Daily Archives: October 19, 2007

The 52-Week Low Club: Merrill Lynch (MER)

The list is very long today, so this will have to be confined to the best of the worst.

Radian Group (RDN) Company provides services to mortgage lenders. Not a good business these days. Down to $13.84 from $67.35.

TOUSA (TOA) Home builder. Unsecured creditors have gotten themselves lawyers. Down to $.63 from 52-week high of $11.37.

Journal Communications (JRN) Newspaper company. Down to $8.54 from $14.

Merrill Lynch (MER) Bullish on America? Not today. Big brokerage hits $65.86 down from 52-week high of $98.68.

Angiotech Pharmaceuticals (ANPI) Cuts 2007 revenue outlook. Drops to $4.86 from 52-week high of $9.81.

Movie Gallery (MOVI) In Chapter 11. Drops to $.18 from 52-week high of $5.29.

Douglas A. McIntyre

Posted on: October 19, 2007 – 3:25 pm in HI/LOW, , , , , ,

Market Drop But No Surrender

The Dow was down 370 points, or 2.7%. Nasdaq fell almost the same amount.

But, that was not the story. What happened at the end of the day is what was important. The market did not roll over and surrender. It bottomed at the end, but it did not collapse. The Dow did not give up another 100 points in the last 15 minutes.

That points the market toward Monday. The lesson of the ‘87 Crash was that getting out on Friday was the right thing to do. Waiting over the weekend was a bad call

The smart money obviously does not believe Monday will be the end of the world because it held the line at the end of trading today.

Wall St. hopes that the trading in the last 15 minutes was based on the right sentiment.

Douglas A. McIntyre

Posted on: October 19, 2007 – 3:07 pm in Market Close

The Business Day In Global Warming (MCEL, ASTI, CSUN, CPST, CMGI, USEY)

Senator Joe Lieberman and Senator John Warner introduce the Climate Security Act to aim for 50% carbon emission reduction in the U.S…… by 2050.

Lazard Capital gets even more bullish on key solar names, after already showing some strong expectations earlier this week.  You still have to use some caution though, as per the Cowen & Co. research note on China Sunergy (NASDAQ:CSUN) having its stock being overextended.

Google blew past its earnings and analysts are looking for much higher stock prices, so it has more and more money to keep it push going to be ‘carbon neutral’ by the end of the year.

Oil hit $90/barrel this week, T. Boone Pickens is now calling for $100/barrel.  Believe it or not, he’s not alone:

Millennium Cell Inc. (NASDAQ:MCEL) and Horizon Fuel Cell Technologies Pte. Ltd have signed a Letter of Intent to jointly develop and sell products on a global basis. The companies have also entered into a definitive agreement which will result in the exchange of their respective equity valued at $5 million.

Ascent Solar Technologies, Inc. (NASDAQ:ASTI) has filed with the Securities and Exchange Commission post-effective amendments to two existing Form SB-2 registration statements that cover, among other things, the shares of common stock issuable upon exercise of outstanding Class B warrants. Today’s filings do not register additional securities for sale by Ascent Solar, but are intended solely to convert the existing registrations on Form SB-2 into less burdensome and less costly registrations on Form S-3.

Capstone Turbine Corp. (NASDAQ:CPST) has released a 65 kilowatt microturbine that meets extremely low global emission requirements including California’s stringent distributed generation emissions standard.

CMGI Inc.’s (NASDAQ: CMGI) @Ventures announced that one of the companies in its venture capital portfolio, The Generations Network, Inc. will be acquired by Spectrum Equity Investors. Under the terms of the agreement, Spectrum will lead an investment of $300 million to purchase a majority interest in the company.

U.S. Energy Systems, Inc. (NASDAQ: USEY)…. The NASDAQ Stock Market will delist the Company’s shares of common stock and suspend trading in the shares effective with the opening of trading on Thursday, October 18, 2007. The Company has been advised that its shares are eligible for quotation on the Pink Sheets Electronic Quotation Service.
Business Week article touts the "green business notion of profitability is going up in smoke."
The early-week edition of "The Business Day In Global Warming"
If you wish to subscribe directly to this link please set your RSS feeds to:
http://www.247wallst.com/alternative_energy/index.html

Jon C. Ogg
October 19, 2007

Jon Ogg produces the subscriber-based Special Situation Investing Newsletter; he does not own securities in the companies he covers.  Trial members signing up this weekend will still be entitles to view the first part of our "Small Cap Internet Watch List" of likely takeover targets in the sector.

As a reminder, whether you prefer the term "Global Warming" or "ClimateChange" is not the issue as far as 24/7 Wall St. covers it. Greenbusiness has become big business, and this affects many publiccompanies today.

Posted on: October 19, 2007 – 2:38 pm in Alternative Energy, , , , , , , ,

New Brokerage Targets on Google… How Long ‘Til $1,000 Target Issued? (GOOG)

There are enough research reports and notes out today on Google (NASDAQ:GOOG) that the ‘consensus’ numbers ahead and the consensus targets aren’t going to be of any use for a while.  We compiled a list of new and recent target upgrades from the street, and the new high target from bulge bracket firms is now $800.00.  Here is a list of the seen new price targets today:

  • Credit Suisse             $800
  • Goldman Sachs        $800
  • B of A                            $785
  • Citi                                $775
  • Cantor Fitzgerald       $750
  • Jefferies                      $725
  • RBC                             $725
  • BMO Capital               $690

Before today:

  • Jim Cramer                $750 (hint at $900)
  • Merrill Lynch               $740
  • Oppenheimer            $700
  • Lehman                      $714
  • Needham                   $690

We already showed what a $600 target would look like when shares were well under that and then we showed what a $700 Google would look like.  Regardless of a current $200 Billion market cap, it seems like if the company can keep its stellar earnings growth intact that the headline will come across the tape "So and So raises Google’s price target to $1,000"…. Obviously there are a lot of bench stops between $650 and $1,000, or even between here and $800 targets.

Shares of Google are up 1.5% around $649.00 today, which is a new all-time not counting today’s intraday highs.  Obviously the bullish sentiment out there in the market hasn’t dwindled into outright bearishness, otherwise you would have seen "relative value downgrades" out of brokerage firms today.  Imagine how well the stock would be doing today if it wasn’t options expiration and if it the DJIA wasn’t down so much today.

Jon C. Ogg
October 19, 2007

Jon Ogg produces the subscriber-based Special Situation Investing Newsletter; he does not own securities in the companies he covers.  Trial members signing up this weekend will still be entitled to view the first part of our "Small Cap Internet Watch List" of likely takeover targets in the sector.

Posted on: October 19, 2007 – 1:48 pm in Analyst Calls, Internet,

Home & Lending Stocks Continue To Implode (FNM, FRE, C, WM, SOV, HD, LEN, CTX)

After reviewing the 52-week lows today, it was almost the same old trend we have been seeing day in and day out…. Lenders… Banks… Homes… and Consumer…What is obvious is that the FOMC can continue to cut rates, but the consumer is stretched and the lenders don’t want to loan more funds.  Hell, the borrowers might not even want to borrow either. 

Freddie Mac (FRE) is hitting this list today and that is actually a low back to 2004.  Fannie Mae has not hit the implode list, even after sending out payment from a class action last night.  These might not all be at 52-week lows now, but lending stocks that hot new 52-week lows today are:

Lenders: (BKUNA) Bankunited Financial….habitual; (C) Citigroup; (CFR) Cullen Frost Bankers;
(CMA) Comerica; (FAF) First American; Indymac (IMB); (RF) Regions Financial; (SNV) Synovus Financial; (SOV) Sovereign; (VLY) Valley National Bancorp; (WM) Washington Mutual; (ZION) Zions Bancorp

Loan insurers: (PMI) PMI Group… not a lender, but the mortgage insurer we all hate; (RDN) Radian… financial enhancements to mortgage lenders; (TGIC) Triad Guaranty, same business as PMI.

Builders & Housing-related: Beacon Roofing (BECN), Brookfield Homes (BHS), Builders Firstsource (BLDR), Building Materials (BLG), Centex (CTX), Home Depot (HD), Lennar (LEN), Masco (MAS), M D C Holdings (MDC), Move (MOVE), Meritage Homes (MTH), Palm Harbor (PHHM)….

The earnings out of financial stocks are of course an issue, but interestingly enough yesterday Fox Business News had an exclusive interview with Warren Buffett.  His comments were not any great hope that the worst has been seen in housing, and that those stocks still were not yet cheap.  Take a look at Buffett’s comments that he gave exclusively to Fox Business News:

“I didn’t buy a share.  I look at them.  I look attheir debt, their equities.  I look at everything.  I’m waiting untilthey’re under priced.  That’s what I look for with any security.  And,I don’t think they’re undervalued. Starting 30 minutes, ending 18months ago – that year – we probably had more home builders offer toBerkshire where the managements wanted to see the business that I’veever seen in any industry.  A significant percentage of thepublicly-owned home builders, when their stock was flying high andtheir management was talking bullishly, were trying to sell theircompanies.  Apparently they knew what was going on or likely to go on.Though, I don’t think they saw it coming as extensively as it did.”

Jon C. Ogg
October 19, 2007

Posted on: October 19, 2007 – 11:27 am in Banking, Buffett, Financial Stocks, HI/LOW, Housing, , , , , , , ,

Lazard Gets More Bullish on Solar (STP, SPWR)

Sanjay Shrestha, Managing Director and Senior Analyst of Alternative Energy & Industrials at Lazard Capital Markets has maintained his positive stance on solar companies.  Suntech is scheduled to report 3Q07 results on November 15.  Suntech Power Holdings, (NYSE:STP) was reiterated as a "Buy" rating, but the price target was raised from $45 to $55 in the news coverage.  It also raised estimates following the recent wafer contract announcement that validates longer-term contracts and reflects the competitive advantage of its scale on a global basis.  On Suntech, Shrestha adds, "We would not be surprised to see additional silicon contract announcements from various suppliers including credible Chinese players, as we believe Suntech’s scale provides the company with excellent procurement leverage…. We believe the company is likely to exceed both top- and bottom-line expectations. However, gross margin could remain flat to slightly down, as Suntech has remained focused on its strategy of building scale rather than maximizing near-term margins." Suntech’s new 2009 estimates by Lazard have moved from $1.80 EPS and $2 Billion sales to $2.20 EPS and $2.33 Billion.

On SunPower (NASDAQ:SPWR), Shrestha reiterated a BUY rating after its earnings: Reported revenues and operating EPS were $234.4 million and $0.33 ($0.03 was interest income), vs. Lazard’s estimates of $210 million and $0.28, respectively. Systems revenues were $157.7 million and component revenues totaled $76.6 million. Gross margins were 20.4%, down from 23% in 2Q07 and below Lazard’s expectation of 21.7%.  SunPower modestly increased 2008 guidance and also increased its nameplate production capacity.  Lazard modestly boosted estimates for 2007 to 2009 and introduced 2010 estimates at $4.20 EPS and $2.45 Billion revenues, and raised the price target on the stock from $80 to $105 in the research note.

Shrestha concludes, "Given inherent volatility in the sector, and recent appreciation, we encourage buying on weakness."

The 200 point down market isn’t exactly helping solar investors out today, at least they haven’t held the all-time highs put in right after the open: SunPower Corp. (SPWR) shares are down 2% at $94.92, although the intraday high was a new all-time high of $98.17; Suntech Power (NYSE:STP) shares are down 0.5% at $46.46, although $47.00 is the all-time high before an intraday high of $48.00 today.

Jon C. Ogg
October 19, 2007

Posted on: October 19, 2007 – 10:22 am in Alternative Energy, ,

AMD (AMD) Pays The Price

There was a moment after AMD (AMD) released its earnings when the stock actually rose. Gross margins were up a bit. The Q3 loss was less than Q2.

There was a below market tender for some of AMD’s shares, but that should not push the stock down unless the current owners are a dull bunch.

No, AMD’s shares are off 5% because it has occurred to Wall St. that nothing has changed. AMD is in a long-term price war with Intel (INTC). AMD said they had picked up some market share especially in the notebook segment. Intel does not have to let that pass. It can afford to drop prices to get those customers back. AMD can’t

AMD gave a mysterious forecast for the next quarter. Its earnings would be seasonable based on the season nature of its business. Thank you for that. The company is likely to have earned itself another 52-week low. It’s just a matter of time.

Douglas A. McIntyre

Posted on: October 19, 2007 – 9:45 am in Earnings, ,

Overstock Over The Top (OSTK)

Overstock.com (NASDAQ:OSTK) is seeing a stock surge in its pre-market trading.  The controversial online discount retailer posted a narrower than expected loss of $4.7 million on a 3% rise in revenues to $161.9 million.  The loss per share was -$0.20 EPS.  First Call had consensus estimates of -$0.39 EPS on revenues of $155.1 million.

On an operating cash flow basis, Overstock posted a $5.9 million positive cash flow, and that is critical since that was a Q3 number rather than just a Q4 holiday quarter.  On an EBITDA basis, the company posted a positive $4.1 million.

The big upside on revenues compared to estimates combined with lower sales marketing costs (down 49%) appear to have paid off.  The stock is trading up over 14% to $34.00, well above the $13.40 lows of the last year and just under the $35.96 52-week high. At the end of September, the NASDAQ short interest in Overstock was listed as 4.611 million shares, about 15.5 days to cover.

Jon C. Ogg
October 19, 2007

Posted on: October 19, 2007 – 8:26 am in Earnings, Internet,

DJIA Components 20 Years After The Crash (MO, GM, IBM, MCD, MRK, MMM, PG, UTX) Part 2

Astoday is the 20th anniversary of the 1987 stock market crash, 24/7 WallSt. wanted to go back in time to review how the individual DJIAcomponents held up around the time and how they have run to today.  Outof 30 DJIA components today, only 16 of today’s components were DJIAcomponents at the time.  Out of these 16, it looks like only about 7 ofthese components are ‘mostly’ the same businesses as in majoracquisitions or divestitures.  Almost all of these companies have madestrategic acquisitions, so understand that the picture is somewhatdistorted.  Also, these are all rounded numbers and meant to show thegeneral themes only.

We wanted to see how each component did on the day of the crash(Oct. 19, 1987) and compare the price change at December 31, 1987 topre-crash levels.  Lastly, 24/7 Wall St. wanted to compare today’sprice changes to stock prices from the same day before the crash (keepin mind, this is 20-years later, and today’s price is a multiple of thepre-crash 1987 price). 

Read on as we have some exclusive commentary from Elaine Garzarelli,who predicted the 1987 crash.  If you look at today’s multiples to theprices even before the crash, you’d start to even wonder if crashesreally matter for long-term investors and retirement funds on a bigpicture basis.  You’ll also wish you had a time machine.  These DJIAcomponents are broken up into two groups today:

DJIA Comp. (ticker)                Oct. 19     Dec. 31  TODAY
General Motors (GM)                -21%       -5%         3.5X
IBM (IBM)*                                -23.50%  -13.60%    5X
McDonald’s (MCD)                 -16.70%  +1.10%    12.8X
Merck (MRK)                            -12.90%  -13.40%    9.3X
3M (MMM)*                                -20.20%   -7.60%     9.7X
Altria (MO)*                                -14.40%  -15.90%   26X
Proctor & Gamble (PG)*            -27%     +1.40%    20X
United Tech (UTX)*                 -15.60%   -29.70%   20X

DJIA                                          -22.60%    -13.70%    6.2X

We also wanted to ask market pundits of the time how today isdifferent 20 years later, and Elaine Garzarelli was one of the morerecognized pundits that was credited for having predicted the marketcrash in 1987.  This week she responded to an inquiry and told 24/7Wall St.,  "It is a different world today..In October, 1987inflation was 5%, long rates were over 10%, and the S&P500 was 35%overvalued.  In October, 2007 inflation is under 2%, long rates arenear 5%, and the S&P500 is 30% undervalued…"  Garzarelli Research can be accessed at www.garzarelli.com to see more detailed takes on her research.  Thanks for the exclusive comments, Elaine.

If you wish to read the PART 1 article, you can access it here to see the other components at the time compared to now.

Jon C. Ogg
October 19, 2007

* indicates transformed operations

** all figures calculated only once and are rounded numbers

                               

Posted on: October 19, 2007 – 7:57 am in Economy, , , , , , , ,

DJIA Components 20 Years After The Crash (AXP, T, BA, CVX, KO, DD, XOM, GE) Part 1

As today is the 20th anniversary of the 1987 stock market crash, 24/7 Wall St. wanted to go back in time to review how the individual DJIA components held up around the time and how they have run to today.  Out of 30 DJIA components today, only 16 of today’s components were DJIA components at the time.  Out of these 16, it looks like only about 7 of these components are ‘mostly’ the same businesses as in major acquisitions or divestitures.  Almost all of these companies have made strategic acquisitions, so understand that the picture is somewhat distorted.  Also, these are all rounded numbers and meant to show the general themes only.

We wanted to see how each component did on the day of the crash (Oct. 19, 1987) and compare the price change at December 31, 1987 to pre-crash levels.  Lastly, 24/7 Wall St. wanted to compare today’s price changes to stock prices from the same day before the crash (keep in mind, this is 20-years later, and today’s price is a multiple of the pre-crash 1987 price). 

Read on as we have some exclusive commentary from Elaine Garzarelli, who predicted the 1987 crash.  If you look at today’s multiples to the prices even before the crash, you’d start to even wonder if crashes really matter for long-term investors and retirement funds on a big picture basis.  You’ll also wish you had a time machine.  These DJIA components are broken up into two groups today:

DJIA Comp. (ticker)                Oct. 19    Dec. 31    TODAY
American Express (AXP)     -26.30%    -24.30%    11X
AT&T (T)*                                 -9.60%     -11.30%    9.6X
Boeing (BA)                            -11.60%    -14.30%   14.3X
Chevron (CVX)*                     -16.60%    -18.90%    15.5X
Coca-Cola (KO)                    -24.60%     -5.30%      16.5X
Du Pont (DD)                         -18.30%    -10.50%     5.5X
Exxon (XOM)*                         -23.40%    -11.80%    16X
General Electric (GE)*          -17.40%    -12.40%    15X

DJIA                                          -22.60%    -13.70%    6.2X

We also wanted to ask market pundits of the time how today is different 20 years later, and Elaine Garzarelli was one of the more recognized pundits that was credited for having predicted the market crash in 1987.  This week she responded to an inquiry and told 24/7 Wall St.,  "It is a different world today..In October, 1987 inflation was 5%, long rates were over 10%, and the S&P500 was 35% overvalued.  In October, 2007 inflation is under 2%, long rates are near 5%, and the S&P500 is 30% undervalued…"  Garzarelli Research can be accessed at www.garzarelli.com to see more detailed takes on her research.  Thanks for the exclusive comments, Elaine.

Jon C. Ogg
October 19, 2007

* indicates transformed operations

** all figures calculated only once and are rounded numbers

Posted on: October 19, 2007 – 7:22 am in Economy, , , , , , , ,

Appe (AAPL) Mac Market Share Growing

According to Gartner research the big winner in computer sales in the U.S.was Apple (AAPL), which saw shipments rise 37 percent, according to Gartner, to 1.3 million units. That gave it a market share of 8.1 percent.

In its home market, Dell (DELL) managed to keep its No. 1 ranking, but saw shipments fall 5.5 percent to 4.8 million units. That gives it a 29 percent market share, narrowly ahead of HP’s (HPQ) 4.2 million units and 26 percent market share.

Douglas A. McIntyre

Posted on: October 19, 2007 – 7:17 am in PC Companies, , ,

Pre-Market Analyst Calls (October 19, 2007)

AZN cut to Sell at UBS.
BKUNA cut to Mkt Perform at FBR.
CAB cut to Neutral at RWBaird.
COF cut to Mkt Perform at FBR.
COST started as Mkt Perform at Bernstein.
DVA cut to Neutral at Oppenheimer.
ELOS cut to Neutral at Merriman Curhan Ford.
FED cut to Underperform at FBR.
HANS cut to Neutral at JPMorgan.
HBC cut to Neutral at UBS.
HES cut to Neutral at UBS.
HLIT raised to Outperform at FBR.
HNI raised to Neutral at Goldman Sachs.
IEX raised to Outperform at FBR.
JCG raised to Outperform at CIBC.
KBALB cut to Sell at Goldman Sachs.
LHO raised to Top Pick at RBC.
ODFL raised to Peer Perform at Bear Stearns.
OSG raised to BUy at B of A.
PCU cut to Neutral at UBS.
PLCM started as BUy at B of A.
TER raised to Overweight at JPMorgan.
TGT started as Outperform at Bernstein.
TLB cut to Sector PErform at CIBC.
UNH cut to Neutral at JPMorgan.
VRTX cut to Neutral at Cowen.
WMT started as Mkt Perform at Bernstein.

Jon C. Ogg
October 19, 2007

Posted on: October 19, 2007 – 6:54 am in Analyst Calls

Key Earnings Reactions (October 19, 2007)

(AMD) Advanced Micro Devices -$0.71 EPS vs -$0.62 est.
(BSX) Boston Scientific $0.20 EPS vs $0.07 guidance.
(CAT) Caterpillar $1.40 EPS vs $1.43 est.; narrows 2007 guidance.
(FITB) Fifth Third $0.71 EPS vs $0.68 est.
(GOOG) Google traded up 1% after beating earnings; added 2,100 jobs.
(HOG) Harley Davidson $1.07 EPS vs $1.05 est.; cautious near-term.
(HON) Honeywell $0.81 EPS vs $0.81 est.
(ISRG) Intuitive Surgical traded up almost 5% after beating earnings and raising guidance.
(MMM) 3M $1.29 EPS vs. $1.28 est.; guidance looks raised but that is on gains.
(PMCS) PMC-Sierra slightly beat estimates but CEO retiring; stock traded up marginally.
(SLB) Schlumberger $1.09 EPS vs $1.07 est.
(SNDK) SanDisk indicating down after beating earnings and seeing slight drop in pricing.
(WB) Wachovia $1.05 EPS vs $1.03 est.; was $0.90 after items.
(XLNX) Xilinx $0.30 EPS vs $0.29 est.
(XRX) Xerox $0.27 EPS vs. $0.26 est.

Jon C. Ogg
October 19, 2007

Posted on: October 19, 2007 – 6:44 am in Earnings, Pre-Market Activity, , , , , , , , , , , , , , ,

Boston Scientific’s (BSX) Bleak Outlook

The stent business continues to dog Boston Scientific (BSX) numbers. Several studies have shown that the devices can cause blood clots.

BSX sales for the third quarter of 2007 were $2.048 billion as compared to $2.026 billion for the third quarter of 2006. Worldwide sales of the Company’s drug-eluting coronary stent systems for the third quarter of 2007 were $448 million as compared to $572 million for the third quarter of 2006.

Reported net loss for the third quarter of 2007 was $272 million, or $0.18 per share. Reported results for the third quarter of 2007 included acquisition- and divestiture-related charges (after-tax) of $435 million, or $0.29 per share.

The company’s forecast was gloomy. BSX estimates net sales for the fourth quarter of 2007 between $2.05 billion and $2.15 billion. Adjusted earnings — excluding charges related to acquisitions, divestitures and restructuring, and amortization expense — are estimated to be in a range of $0.14 and $0.19 per share. The Company estimates a net loss on a GAAP basis between $0.09 and $0.02 per share.

No recovery here.

Douglas A. McIntyre

Posted on: October 19, 2007 – 6:11 am in Earnings,

Europe Markets 10/19/2007

Markets in Europe were lower at 6.20 AM New York time.

The FTSE was off .1% to 6,602. BP (BP) was up 1.2% to 623.5. Nothern Rock was down 2.2% to 200.

The DAXX dropped .3% to 7,902. Siemens (SI) was up 1% to 92.24. Commerzbank was down 1.3% to 30.44.

The CAC 40 was flat at 5,768. AXA (AXA) was down 1.1% to 30.15. Vinci was up 1.3% to 53.2

Data from Reuters

Douglas A. McIntyre

Posted on: October 19, 2007 – 5:25 am in International Markets, , ,

Countrywide (CFC): Investigate Them All

Sen. Charles Schumer seems to have his nose everywhere, whether it belongs or not. Yesterday, he called for the SEC to investigate Countrywide (CFC) along with its CEO CEO Angelo Mozilo. There is some concern that Mr. Mozilo may have sold stock with the knowledge that things were about to go sour at his company.

According to Reuters, the senator said the SEC should "expand its informal probe of suspicious stock sales by Countrywide CEO Angelo Mozilo to include the company itself, which may have taken steps to enable Mozilo’s stock dumping as the subprime crisis heated up and Countrywide’s stock prices plunged."

Schumer acts like he is running for president. It probably has not occurred to him that the government is almost certain to look at the company’s role in option grants and stock sales as a part of the overall inquiry.

Someone should take the senator aside and tell him

Douglas A. McIntyre

Posted on: October 19, 2007 – 5:17 am in Uncategorized,

Big Citigroup (C) Bail-Out Fund Already In Trouble

Several banks with troubled fixed income and mortgage securities are making the rounds to raise $80 billion to $100 billion to build a fund to buy some of this distressed debt. Citicorp (C) has the largest pool of these instruments, so it has the most to gain, or lose, if the fund has any problems.

Well, it appears that the work to build this pool of capital is already fraying at the edges.

According to The New York Times, the three big banks involved in the deal, Cit, BAC, and JP Morgan (JPM) are having trouble getting their ducks in a row. "All three banks agree on the concept but differ on the details. Other questions remain. How will the plan work? Who will participate? How much will its backers put in? "

Enough money has been raised to support the problem through the end of the year, but, after that, there could be trouble. Some large institutional investors like Pimco and T Rowe Price, have passed on investing in the fund. Some of the big investment banks, like Goldman, feel that they don’t have enough information about the fund to commit to putting in money.

As NYT reports "Some say the effort will just delay the inevitable by repackaging bonds backed by mortgages, loans and other assets that investors know little about and that have fallen in value."

The big bail out could be still born. Citi could face huge write offs. Chuck Prince could still lose his job.

Like all plans where the interests of the participants are not aligned, things can come undone fast. It would not be foolish to assume that the plan never comes together.

Douglas A. McIntyre

Posted on: October 19, 2007 – 4:54 am in Banking, , , ,

A Price War For AMD (AMD)

AMD (AMD) had another big quarterly loss. But, it was not as large as in Q2 and gross margins improved a bit. Maybe the chip price wars are ending and AMD can move back toward a profit.

Probably not. According to The Wall Street Journal: "IDC, a market-research firm, estimates AMD accounted in the second quarter for 23.1% of unit sales of x86 microprocessors, the most popular variety of calculating engines for personal computers and server systems — up from 18.6% in the first period."

AMD said that it thought it had improved share even more in the third quarter.

Intel (INTC) is going to want that share back. With its lower cost base and rock-hard balance sheet, it can afford to cut prices again. Rumors are that it is already getting aggressive with pricing on its high end chips to combat AMD’s new Barcelona line.

A drop in gross margin point at Intel more than $3 billion over the course of a year. At AMD, that number is more like $600 million. But, on its revenue base and with loads of cash Intel can take that hit. AMD can’t.

And, Intel is going to want that market share back.

Douglas A. McIntyre

Posted on: October 19, 2007 – 4:40 am in Semiconductor, ,

For Google (GOOG): Now The Hard Part

Google (GOOG) has made believers out of everyone. It is worth every penny of its $640 share price. According to a survey by Barron’s, several large firms including Credit Suisse and Goldman Sachs have raised price targets as high as $800. And, why not? Revenue at the big search company rose 57% to $3 billion when costs of payments to traffic partners were backed out.

Google’s share of search in the US is between 57% and 65% depending on which research firm’s numbers are used.

But, Google’s stock price did not move much after its earnings release. It is doubtful than any news, even the release of a G-Phone will push shares up much before Q4 numbers come out in early 2008.

Google is hiring fast, and that is not surprise. It added over 2,100 employees last quarter to reach almost 16,000.

But, Google now faces the hard part of the climb to the top of the mountain, the $1,000 share price, the market cap as high as Microsoft’s (MSFT).

There is likely to be a recession in the next two quarters. Even if it is mild, ad spending will get hit. Google may do better than most media, but it will feel some effect.

The company is adding employees to get somewhere other than search. Mobile is a big part of that. Competing in the desktop software space. Online video. It is old hat too say that there are most risks and lower margins in these businesses than in core search, but it is worth repeating.

Yahoo! (YHOO) and Microsoft are not likely to do Google any harm in the search business. Google’s challenge is inside the company and in the broader economy. Can it innovate beyond the advertising business before the advertising business cuts into its future?

Douglas A. McIntyre

Posted on: October 19, 2007 – 4:31 am in Internet, , ,

Media Digest 10/19/2007 Reuters, WSJ, NYTimes, FT, Barron’s

According to Reuters, Google’s (GOOG) quarterly profit rose 46%.

Reuters writes that Warren Buffett has sold his entire stake in PetroChina (PTR)

Reuters writes that Microsoft (MSFT) says that its may make a number of small M&A deals but does not plan any blockbuster acquisitions.

The Wall Street Journal writes that Bear Stearns (BSC) is being investigated by Massachusetts regulators over whether the firm improperly traded with two in-house hedge funds that collapsed

The WSJ writes that CItigroup (C) has brought in enought  funding through year end for the $80 billion in SIVs it manages, a move that helps it avoid selling assets at distressed prices

The WSJ writes that AMD’s (AMD) large loss narrowed some from the second quarter,indicating that chips price wars may be ending.

The WSJ writes that GM’s (GM) overseas sales have offset a drop in US units so far this year.

The New York Times writes that a fund meant to bail out big banks with large pools of troubled securities is having trouble as participants fight over details.

The New York Times writes that the appetite among media companies to buy tech start-ups is rising. Some are setting up their own venture arms.

The New York Times also reports that the BBC will lay-off 2,500 people.

The FT writes that "Halo 3" drive a big gain in US video game sales.

The FT writes that crude rose above $90 a barrel.

Barron’s writes that several brokerage houses raised their price targets on Google (GOOG)

Douglas A. McIntyre

Posted on: October 19, 2007 – 3:07 am in Press Digest, , , , , , ,