Daily Archives: January 16, 2008

Cramer Revisits An Oversold Tech Value (ADCT)

On tonight’s MAD MONEY on CNBC, Jim Cramer said he was sticking with his stance in finding technology companies that are either oversold or overlooked in the current market malaise where he thinks you can find value and the worst has already been seen.  To avoid the malaise of Intel, which he thinks wasn’t that bad, and to avoid the trick of IBM making you think it was all good, he remind that tech is not a standstill sector.  He noted BEA Systems and following Carl Icahn. 

Cramer’s pick tonight is ADC Telecom (NYSE: ADCT).  He thought it was cheap when he recommended it in December and this one is even cheaper now (meaning it sold off).  He thinks that the franchise has only gotten stronger.  It has an arms provider model that sells to everyone.  He’s going back over the the same data as in December as it is a FiOS winner.  He likes that it blew out numbers last time and he thinks they can deliver.  In his mind this could rise 60% from here.  It has $5 to $7 upside and he thinks maybe $1 downside, and he even thinks that Carl Icahn might like this one.

Last night his pick was Riverbed Tech (NASDAQ: RVBD) and you can see the full pick here.  On Monday, Cramer noted EMC Corp. (NYSE: EMC) as his top pick that he still likes.

ADC Telecom (NASDAQ: ADCT) closed up 3.44% today at $13.52, and this rose 4% to $14.02 in after-hours trading.

Jon C. Ogg
January 16, 2008

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Posted on: January 16, 2008 – 6:26 pm in Cramer, Technology Companies,

Cramer Goes MO MO on Defensive (MO, RAI)

On tonight’s MAD MONEY on CNBC, Jim Cramer said that despite this being one of the worst markets he’s seen in his career he wants you to stay in the game.  He wants to own defensive stocks that will hold up well.  Here is his pick tonight:

  • Altria (NYSE: MO) was down today and he still likes it.  This was one of his top picks last year that he has stuck with for a while.  This was also one of our Dogs of the Dow we gave a target for ahead of the spin-off of Phillip Morris International in 14 days for  and the break-up could end up coming out the end of this quarter.  The company also owns a 28.6% stake in SAB Miller.  The company will also start to be able to repurchase shares soon.  He thinks the momentum might take this to $90 per share even before the break-up.

We’ve heard this one before over and over, so that’s enough there.  We named Reynolds American (NYSE: RAI) as one of our "new defensive stocks with a value flair" for the first part of 2008.

Jon C. Ogg
January 16, 2008

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Posted on: January 16, 2008 – 6:14 pm in Cramer, Defensive Stocks, ,

Wal-Mart Lives Up To A Promise: Doing Well In A Recession (WMT, TGT, COST)

Wal-Mart (NYSE: WMT) is managing to actually hold up well in an environment where almost all retail and consumer discretionary stocks are stinking up the stock exchanges.  It seems that whether you like the stores or hate the stores that maybe it actually does do well in a recession.  As consumers are tightening up their purse strings, they might be turning into Wal-Mart shoppers whether they like it or not.

Last year I actually noted on an interview on CNBC that Target Corp. (NYSE: TGT) would underperform versus Wal-Mart.  My counterpart Dana Telsey didn’t really agree with the call, but frankly my reasoning for the call wasn’t so much the economy at the time as much as it was relative performance and a complete decoupling.

In fact, I even gave Lee Scott a pass this year on the 24/7 Wall St. list of CEO’s THAT NEED TO GO because of the slowing economy and because there is no point beating a dead horse.  It isn’t so much that Wal-Mart is that great of retail destination.  They can just out-cheap every other retailer.  When your job is on the line, or when you are financially over-extended, or if you are just worried about your savings, choosing Wal-Mart over other stores isn’t that big of a stretch.  Our 10 STEP PROGRAM didn’t really include a recession, but a recession can be some managers’ best friends.

Wal-Mart’s last sales projections were far superior to those of general retail trends.  Maybe Lee Scott’s message should have been "Get off my back, a recession is coming soon and we’ll do well then."  The good news is that he can hire Chuck Prince to man the door as a greeter and he can hire Michael Cherkasky for the security team.

Jon C. Ogg
January 16, 2008

Posted on: January 16, 2008 – 6:02 pm in Retail, ,

52-Week Low Club (ABK, AKAM, C, CPKI, EBAY, FFIV, FUL, NMX, PMI, ZQK, SGMS, STXS, TTI, XRX, ZBRA)

After the financial meltdown and after the new tech wreck, many of the same stocks and same REIT’s keep appearing over and over on the list of new 52-week lows.  Here are some others that might not have normally caught your eye:

  • AMBAC Financial (ABK) was down big after it came clean and ran the gauntlet, but this one went from bad to worse by closing down a whopping 38% at $12.97.  Ouch!
  • Akamai Tech (AKAM) closed down almost 4% at $25.88; prior 52-week range was $25.97 to $59.69….. so much for pushing out online video and media faster being a solid business.
  • Citigroup (C) just cant catch a break with a new year low close of $26.24.  Maybe being a stronger manager might help Pandit.  Dear Vikram, Welcome to running a troubled public company.
  • California Pizza Kitchen (CPKI) after its warnings closed down over 17% at $10.10; $12.20 to $25.23 prior range.
  • eBay (EBAY) was a bit of a shock to see, although if you take the retail, tech, and internet angle it’s not a huge stretch.  The good news is that this was only intra-day with a low of $27.67 at the open.  It closed up 0.5% at $28.09 and the prior 52-week range was $27.85 to $40.73.
  • F5 Networks (FFIV) took a downgrade to Hold from Buy at Jefferies; shares closed down 8% to $20.68; prior range $21.07 to $46.94.
  • H B Fuller (FUL) manufactures and markets adhesives and specialty chemical products worldwide.  It fell 11.3% to $19.57; prior low $20.56; posted lower Q4 earnings
  • NYMEX Holdings (NMX) closed down 7.5% at $103.98, 52-week range is $105 to $148; maybe that raised CEO bonus might not be the best idea.
  • PMI Group (PMI) won’t find any sympathy anywhere, shares closed down 7.5% at $7.77.
  • Quicksilver (ZQK) can’t be a big shock since it warned on earnings yesterday; -5.3% at $7.04.
  • Scientific Games (SGMS) wasn’t just bad, it was a slaughter at -30% to $19.45; prior range $28.15 to $40.70.  It lost a contract and took a downgrade.
  • Stereotaxis (STXS) received an additional approval from FDA but it warned on earnings in a significant manor that caused an investor and trader revolt in what was already down and out.  It fell down 22% to $8.84; prior range $9.66 to $16.88.
  • Tetra Technologies (TTI) is a geographically diversified oil and gas services company that provides niche products and services focused on well completion and on late-life production enhancement and decommissioning.  Maybe that business isn’t great anymore?  It warned Monday about a shortfall and today was just as bad or worse. This one closed down 8% to $14.38, and its prior 52-week range was $14.38 to $30.20.
  • Xerox (XRX) hit intra-day 52-week lows and if this isn’t an endorsement of a slowdown in the big business climate then what the hell is?  Shares hit a low of $13.59, but closed barely over the prior 52-week low at $13.88; 52-week range $13.84 to $20.18.
  • Zebra Tech (ZBRA) can’t be too big of a shock with retail slowing and its bar code tech is retail dependent (sans-drugs); stock fell almost 3% to $30.17; prior range is $30.95 to $42.50.

Jon C. Ogg
January 16, 2008

Posted on: January 16, 2008 – 4:31 pm in HI/LOW, , , , , , , , , , , , , , ,

Would Fannie & Freddie Lift Conforming Limits in Stimulus Package? (FRE, FNM)

If you look at the share prices in Freddie Mac (NYSE: FRE) and Fannie Mae (NYSE: FNM) you might wonder if this is euphoria over the fact that there is at least some decent news in the financial sector after you saw today’s key earnings weren’t the same as Vikram Pandit & Co. yesterday.  If you see our article on "Financial Mergers May Be Mandated Rather Than Preferred" you will get a feel for what may be coming down the pipe.

What is interesting is that it is mostly on market chatter.  Now that the government is supposedly working on a financial stimulus package, the speculation is rife as to what this will be. It appears that some are speculating that the conforming loan cap may be raised from roughly $417,000 up to $500,000 and some are thinking that it might even be higher than that.

We would caution against raising this number too high because even this $417,000.00 limit is actually be part of the problem in the current subprime and Alt-A debacle.  Historically without the funny money loans and with higher rates, this would net roughly a $3,800.00 per month mortgage plus or minus a few percent after property taxes and PMI.  Many families cannot afford that after you take into consideration basic living expenses and income taxes, even after the property tax and interest deductions.  Making loans available to easily for too much money just compounds risk on risk and may just drag the since of 2005 to 2007 out much farther than this would otherwise go.

With just under an hour to the close today, shares of Fannie Mae are are up 3% at $37.40 and shares of Freddie Mac are up 5% at $32.35 today.  Both shares are down roughly 50% from their highs over the last year.

Jon C. Ogg
January 16, 2008

Posted on: January 16, 2008 – 3:22 pm in Financial Stocks, ,

A Disconnect In Online Broker Stocks (SCHW, AMTD, ETFC)

TD Ameritrade (NASDAQ: AMTD) is set to report earnings tomorrow morning.  What is interesting is that Joe Moglia’s discount broker is down today, while Charles Schwab (NASDAQ: SCHW) is trading higher after its earnings today.

Schwab actually rallied after its earnings weren’t indicative of any significant problems in the online discount brokerage space.  Its operating profit was actually up 36% and EPS was $0.26 (matched estimates at Reuters and $0.01 under First Call estimates).  Revenues around $1.3 Billion were also in line with estimates, and a breakdown is as follows: $242< trading revenue, $628M asset management and administration, and $441M net interest.  Its assets stayed flat sequentially at $1.44 Trillion.

What is interesting is that Schwab left the door open to acquisitions in brokerage accounts or in 401K retirement operations and the fee structure is still somewhat open as well.  Schwab’s market cap today is roughly $26.8 Billion.

TD Ameritrade is expected to post $0.39 EPS on $622.6 million in revenues for the last quarter and we;ll get more details in the conference call tomorrow.  What is interesting is that Ameritrade actually raised its guidance in mid-December and shares closed at $19.40 that day.  Shares are at $19.00 today.

With about 90 minutes to the close, AMTD shares are down almost 2% at $18.97.  Its 52-week trading range is $13.82 to $21.31.  Its current market cap is roughly $11.3 Billion.

E*Trade (NASDAQ:ETFC) is set to report its earnings later this month, and you can throw your arms up in the air over how that one will look.  This one is now the dog of the business, and even after it has sold off assets (and hopefully liabilities) and even after raising cash and getting rid of the CEO it is still the most troubled and at risk of the large online brokers.  At that point we’re supposed to get its restructuring business plan.

Jon C. Ogg
January 16, 2008

Posted on: January 16, 2008 – 2:48 pm in Brokerage Firms, Earnings, , ,

Medallion Financial Corp. Interview: 24/7 Wall St. Exclusive (TAXI, HMR)

When you have ridden in a taxi cab, have you ever thought of the business metrics behind the business of being a cab driver?  I have.  Medallion Financial Corp. (NASDAQ:TAXI) is the business that many drivers and business owners turn to in making this possible as far as being an owner.  Medallion is a company I have been fascinated with for quite some time, and developments over the last few months brought me to look further into the company.  What is more interesting here besides its niche is that the company may be one of the more misunderstood specialty finance operations out there.  It also may have much less credit risk exposure than some would assume compared to many specialty lenders.  Depending on how conservative or liberal you are in accounting and valuations, there are some aspects of the underlying business that might not be fully reflected on the balance sheet.

Brian O’Leary, Chief Operating Officer spent more than an hour with me personally along with the company’s PR firm Zlokower Company at the Medallion Financial headquarters in New York City on Friday, January 11, 2008.  This was an exclusive interview with 24/7 Wall St., LLC (247WallSt.com).  Larry Hall, Medallion’s Chief Financial Officer, who was in the middle of preparing the year-end statements, also joined the meeting briefly.

To show how different the perceptions were versus reality, the note that they had been thought of as a lender to taxi and dry cleaning owners really came to mind.  In fact, forget the dry cleaning business as it is history and was not a real push.  The full MEDALLION does in fact make loans for taxi medallions.  But it also has more to the story:

  • It owns a Utah bank that is off the books other than a line-item that was de-consolidated and was therefore not deemed as a financial restatement, and has an asset based lending operation for receivables and inventory;
  • It has a small mezzanine lending operation;
  • and it has a percentage of a pending SPAC IPO that is a potential back-door play that some investors might think of as an embedded call option in an entertainment business (see below, because that is my perception rather than a promise from the company);
  • Because it operates in different aspects of finance, Medallion ( or unit) is registered and governed as a Small Business Investment Company, a bank, and as a registered investment company.   

MEDALLION’S CORE OPERATIONS

Medallion’s mainstay is lending for licensed taxi medallions in markets that are established, regulated, and where they are not the only finance shop in town.  Its predominant area is in and around New York City and Newark, and its two largest markets behind that are Boston and Chicago, with other cities as well.  Medallion wants to operate in more cities if the regulations and governance of the markets come into place, and these new markets may essentially be a small long-term call option for shareholders.

Interestingly enough, after the business was explained to me there may even be a small degree of counter-cyclical business aspects in an economic downturn as qualified candidates from other fields end up becoming taxi drivers.  Mr. O’Leary told me, "A Yellow Cab isn’t a luxury. The black cars (private cabs usually black Lincolns) and private limos for hire are a luxury."  The pricing of taxi medallions has been greatly in its favor and the company actually prefers regulated markets where there is at least some other competition.  Because of the underlying value of the medallions being stable and having risen through time, it is proud to say that in the main operations its loan losses are close to nil.

New York is the crown jewel of the business as medallions there run around $600,000 each with the minimum of two for a business owner to buy new taxi medallions.  There are some plans currently in New York that may or may not drive the value higher, although this should not be an assumption in deriving values.  There are somewhat cheaper medallions ($400,000+) but these are also unattainable for most of the population seeking to acquire them without financing.  Medallions in other cities are far cheaper so those markets are markets where I would consider them individually as more of a niche rather than dominant part of the company.

SO WHAT ARE THE OTHER ASPECTS OF THE BUSINESS?

The commercial and consumer lending operations inside Medallion Bank are largely to small tow RV and marine loans; but so far this has held up much better than it originally budgeted for according to Mr. O’Leary.  The lending rates on these often tend to be 18% or 19%.  It is my understanding that Medallion budgeted for 5% loan losses there, yet these have been running in the low 3% range and toward the end of last year were approaching 4%.  This is carried on the books as roughly a $50.5 million line item investment on the books as of September 30, 2007.  In a normal financial company environment I could make the argument that this unit may be worth more than it is listed as, although the caveats for consumer finance today are prevailing over many of the facts of today because of the current financial sector woes.

When I asked if there were any major restructuring or significant business changes planned on the immediate horizon Mr. O’Leary answered, "No, but we are always looking for the next great niche." As the company is always on the look for new growth avenues, their mantra of "In Niches There Are Riches" stands out in mind.  When you consider that this Medallion may be one of the more misunderstood finance companies out there the mantra stands out even more.  Andrew Murstein is one of the drivers in the company’s efforts to seek new niches.  This may take months or years to occur, so consider this another potential long-term call option for Medallion shareholders.

The mezzanine financing operation is a small part of the business where the goal is to have a bunch of small hits and an occasional home run.  This aspect of the business benefits from equity kickers or warrants or other financial participation.  This is also a non-core aspect of the business, but it has made large occasional contributions before.

The company is also more than satisfied with its current capital structure:

  • It completed a small $35 million financing last year that it felt was cheap money, and it recently got to buy back roughly $2 million of this amount.
  • Its credit lines are adequate and were recently raised from $125 million to $250 million at Citi and has another $325 million in credit lines that it can access from Merrill Lynch.
  • It has an active shelf filing that will allow Medallion to raise cash if it finds a next great niche.
  • The company believes it has no real ties to the current debt crisis or liquidity crisis that has been affecting most of the large financial institutions over recent months.

The SPAC, or special purpose acquisition company, is called Sports Properties Acquisition Corp. (will trade as HMR on AMEX) that is a minority investment held by Medallion; and the predetermined value (of the entity, not Medallion’s portion) is roughly $200 million according to the SPAC IPO FILING SUMMARY.  This SPAC has baseball great Hank Aaron, former New York Governor Mario Cuomo, Jack Kemp, and others on its board of directors.  It is led by Tony Taveres as President & CEO of "HMR" and he is former president & CEO of SMG, a premier management company engaged in the private management of stadiums, arenas, theaters and convention facilities.  Medallion maintains the stance that no business has been identified, but if you’d like my bet I would bet that the SPAC will seek to either acquire a professional sports team or a venue for sports.  That is my own belief.  But if this occurs, this could be thought of essentially as a significant long-term multi-year call option that might generate significant returns for the company.  Medallion is a back door play into this if it has a successful IPO.

Read More »

Posted on: January 16, 2008 – 2:19 pm in Financial Stocks, Interview, Value Investing, , , , , , , ,

Goldman Sachs Hints At $1,000 Gold Potential & Weaker Dollar (ABX, GLD, NEM, AU, BVN, GFI, FCX)

Goldman Sachs is RAISING ITS 2008 GOLD FORECASTS factoring for a recession in the U.S. in both Q2 and Q3 2008, leading to a weaker U.S. Dollar target of $1.51/Euro (up from $1.35) over the next six months.  The prior $800/ounce gold target is now put at an average of $915/ounce for all of 2008, with an exit 2008 commodity price of $850 (up from $825 prior).  The call is based on support from investment demand, purchases from emerging market central banks, and the ongoing declining mine supplies.  Goldman Sachs is also raising its 2009 and 2010 gold prices:

  • 2009 prices are now expected to be $870/ounce (up from $852);
  • 2010 prices are now expected to be $940/ounce (up from $907);

Near-term Goldman Sachs notes a possibility of a spike past $1,000.00 that could be the effect of further credit events and increases in oil prices.

Below is a summary of some of the equity calls from Goldman Sachs on its gold stock sector coverage:

  • Barrick Gold (NYSE: ABX) is Goldman Sachs’ TOP PICK as a defensive and non consumer-sensitive pick within its basic materials coverage.  Its estimates were only raised 1 penny to $2.01 EPS this year but next year’s EPS is now targeted at $4.00 (up from $3.20 prior).  This was recently also Jim Cramer’s top gold pick.
  • Newmont Mining Corp. (NYSE: NEM) (neutral rated) estimates were raised from $1.31 EPS to $1.33 and next year from $1.94 to $2.76.
  • The new estimates for AngloGold Ashanti Ltd. (NYSE: AU) (neutral rated) are $1.61 EPS from $1.57 for this year and $3.38 from $3.16 for next year.
  • Compania de Minas Buenaventura SA (NYSE: BVN) ADR’s (sell rated) are seeing this year’s EPS estimates raised to $2.54 from $2.50 and next year’s EPS estimates raised to $4.43 from $3.55.
  • Gold Fields Ltd. (NYSE: GFI) (Buy rated) estimates are being raised to $0.87 EPS from $0.69 this year and raised to $1.54 EPS from $1.39 next year.
  • Freeport-McMoRan Copper & Gold (NYSE: FCX) (Buy rated) is seeing the estimate for this year down by 1 penny to $8.49, but the EPS estimate for next year is being raised to $10.03 from $9.75.

Traders can also look at the streetTRACKS Gold Shares (NYSE: GLD) as the ETN (ETF) in the sector.  It trades at roughly one-tenth the price of gold bullion after trust expenses and fees.

Many traders thought that first $100 OIL super-spike price wasridiculous at the time, but then as prices soared and all of a suddenthe hiked and raised $135 OIL super-spike price didn’t get as muchcriticism.  For inflation’s sake, let’s hope Goldman Sachs proprietarytraders don’t go out on a massive buying spree.

Jon C. Ogg
January 16, 2008

Posted on: January 16, 2008 – 9:47 am in Analyst Calls, Metals, , , , , , ,

Goldman Sachs on Steel & Metals in 2008 (NUE, ZEUS, RS, ATI, X, SCHN, AKS)

Goldman Sachs is out with a call covering the steel stocks.  We’ll be keeping this one shortened to keep it in a summary format.  Goldman is noting that US STEEL PRICES ARE SET TO RISE SIGNIFICANTLY IN 2008.  It notes a short squeeze that should more than offset recessionary demand trends.  It also notes a trend in mini-mills where they will see higher scrap price costs in the near-term but will have wider margins later in 2008 and 2009.  Goldman also believes the integrated steel companies will see margin increases on an immediate basis.

Below are the stock calls seen in the steel and related sector:

  • Nucor Corp. (NYSE: NUE) is its Top Pick in the sector;
  • and that is followed by Olympic Steel (NASDAQ: ZUES) and Reliance Steel (NYSE: RS) as Buy ratings;
  • it also has Allegheny Tech (NYSE: ATI), U.S. Steel (NYSE: X) as Neutral ratings;
  • Schnitzer Steel (NASDAQ: SCHN) was downgraded to the loathed SELL rating from an already lackluster Neutral rating.  It sees a 15% downside to its new price target of $47.00 as the premium to peers is unwarranted.
  • AK Steel Holding (NYSE: AKS) is being removed from The Americas SellList and therefore being raised to a Neutral rating.  Its 2008estimates are being hiked to $4.25 from $3.30 and the 2009 estimatesare being raised to $3.85 from $3.35. 

Jon C. Ogg
January 16, 2008

Posted on: January 16, 2008 – 9:17 am in Analyst Calls, Metals, , , , , , ,

CPI Reading Showing At Least Some Inflation Containment

The Consumer Pricing Index for DECEMBER 2007 is showing that prices on the consumer level are not running out of control.  The CPI came in at +0.3% on nominal CPI and +0.2% on a Core CPI basis (ex-food/energy).  The annual or year over year comparisons are higher with the numbers coming in at +4.1% on nominal CPI (down from +4.3% last month), and the Core CPI annual was +2.4% (versus +2.3% last month).

Inflation is still too high.  That is obvious.  But the FOMC is under fire right now to lower rates and Bernanke & Co. probably isn’t going to be able to worry about whether inflation is running in a 2% range or a 4% range until this immediate crisis can be quantified.

Jon C. Ogg
January 16, 2008

Posted on: January 16, 2008 – 8:37 am in Economy

AMBAC Comes Clean & Runs The Gauntlet (ABK, MBI)

Ambac Financial Group, Inc. (NYSE: ABK) has finally come clean, but this coming clean is so brutal that it will be dirty. Below are some of the summary changes, many of which are substantial:

  • AMBAC will raise more than $1 Billion in securities sales.
  • It is slashing the common dividend down to $0.07 from $0.21, a drop of two-thirds.
  • Robert Genader is ‘retiring’ as CEO, being replaced by Michael Callen as Chairman & Interim CEO.
  • Losses are LARGER THAN THE STOCK PRICE and being put at -$32.83 EPS on an after-charges basis.
  • Operating losses on an EPS are being shown as up to -$5.80 EPS.
  • Its estimate of the fair value or “mark-to-market” adjustment for its credit derivative portfolio for the quarter is an estimated loss of $5.4 billion, pre-tax, $3.5 billion, after tax.
  • Of the estimated $5.4 billion pre-tax mark-to-market loss, approximately $1.1 billion represents estimated credit impairment related to certain collateralized debt obligations of asset-backed securities transactions.
  • It will report a loss provision amounting to approximately $143 million, pre-tax. The loss provision relates primarily to underperforming home equity line of credit and closed-end second lien RMBS securitizations.

AMBAC is actually claiming a new book value of $21.00 per share as of December 31, 2007. How many people will now try to use that number as a share price ceiling is as good of a guess as any.  Analysts were not surprisingly expecting a profit for the quarter.

Shares closed at $21.14 yesterday and initial pre-market indications had put this around $19.25 to $19.50 in early hours pre-market trading.  Shares are actually trading down under $18.00 now.  The 52-week high is $96.10.  This is actually weighing on other bond insurers and guarantors as MBIA Inc (NYSE: MBI) is indicated down 9%.

Jon C. Ogg
January 16, 2008

Posted on: January 16, 2008 – 8:25 am in Earnings Warning, Financial Stocks, Management Change, ,

Another Big Disappointment From Sun (JAVA)

Sun Microsystems (JAVA) just can’t seem to get things right. Sun expects to report revenues for the second quarter of fiscal 2008 of approximately $3.60 billion, an increase of approximately 1 percent as compared with $3.57 billion for the second quarter of fiscal 2007. In other words, the business is not growing at all.

Net income for the second quarter of fiscal 2008 on a GAAP basis is expected to be in the range of $230 million to $265 million, or $0.28 to $0.32 per share on a diluted basis, as compared with net income of $133 million, or $0.15 per share, for the second quarter of fiscal 2007.

Sun also announced that it has entered into a definitive agreement to acquire MySQL AB, an open source icon and developer of one of the world’s fastest growing open source databases for approximately $1 billion in total consideration.

The stock, which is near its 52-week low, trade flat in the pre-market

Douglas A. McIntyre

Posted on: January 16, 2008 – 8:09 am in Earnings,

Top 10 Pre-Market Analyst Calls (ADCT, ADSK, BSX, EL, FFIV, PCZ, TLAB, GTS, VRTX)

These are not at all the only analyst calls that 247WallSt.com is looking at today in an active negative market, but these are 10 of the more influential calls that may stand out in an otherwise cautious or negative market:

  • ADC Telecom (NASDAQ: ADCT) raised to Outperform at Morgan Keegan.
  • Autodesk (NASDAQ: ADSK) cut to Hold from Buy at Jefferies.
  • Boston Scientific (NYSE: BSX) raised to BUY from Neutral at Banc of America.
  • Estee Lauder (NYSE: EL) raised to Neutral from Sell at UBS.
  • F5 Networks (NASDAQ: FFIV) cut to Hold from Buy at Jefferies.
  • Intel Corp. (NASDAQ: INTC) upgraded to Equal Weight from Underweight at Morgan Stanley; estimates lowered at Goldman Sachs (and likely many more).
  • Petro Canada (NYSE: PCZ) downgraded to Neutral from outperform at Credit Suisse.
  • Tellabs (NASDAQ: TLAB) raised to Buy from Neutral at UBS (large call option buying recently).
  • Triple S management (NYSE: GTS) started after quiet period: Outperform at Credit Suisse, Outperform at Oppenheimer, and Neutral at UBS.
  • Vertex (NASDAQ: VRTX) raised to Buy from Neutral at Banc of America.

Jon C. Ogg
January 16, 2008

Posted on: January 16, 2008 – 8:07 am in Analyst Calls, , , , , , , , ,

BEA Capitulates; Oracle Wins (BEAS, ORCL)

After essentially a near-decade of rumors, bids, rejections, and infighting, BEA Systems (NASDAQ: BEAS) is finally being acquired.  The company has capitulated and Larry Ellison’s empire is the winner.

Oracle Corp. (NASDAQ: ORCL) is acquiring the company for $19.375 per share entirely in cash of roughly $8.5 Billion (net of $7.2 Billion of BEA’s $1.3 Billion cash on hand).

The merger is set to close in mid-2008 and this is actually a definitive agreement that BEA Systems is capitulating to.

The merger is supposed to be accretive by $0.01 to $0.02 EPS on a non-GAAP basis in the first full year after this merger closes.

BEA has been under pressure of late after the company rejected the previous buyout attempt from oracle.  This $19.375 is actually a multi-year high that will make most shareholder money.  The 52-week trading range is $10.50 to $18.94, and shares closed at $15.58 yesterday.   

Jon C. Ogg
January 16, 2008

Posted on: January 16, 2008 – 7:40 am in Bait Shop, Mergers and Buy Outs, Software, ,

ASML Falls In Silicon Earnings Soup (ASML)

Chip-equipment supplier ASML Holding NV (NASDAQ: ASML) is seeing shares under pressure after it posted earnings out of The Netherlands this morning.  ASML posted flat results with a net profit of some 206 million Euro’s or about $302.9 million in currency conversions.  Sales were 973 million Euro’s or about $1.4 Billion after currency conversions.

The company is also cautious ahead and is not forecasting growth of lithography machines this quarter.  Its CEO Eric Meurice noted that independent market researchers still see gains in 2008 but it is awaiting confirmation via levels of bookings in Q1 and Q2. This is despite the fact that the belief is there that customers need ASML’s new products, and the company’s backlog fell a few percentage points down to 1.7 Billion Euros (from 1.77 Billion).

Shares of ASML are trading down 12.2%at $24.18 pre-market on fairly thin volume in the U.S., although shares were down 11% on more active trading overseas.  This level at least in the U.S. will represent a new 52-week low that hasn’t actually been seen since August 2006.   

Jon C. Ogg
January 16, 2008

Posted on: January 16, 2008 – 7:33 am in Earnings, Semiconductor,

Europe Markets 1/16/2008 (BHP)(SAP)

Markets in Europe were sharply lower at 7.20 AM Eastern time

The FTSE fell 1.6% to 5,930. BHP Billiton (BHP) was off 4.8% to 1413. Diageo was up 1.7% to 1014.

The DAXX dropped 1.2% to 7,475. Commerzbank was off 3.5% to 22.37. Infineon was down 3.9% to 6.43. SAP (SAP) was up 1.5% to 33.34.

The CAC 40 traded off .9% to 5,204. Air France was down 3.7% to 19.6. France Telecom (FTE) was up 1.2% to 24.79.

Data from Reuters

Douglas A. McIntyre

Posted on: January 16, 2008 – 7:23 am in International Markets, , ,

JPMorgan Chase EPS, Fuel For Bulls & Bears Alike (JPM)

JPMorgan Chase (NYSE: JPM) posted earnings of $3 Billion in net income with a generation of $0.86 EPS vs $0.92 estimates. Revenues were $18.275 Billion on a consolidated basis, while First Call had just over $17 Billion projected, although that it might not be comparable because of writedowns and charge-offs.  It had $1.3 Billion in writedowns to CDO’s and subprime net of hedges and added $2.3 Billion in credit reserves that are now $10 Billion.  It also maintained what it says is a strong 8.4% Tier 1 capital ratio.

Areas of strength came from investment banking, asset management, treasury & securities services, and commercial banking.  As you will see below Jamie Dimon is staying strong but also keeping the door open to a weak economy acting as a potential further drag to the company.  If this surprises analysts, then we really do not know what to say nor do we know what to call them (but it won’t be good).

THE STRONG JAMIE DIMON:

  • Jamie Dimon, Chairman and Chief Executive Officer, said, “I am pleased with our company’s record results for the year, despite our mixed performance in the fourth quarter. Our lower quarterly results were affected by the Investment Bank’s markdowns in subprime-related positions and weaker trading. In addition, our consumer home equity and subprime loan portfolios performed worse than we expected….. The diversified nature of our company helped offset areas of weakness.

THE CAUTIOUS JAMIE DIMON:

  • Looking ahead to 2008, Dimon commented, “We remain extremely cautious as we enter 2008. If the economy weakens substantially from here – for which, as a company, we need to be prepared – it will negatively affect business volumes and drive credit costs higher. However, we feel well-positioned given the investments and actions we have taken over the past few years to improve our businesses’ operating margins, create a stronger systems infrastructure and build a fortress balance sheet. Regardless of the economic environment, with this solid foundation in place, we can continue to serve our clients well and build the business for the future.”

JPMorgan Chase is one of the Dogs of the Dow we noted could be one of the component winners once this malaise stabilizes and the winners stand out from the losers. Its shares were crushed yesterday after a downgrade and after Citi stunk up Wall Street.  It closed at $39.17 yesterday.  This morning is still too difficult to see where the pre-market trading will go because shares initially indicated lower on the "cautious comments" but are now indicated a few pennies higher.

Consider this one a work in progress until you get to hear Dimon’s comments and demeanor in the conference call.

Jon C. Ogg
January 16, 2008

Posted on: January 16, 2008 – 7:21 am in Banking, Earnings, Financial Stocks,

Apple (AAPL) Goes Up Against The Cable Companies

Most of the talk about Apple’s (AAPL) new movie rental business centers around what will happen to bit players like Netflix (NFLX) and Blockbuster (BBI).

While it is not clear that consumers will watch full-length movies on little screens like those on the iPod, they will watch them on TV. The DVD and cable business are largely built around that behavior.

The companies that have the most to lose with next-generation VOD are the cable guys. Comcast (CMCSA) told the Consumer Electronics Show audience that it was expanding its movie rental archive by several thousand films. It is increasing the speed of its broadband offerings. That will, in a twist of irony, help services like Apple’s by cutting download times.

Comcast is also creating an internet portal for TV shows and films. It plans to defend it turf. The most obvious enemy is Verizon (VZ) and is fiber-to-the home project.

But, make no mistake. Apple’s movie plans are not aimed at Netflix. There is not enough revenue there. It wants what the cable TV companies have–the VOD customer.

Douglas A. McIntyre

Posted on: January 16, 2008 – 6:50 am in Uncategorized, , , ,

Some Stocks May Not See 52-Week Highs Again For Years (CSCO)(JPM)(AAPL)(T)

Consider the stocks which hit 52-week highs in 2007 and may not be back to those levels of years.

JP Morgan (JPM) hit $53.25 and now trades at just above $39. It may be one of the stronger US banks, but write-offs and the need for more capital could keep shares down. A slowdown in consumer spending, corporate lending, and investment banking activity could keep shares low for another two to three years.

Comcast (CMCSA) traded as high as $30.18. Competition from telecom companies and a need for capital spending may push these shares even lower. A price war with Verizon (VZ) to get market share in the TV and broadband business could go on through the end of the decade.

Intel (INTC) Based on concerns that server and PC sales maybe flattening out, Intel’s shares are down from their 52-week high of $27.99 and could drop below $20 on Q4 results and 2008 forecasts. Even modest weakness in PC growth rates may stop the stock from rising.

Cisco (CSCO) traded as high as $34.24. If an economic slowdown undercuts telecom spending on routers and delays upgrades of broadband systems, concerns about Cisco’s grow rate could persist for several years. It happened to the company in 2004 and 2005 and could happen again.

Apple (AAPL) had a perfect year in 2007. So perfect that it may not be matched for years to come. Mac and iPod sales were better than almost all estimates and the iPhone introduction helped feed the frenzy around the company’s shares. iPod unit sales cannot keep up their old growth rates. A slight stumble by the iPhone or competition from Nokia (NOK) could cap the price of Apple’s stock.

GE (GE) was the poster boy for a good US economy and big growth rates in Asia. Its stock hit a multi-year high at $42.15 and is now down to $34.53. Its consumer financial operations are likely to be troubled due to softness in the US economy. The same holds true for its entertainment unit. If GE cannot show that the projected growth rates for it infrastructure business in Asia are justified, the shares may not see $40 for several years. It happened before between 2001 and 2006.

AT&T (T). The telephone company’s success was based on cost cutting from its mergers, modest results from its landline business, and rapid growth in cellular. Landline revenue is being eroded by VoIP. The company’s new fiber roll-out is going slowly. To pick up broadband customers it may have to get into a price battle with cable companies. And, with 250 million cellphone subscribers in the US, the big growth period in cellular may be moving toward its end.

Douglas A. McIntyre

Posted on: January 16, 2008 – 6:10 am in HI/LOW, , , , , ,

Intel’s (INTC) Extraordinarily Good Quarter

The wind blowing on Wall St. is perverse and racked with fear. Traders will turn vicious in the face of reasonable results. They will not even spare their own financial health.

By any reasonable measurement, Intel (INTC) turned in fine numbers for the fourth quarter. Operating income moved up 105% to $3 billion on $10.7 billion in revenue. Perhaps more important, gross margin rose 8.5 points to 58%, a sign that price wars with AMD (AMD) are not cutting into the company’s results any longer.

Intel is predicting that gross margins will stay around 57% this year and that in the first quarter could produce revenue as high as $10 billion. Investors thought those numbers were too "light".

Intel’s business in the America’s did not grow much, but results in Asia, Europe, and Japan were strong.

While it is convenient to argue that Intel should have done better, it is easier to argue that it might have done worse. If there is indeed a slowdown in global tech spending, it did not show up in Intel’s results and was hardly hinted at in its forecasts.

Intel traded down as much as 14% on its quarter. That would put it near a 52-week low. This is a company that dominates its industry, has a tremendous balance sheet, and an operating income improvement of 105%.

What company in its right mind would not want to trade places with Intel?

Douglas A. McIntyre

Posted on: January 16, 2008 – 5:41 am in Semiconductor, ,