday by MarketWatch

There are some economic reports of note and a few significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. – None of note

Tues. – Richmond Fed Manufacturing Index, weekly retail sales

Wed. – MBA Mortgage Applications, EIA energy inventory report

Thur. – Durable Goods Orders, Initial Jobless Claims, New Home Sales

Fri. – Existing Home Sales

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. – Apollo Group(APOL), Campbell Soup(CPB), Lowe’s Cos(LOW), Netease.com(NTES), Pacific Sunwear(PSUN), Saks Inc.(SKS)

Tues. – American Eagle Outfitters(AEO), Analog Devices(ADI), Autozone(AZO), BJ’s Wholesale Club(BJ), Childrens Place(PLCE), Computer Sciences(CSC), Dycom Industries(DY), Freddie Mac(FRE), Medtronic(MDT), Men’s Wearhouse(MW), PEP Boys(PBY), Shanda Interactive(SNDA), Staples Inc.(SPLS), Tech Data(TECD), United Natural Foods(UNFI), Zale Corp.(ZLC)

Wed. – Abercrombie & Fitch(ANF), CA Inc.(CA), Dick’s Sporting Goods(DKS), Eaton Vance(EV), GameStop(GME), Gymboree(GYMB), Ltd Brands(LTD), Network Appliance(NTAP), Ross Stores(ROST), Synopsys(SNPS), Talbots Inc(TLB), Target Corp.(TGT), Zumiez(ZUMZ)

Thur. – Aeropostale Inc.(ARO), AnnTaylor(ANN), Barnes & Noble(BKS), Brown Shoe(BWS), CBRL Group(CBRL), Charming Shoppes(CHRS), Cost Plus(CPWM), Dillard’s(DDS), Foot Locker(FL), Gap Inc.(GPS), Hibbett Sports(HIBB), Hormel Foods(HRL), Mylan Labs(MYL), Patterson(PDCO), Red Robin Gourmet(RRGB), Sanderson Farms(SAFM), Stage Stores(SSI), Timberland(TBL), Toll Brothers(TOL), Toro Co(TTC)

Fri. – Witness Systems(WITS)

Other events that have market-moving potential this week include:

Mon. – JPMorgan Tech Conference

Tue. – Fed’s Bernanke speaking, Fed’s Lacker speaking, JPMorgan Tech Conference, Citigroup Healthcare Conference, Morgan Keegan Homeland Security Conference, UBS Oil & Gas Conference

Wed. – Fed’s Kroszner speaking, Fed board meeting on Truth-in-Lending regulations, (BA) annual investors conference, (AFL) financial analyst briefing, UBS Oil & Gas Conference, Goldman Sachs Internet Conference, Robinson Humphrey Financial Services Conference, Citigroup Healthcare Conference, JPMorgan Tech Conference, Thomas Weisel RFID Conference

Thur. – Fed’s Mishkin speaking, (BSX) analyst meeting, Robinson Humphrey Financial Services Conference, Goldman Sachs Internet Conference, UBS Oil & Gas Conference, Citigroup Healthcare Conference

Fri. – Early close for financial futures & options pits at 1 EST

BOTTOM LINE: I expect US stocks to finish the week mixed as buyout speculation, constructive Fed comments, better-than-expected earnings reports, lower energy prices, lower long-term rates and short-covering offset profit-taking and weaker-than-expected April home sales. My trading indicators are still giving bullish signals and the Portfolio is 100% net long heading into the week.