Daily Archives: March 5, 2007

MAD MONEY RECAP (MAR 5, 2007)

On tonight’s MAD MONEY on CNBC, Jim Cramer said you can make money in the right sectors because there is always a bull market somewhere.  Cramer said that every time there is a large crisis you get bailed out by the Fed, and that takes stocks up and you have to have more than a one-month perspective.  Negativity isn’t a mistake and not all of the markets around the market are as linked as you are expected to believe.  Coca-Cola (KO) is one that Cramer thinks has bottomed.  This one will make more money when it repatriates.

Cramer said sub-prime loans for working-class people has tightened credit to where an average worker cannot buy.  Cramer said he doesn’t think it will be anything close to 5% of the loans in the system going bad and he thinks it could be 1.5% total.  He is now saying that the glass is half full in the sub-prime.

One defaulted consumer debt Jim Cramer likes is called Portfolio Recovery Associates (PRAA-NASDAQ).  They buy defaulted debt for pennies on the dollar and are able to collect.  The company has been a victim of the panic because of being tied to the bad debt arena. Since Feb 20 its fell from $49 to $41 and the short interest is huge.  Shares climbed 2% after Cramer discussed this to $42.44.  It only takes on debt where it sees fit and only buys the debt when it finds that it can collect.  The company I had listed in my own second tier defensive stocks was a competitor to this one called Asset Acceptance Capital (AACC-NASDAQ).

Jim Cramer also interviewed an officer from Ceradyne (CRDN) and he said that one contract pending could give the company good visibility out to 2012.  As fas as the margins not being able to get better, the company head did say that the margins could grow even though he was cautious in a conference. He thinks yields on it will creep up. Cramer said he remains bullish on the name.

Jon C. Ogg
March 5, 2007

Posted on: March 5, 2007 – 6:56 pm in Cramer

Microsoft Tries To Decapitate Google

A lawyer for Microsoft (MSFT) accused Google (GOOG) of being one of the “companies that create no content of their own, and make money solely on the back of other people’s content, are raking in billions through advertising and initial public offerings”, according to FT.com.  Looks like a grudge match. Good stuff.

The Microsoft attack focused primarily on big content company videos found on YouTube and Google’s plan to scan books to make them available online.

The comments come at an odd time. It may be that the legal department at MSFT spent the winter in hibernation. Google has been talking about creating digital copies of books for online readership and stealing videos on YouTube for a long time. The comments may have context but lack timeliness.

Microsoft is big and it is bad. It does not look good for the 600 pound gorilla to side with the oppressed, even when it makes the company look better next to its competition. Maybe Microsoft is the friend of the copyright holder, but it should keep that secret to itself.

Douglas A. McIntyre

Posted on: March 5, 2007 – 5:36 pm in Internet

Fortune’s “Most Admired Companies” Full Of Poor Investments

Fortune’s "Most Admired Companies". All big companies want to be on the list. Look at the top 20:

GE (GE), Starbucks (SBUX), Toyota (TM), Berkshire Hathaway (BRK-A), Southwest Air (LUV), Fedex (FDX), Apple (AAPL), Google (GOOG), Johnson & Johnson (JNJ), Procter & Gamble (PG), Goldman Sachs (GS), Microsoft (MSFT), Target (TGT), 3M (MMM), Nordstrom (JWN), United Parcel (UPS), American Express (AXP), CostCo (COST), Pepsi (PBG), and Wal-Mart (WMT).

It would not make much of an investment portfolio. Over the last year, Starbucks is down over 15%. Southwest Air, down almost 10%. Fedex, flat. Johnson & Johnson, up 7% which is less than the Dow. Procter, up 6%. Microsoft, up 4%. 3M, up 2%. UPS, down 8%. American Express, up 4%. Costco, up 4%. Pepsi, up 5%. Wal-Mart, up 6%.

Are there some winners on the list. Absolutely, lead by Apple, Toyota, and Nordstom.

But, in general, it would appear that having shares up 1% over the last year and losing out to the Dow would make a company a good candidate.

Douglas A. McIntyre

Posted on: March 5, 2007 – 4:50 pm in Media

US Stock Market Wrap (MAR 5, 2007)

DJIA                       12,050.41; Down 63.69 (0.53%)
NASDAQ               2,340.68; Down 27.32 (1.15%)
S&P500                1,374.11; Down 13.06 (0.94%)
10YR-Bond          4.518%; Up 0.003
NYSE Volume     3,487,356,000
NASD Volume     2,252,398,000
VIX                         18.71 (+0.10)

Keep in mind the DJIA level and S&P 500 level may not be 100% accurate as there were some saying the closing levels weren’t actually in yet.  The NYSE is still having issues.

Interestingly enough, the first-line defensive stock names didn’t fare too well today with only 6 of the 20 on the listing closing in positive territory.  Most of the names had been up today earlier, but that wasn’t in the cards.  The markets are still trying to find their ground.   Out of the 30 DJIA components, only these closed up on the day: Caterpillar (CAT), H-P (HPQ), IBM (IBM), Coca-Cola (KO), 3M (MMM), & Merck (MRK).  While these have more cyclical-oriented names (CAT, HPQ, IBM, MMM) than defensive (KO, MRK), this was still a disappointing day since we had been in positive territory and the defensive names were 15/20 up.

Every day the bullish market pundits keep talking about the great buying opportunities.  The perma-bears and those who think the bottom is falling out of the economy also seem far too pessimistic in a time when it doesn’t feel like the manner in which they are describing it.  Until we see a marked bottom in those 20 first-line defensive names it is hard to want to stand up and try to be a hero.

Jon C. Ogg
March 5, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: March 5, 2007 – 4:16 pm in Market Close

The 52-Week Low Club (Gets Much Bigger)

Sirius (SIRI) hit a 52-week low of $3.38 down from its 12-month high of $5.57. Doubts about its business model and it merger with XM (XMSR) are both in doubt.

A few weeks ago, finding members for the 52-week low club was tough going.

Now, companies in the sub-prime mortgage business could be a list of their own.

New Century (NEW), a lender in some real trouble hit $4.42. The 52 week high for the stock is $51.97.

In a similar sub-prime boat is Novastar (NFI) at $5.98 down from its high for the 12-month period of $23.98. The carnage continues with Impac Mortgage (IMH) at $4.14 against a 52-week high of $11.74, Doral Financial (DRL) at $1.58 down from $11.79, and IndyMac (NDE), a mortgage lender with a stock down from $50.50 to $28.97.

Worldgate (WGAT) which makes video phones hit $.84 down from its 52-week high of $2.20.

Capstone Turbine (CPST) has a sequential revenue drop in its most recent quarter. The company’s Interim Chief Accounting Officer left. The shares are now at $.79 down from their one-year high of $4.47.

And, Stone Energy (SGY), an oil and gas company, recently had a big loss on a write down in its last reported quarter. The shares closed at $27.54, down from the twelve month high of $51.50.

The End

Douglas A. McIntyre

Posted on: March 5, 2007 – 4:05 pm in HI/LOW

Devil’s Advocate Short List for Exchange Stocks

We have spent a good deal of time running various screens over the past few days looking for the occasional name or industry that might be running a bit hot, and could be due for a 20-25% drop if general market weakness or even flatness persists.  A multi-week period of flat to down slightly returns (around 5% or so) is not unlikely while we wait for further evidence of economic strength or deterioration.  Feelings on rate movement are rather split down the middle right now as far as the next direction and the timing; some say hikes, some say cuts are coming AND the timing of such is also in the air.  In times like this the market participants won’t stretch too far in either direction, but intraday volatility may be high.  Even if you remain in a bullish stance, being a good devil’s advocate can be extremely valuable in avoiding names where valuations have grown relatively high.

To that end, there are some pockets that have exhibited a lot of relative strength in the past few months.  If the market settles into a sideways trend while awaiting further economic data, these companies could be ripe for a big up-tick in their short interest ratios.  Some short positions were obviously bolstered just this past week, and each stock has its own tipping point where the aggregate effect starts to take control of short-term price movement in the stock. 

There are many names in consumer discretionary spending and in commodities that hit the screening process but the names that keep coming up near the top of my screen results are the public financial exchanges.  Unfortunately these also represent one of the scarier short opportunity sectors out there.   Take Nymex (NMX) and the InterContinental Exchange (ICE), for instance: ICE fell nearly 16% last week, but still trades at over 27x forward earnings. NMX’s forward multiple is over 35x forward earnings and that is after trading in step with the S&P last week.    These two names do have gaudy valuations, but investors should still beware betting against them blindly.  The ICE-owned NYBOT reported February ‘07 volume growth at 37% over 2006, while Nymex reported 34% y-o-y growth.  Now we know why the valuations are so high. 

CBOT holdings (BOT) was down less than 2% for the week, and currently trades for about 29x forward earnings.  Soon-to-be partner and parent Chicago Mercantile Exchange (CME) was also down less than 2% on the week, having posted total volumes for February 2007 showing their growth clocked in at 27% y-o-y.  Not only do we have peaking volumes in the equity indexes, but the derivative-based exchanges get a combined lift of uncertainty-based volume spikes and internal, organic growth from expansion of their platforms.  Operating margins should benefit nicely as well.  The biggest danger at this point is regulatory or litigation concerns should systems prove faulty in a long-term huge volume environment, should one occur.  We could also see drags on the stocks coming from insider sales and merger integration, and many insiders have already sold or plan to. 

As such earnings estimates for the exchanges will probably widen as opposed to tighten from here, analysts may balk at the challenge for the next quarter or two.  For those who brave it, there may be solid trading opportunities arising from this uncertainty.  It is likely that many have already paid a hard price for betting against these financial exchanges for longer periods of time.  As a last reminder, any recovery in the financials is often followed by a leveraged move in the financial exchange stocks.

We are still screening other names and sectors that we’ll be publishing in the coming days.  If further signs of weakness occur in the broad markets occur, having three or four “shortable” names ready to go would be based on companies that would have not only price level appreciation in our favor (for instance, stocks trading more than 25% above their 200-day ma.) but also some fundamental concerns that could impact 2007 earnings and beyond.  This theme will be the focus of a periodic study of relative valuations at 24/7 while we keep our eyes on the important indicators released over the next few weeks.  We are also screening the risk/reward parameters and results in retailers, hotels, theme parks & entertainment, casinos, gaming, satellite radio, advertising and other sectors for the names that appear most at risk, so stay tuned.  Even if private equity firms are thought to be in hot pursuit, they may wait if things are going to erode and if the risks are for much more downside.

Written by Ryan Barnes and edited by Jon C. Ogg
March 5, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: March 5, 2007 – 3:36 pm in Financial Stocks

China’s Impact on the Market

From The Stock Masters

Public Enemy - Don't believe the HypeIsn’t it beautiful, just weeks ago it was China, China, China. Then the tide turned to "Well China is going to see some slow down and it’s time to be careful", right into "China took the money and ran". Consider this, China’s Shanghai Stock Exchange, who since the end of March 2006 has driven the value of Worldbest’s shares up 44%. Though China’s is one of the fastest-growing economies in the world, it remains heavily influenced by the Communist state. So, we continue to walk on eggshells (smart little article) . Tired of hearing about it? So are we. America are you considering the world economy and how much the U.S. economy weighs in comparison to China’s economy? Do the math, the impact last week, it was not necessary and don’t point the finger at China. As Public Enemy once said, Don’t believe the Hype. Another article but decent about China’s impact…

http://www.thestockmasters.com/

Posted on: March 5, 2007 – 3:09 pm in International Markets

Palm, Inc. From The Stock Masters

Palm, Inc. (PALM) is down 8% today and just $3 away from its 52-week low. Friday’s speculation of Palm being acquired sent shares soaring and of course today they are right back down. The Wall Street Journal reported Palm Inc. has been "beset by taxing competitive conditions, is working with investment bankers to explore its strategic options." The Masters can’t help but think Carl Ichan and his new takeover dream of Motorola (MOT) could continue with taking out PALM in the same motion. Why not kill two birds with the same stone? If you haven’t heard Carl Icahn and Icahn Partners LP are each filing to acquire in excess of $119.7M and up to $500M of MOT common stock, while Icahn Partners Master Fund LP and Icahn Partners Master Fund 2 L.P. are each filing to acquire in excess of $500M, but less than 25% of the outstanding, Motorola common stock. If Carl was to have MOT and PALM in his back pocket, why he could have the whole world in his hands (hand-held products world that is). With PALM trading at current levels and with so much up in the air, it makes for an entertaining investment ride, but do you want to be on that train?

http://www.thestockmasters.com/

Posted on: March 5, 2007 – 3:07 pm in Consumer Electronics

SLAB: More New Products Needed

By William Trent, CFA of Stock Market Beat

When Silicon Laboratories SLAB announced it was selling its handset chip business, we said it left the company with few options. The main one is to make a whole lot more of the chips that don’t go into cel phones. In keeping with that strategy, the company annouced a new product:

Silicon Laboratories Inc. (Nasdaq: SLAB), a leader in high-performance, analog-intensive, mixed-signal ICs, today announced at International IC-China Conference and Exhibition/Embedded Systems Conference-China 2007 the most highly integrated 8-bit MCU combining a 25 MIPS CPU, 10-bit 500 ksps ADC and an internal /-2 % oscillator in a 3×3 mm package. The C8051T60x product family adds to Silicon Laboratories’ portfolio of over 60 high-performance Small Form Factor MCUs. The C8051T60x is ideal for consumer and industrial applications including toys, camera modules, cell phone accessories, portable devices, home appliances and motor controllers.”The C8051T60x is the first mixed-signal 8-bit MCU with unprecedented functionality designed for cost- and space-sensitive applications,” said Derrell Coker, vice president of Silicon Laboratories. “With the highest performance and integration in a small form factor, the C8051T60x enables manufacturers to easily and cost-effectively design high-performance products.”

They’ll have to design a bunch of them for the product to move the needle. Pricing begins at $0.45 in quantities of 10K. Given the company’s non-wireless revenue run rate of $300 million, that indicates it would take about six million of these chips per year to boost revenue by 1%.

http://www.stockmarketbeat.com/

Posted on: March 5, 2007 – 3:05 pm in Technology Companies

Cramer on More Sub-Prime

Cramer on today’s STOP TRADING on CNBC said that the sub-prime mortgage is bad gone worse.  Neither New Century (NEW) nor others are good but they are not the size of a large financial insitution.  On Countrywide (CFC) he thinks it is best of breed and the insider selling the stock is hurting the stock.  He gace a statistic that 10% of loans are sub-prime and 15% of those are failing; so it is only 1.5% of loans and not then end of the world.

Cramer said Coca-Cola (KO) is one of his best names today.

Jon C. Ogg
March 5, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: March 5, 2007 – 2:45 pm in Cramer

Wal-Mart Terminates Technician Over Recordings

After 1:00 PM EST today CNBC ran a brief feature about Wal-Mart (WMT-NYSE) security officials reading outside emails, but the company just issued a press release stating it was an employee termination over phone call recordings.   If you look at the site on CNBC there is some more detail even if that is still brief and vague.  CNBC said Wal-Mart will be making an announcement later today.

This report out of the company says that the firing was of a Wal-Mart systems technician for intercepting text messages and recording telephone conversations without authorization.  It also says it has removed the equipment and made policy changes effective immediately.   

We will not confirm nor even speculate on the real details of this case, but this sounds like something we’ll be hearing more about in the days to come.  Wal-Mart is a company that doesn’t want anymore negative public relations.  Its investors definitely don’t want any more negative news.  At least the company sounds like it was proactive here, and now you just have to wonder if the media and the public will let this go and if they give the company a pass on it.  Wal-Mart is a much more controversial company than a Hewlett-Packard (HPQ-NYSE), and we all know what happened when HP did its "pre-texting" and "investigating" of its board members, executives, and outside journalists.  Until we see how this gets covered we won’t draw any further parallels or conclusions.

Shares have not been affected as they are up $0.06 at $47.87 on the day; its 52-week trading band is $42.31 to $52.15. 

Jon C. Ogg
March 5, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: March 5, 2007 – 2:10 pm in Retail

Cramer Pans AMD; But He Makes Internet Picks

On another Wall Street Confidential video today, Jim Cramer ranked his favorite Internet stocks.  The 1/3 of the market that is defensive is bottoming, but the next group will be the companies ahead of their numbers over the next couple of weeks.

It may be worth noting that Cramer said AMD (AMD) could go out of business, and that Intel would love that if the DOJ is not involved. 

On the dot.com’s and the Internet names here is what Cramer thinks:

IAC/Interactive (IACI) has momentum and is taking share.

Yahoo!(YHOO) has fabulous momentum and they may be making twice of what they thought on Panama.

Amazon (AMZN) has a new reader making it an innovator, which is interesting considering he always hates AMZN.

eBay (EBAY) has a great quarter coming and the Skype deal is coming along well for them.

Google (GOOG) is interesting now that it hit $440 and this should be around the area that it bottoms like he has said before.

Jon C. Ogg
March 5, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: March 5, 2007 – 12:47 pm in Cramer

AMD: AMD Misses

By William Trent, CFA of Stock Market Beat

AMD to Present at Morgan Stanley Technology Conference and Update First Quarter Guidance: Financial News – Yahoo! Finance

Chairman of the Board and Chief Executive Officer Hector Ruiz will present at the Morgan Stanley Technology Conference today at 10:30 a.m. PT (1:30 p.m. ET) and will update the company’s first quarter 2007 guidance.

Read More »

Posted on: March 5, 2007 – 11:47 am in Technology Companies

Semiconductor Oversupply: From Bad to Worse

By William Trent, CFA of Stock Market Beat

Semiconductor Industry Association Reports:

Worldwide sales of semiconductors of $21.47 billion in January were 9.2 percent higher than January 2006 when sales were $19.66 billion, the Semiconductor Industry Association (SIA) reported today. January sales reflected a seasonal decline of 1.2 percent from the $21.74 billion reported in December.

It doesn’t sound so bad until you recall that orders for new semiconductor equipment rose four times as quickly. That is going to make the inventory situation, which is already bad, worse.

semisupplydemand.jpg

Read More »

Posted on: March 5, 2007 – 11:45 am in Semiconductor

Cramer Pans Sub-Primes & Talks Defensive Stocks

On today’s Wall Street Confidential video on TheStreet.com, Jim Cramer discusses the market sell-off hitting that bottom again and we may hit it again.  He said this may be similar to the May-June bottom that we saw last year, although this one happened much faster and carried much more fear than back then.  He says we are oversold and will bounce, but we’ll sell off again after Japan and Europe bounce.  The linkages are false.  Cramer says the Japan carry-trade is to blame but he still thinks this is a smokescreen.  Cramer said this is the first day we are a market of stocks rather than a stock market and that is encouraging.  He did note that the defensive stocks are bottoming first (15 of my 20 first-line defensive stocks are now up on the day).

The sub-prime companies are worthless according to Cramer, but he said New Century (NEW) will probably go out of business to Cramer and NFI is at risk too.  LEND may survive but the book of business may be overstated and it could go down to $10 or $11 before bottoming.  He also briefly noted that this elimination of the bad sub-prime lenders will give Countrywide (CFC) a clear path to owning the industry.

Jon C. Ogg
March 5, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: March 5, 2007 – 11:40 am in Cramer

Cheniere Energy Partners Sets IPO Terms

Cheniere Energy Partners, which will trade under the CQP ticker on NYSE, has announced the indicated terms of its pending and proposed IPO spin-off.  Cheniere Energy "Partners" is the formed Limited Partnership that will operate the LNG terminal being constructed in Cameron Parish, Louisiana on the Sabine Pass Channel. 

The Sabine Pass LNG receiving terminal will be the largest LNG receiving terminal in North America with approximately 4.0 billion cubic feet per day, or Bcf/d, of regasification capacity and approximately 16.8 Bcf of LNG storage capacity.  Its capacity has been contracted for under three 20-year firm commitment contracts with payments on a "take or pay" basis.  Each customer will be obligated to pay the full contracted amount of monthly fees whether or not it uses any of its reserved capacity.  These payments are expected to begin in Q3 2008.  Total LNG USA, Chevron USA, and Cheniere Marketing (subsidiary of Cheniere-LNG) are the three customers.

The IPO will be 12.5 million units, including 7.2 million from selling shareholders.  The company now has an expected price range of $19.00 to $21.00. Citigroup, Merrill Lynch, and Credit Suisse are the lead underwriters on the deal, and others in the syndicate are RBC Capital, Sanders Morris Harris, Stifel Nicolaus, Howard Weil, Pritchard, and FIG Partners.

Barring any major meltdown and barring any major changes in the energy markets, this deal should be coming to market very soon.  Cheniere Energy Inc. (LNG-AMEX) is the perceived backdoor play into this IPO.  The last prospectus on this one is massive, but you can access the SEC Filings here if you wish.

Jon C. Ogg
March 5, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: March 5, 2007 – 11:25 am in IPOs, Oil & Gas

Wal-Mart Cuts Sirius’s Throat

It is hard to believe that the nation’s largest retailer could do much to hurt a satellite radio company. But, think again.

Wal-Mart (WMT) is going to be selling high-definition radios. As The Wall Street Journal points out the "radio industry is positioning HD radio as a free alternative to satellite radio".

Of course, without a big sales channel for high-definition receivers, the regular old radio guys would have trouble going after Sirius (SIRI) and XM (XMSR). That is where Wal-Mart comes in. The retailer even describes HD radios as something of a second coming:  "We want to offer incredible products at a great value; this is a perfect example."

Satellite radio already had enough problems.

Douglas A. McIntyre

Posted on: March 5, 2007 – 11:15 am in Consumer Electronics

Motorola Should Invite Mr. Icahn In

Motorola (NYSE:MOT) opposes investor Carl Icahn’s bid to join its board. He is pretty annoying buy it would appear that he does something for the other shareholders in other companies where he buys large positions.

Shares in TimeWarner (TWX) rose during the period when Mr. Icahn was lobbying management to move the media company’s stock price up. And, Motorola’s shares moved up over 10% after Mr. Icahn said he was taking a position in the handset company.

The man is likely to torture management if he joins the board, but he is just as likely to be a substantial pain if he does not.

Hell, let him in.

Douglas A. McIntyre

Posted on: March 5, 2007 – 11:06 am in Wireless

A Look At U.S. Equities: Stock Returns By Decile Since 2/27

From Ticker Sense

We looked at the stocks of the Russell 3,000 to see how they have performed since the 2/27 decline when grouped into different categories.  We broke the index into deciles (groups of 10) based on their year to date performace, market cap, p/e ratios and dividend yield.  All of the categories are as of the 2/26 close (the last close before Tuesday’s big declines).

When looking at year to date performance of stocks prior to 2/27, the stocks that had performed the best are the ones that have performed the worst.  Since the 2/26 close, the top performing decile is down an average of 6.25%.  Surprisingly, the second worst performing decile is the group that had performed the worst year to date.  The deciles that have held up the best since Tuesday were basically the middle of the pack performers up until Tuesday.

Large cap stocks held up better than small cap stocks.  The worst performing decile since the 2/26 close is the decile of the smallest stocks in the Russell 3,000 by market cap.

Read More »

Posted on: March 5, 2007 – 10:53 am in Research

Perspective on Dow and Homebuilders

By William Trent, CFA of Stock Market Beat

Although the last week managed to shake investor’s (over)confidence, it wasn’t long ago that all the talk was about the new records being set by the Dow. And with all the talk of a bursting housing bubble, one might wonder whether those stocks are still even around.

Which is why we were a bit surprised to see the 5-year performance chart common to SEC filings while we were reviewing the 10K of Small Cap Watch List, Mid Cap Watch List and Large Cap Watch List member (yes – all three – blame S&P for their overlapping market caps in the indices, which made it suitable for all three lists) NVR Inc. (NVR).

Read More »

Posted on: March 5, 2007 – 10:48 am in Housing