Douglas A. McIntyre

The second half of December is supposed to be when trading volume starts slowing down.  That does not look to be the case for this coming week, and this list of the unusual suspects is packed with many major stocks and events.  We actually have a mini-version of earnings season with companies like Adobe Systems Inc. (NASDAQ: ADBE), Best Buy Co. Inc. (NYSE: BBY), Nike Inc. (NYSE: NKE), Oracle Corp. (NASDAQ: ORCL), and Research-in-Motion Ltd. (NASDAQ: RIMM).  There is also significant event-driven trading that will be present around, Inc. (NASDAQ: AMZN), AXA (NYSE: AXA), Bristol-Myers Squibb Co. (NYSE: BMY), Mead Johnson Nutrition Company (NYSE: MJN), OSI Pharmaceuticals Inc. (NASDAQ: OSIP), PowerShares DB US Dollar Index Bullish (NYSE: UUP), Visa, Inc. (NYSE: V), and Wells Fargo & Co. (NYSE: WFC).

We have compiled detailed data on each company.  For earnings we have offered Thomson Reuters estimates, trend and valuation analysis, as well as other key color on what to watch out for.  On the other event-driven situations, we have offered color on each and assigned a handicapping for what the stocks are likely to do on Monday or at the event.

Adobe Systems Inc. (NASDAQ: ADBE) is reporting earnings on Tuesday after the close and Thomson Reuters estimates are $0.37 EPS and $752.54 million in revenues. This will also be its fiscal year-end with estimates at $1.52 EPS and $2.94 billion in revenues. At $35.38. it is close to 52-week highs versus a range of $15.70 to $37.15.  That gives trailing estimates ratios of 23.2-times earnings and about 6.2-times revenues. There are a few things to consider here which are both wild cards.  The $1.8 billion Omniture buyout closed during the quarter and Adobe said it was laying off 9% of its workforce on top of Omniture cuts.  It last reiterated guidance on October 7: The Company’s Q4 target ranges are the following: revenue of $690 to $740 million and $0.33 to $0.39 non-GAAP EPS.  As analysts are sometimes awful at accounting for mergers in earnings and revenue projections, we are keeping a light watch on this one., Inc. (NASDAQ: AMZN) took an old Alan Abelson-esque hit from Barron’s this weekend, although it was written by Andrew Bary instead.  The company is praised, but Barron’s addresses the exact same thing I addressed before over too lofty of valuations.  Barron’s wrote the story “Amazon’s Daunting Challenge” and said “the online retailer deserves Wall Street’s admiration, but its stock is way too rich. Even under the best scenario, the shares could tumble.”  Unless an analyst upgrades or pounds the table or we have a runaway bull market on Monday’s global markets, this stock will probably be opening lower by more than 1%. At $134.15, shares are already down more than $10 from recent all-time highs versus a 52-week range of $47.52 to $145.90.

AXA (NYSE: AXA) is almost hard to love as it is a French insurance giant.  Barron’s gave it the cover story this weekend and called it “Très Bien!” noting that the company is ready to grab market share from its rivals.  Average volume is rather small for its size because of the ADR status at $22.92 its 52-week trading range is $7.20 to $29.50.  We’ll handicap a $23.75 opening price here, but the ADR status and the low volume may keep investors from chasing this one up too much.  Keep in mind that I significantly under-handicapped the gain when Sprint Nextel was given a huge boost from Barron’s, so it may be too conservative of a call here on my part.

Best Buy Co. Inc. (NYSE: BBY) reports earnings on Tuesday morning.  If there is one single retailer that technology and consumer electronics will try to use for a benchmark of sales for makers of MP3 players, PCs, printers, LCD TVs, computers, video games and more, it is Best Buy.  At $44.34, the stock is pennies shy of a year high versus a 52-week range of $22.92 to $44.50.  The thing to consider is that the earnings estimates of $0.43 EPS and $11.98 billion in revenues are almost immaterial.  The only thing anyone cares about is the current quarter we are in now for retailers as the Holy Grail quarter.  Those estimates from Thomson Reuters are $1.73 EPS and $15.51 billion in revenues and the FEB-2010 fiscal estimates are $2.95 EPS and $48.59 billion in revenues.  That gives the stock a P/E of 15 for the current year if it is just met.

Bristol-Myers Squibb Co. (NYSE: BMY) is apparently going to FINALLY drop off the radar of the most active in options trading.  It seems forever that Bristol-Myers has been one of the most active options series for what may be nothing.  This coming Friday will either mark the end of that or the trades will have to roll out further on the calendar.  Friday is quadruple witching date for options traders.  And Bristol-Myers has long been one of the largest open interest series out there.  The open interest for the DEC09 $30 CALLS is 633,140 contracts and the DEC09 $30 PUTS is 617,642 contracts.  Without knowing who or why the trades were put on, on a static basis that effectively represents a straddle trade bet on the price move of over 60 million shares on a fully leveraged basis.  Bristol-Myers traded 33.7 million shares on Friday when trading was light in many issues for a 1% gain to $25.80 versus a 52-week trading range of $17.23 to $25.97 (high was hit Friday too).  There is likely going to be significant options-related trading this week as this position gets cleaned up, assuming the owner(s) do not just let the options expire.  Bristol-Myers Squibb (NYSE: BMY) is splitting off its approximately 83% holdings in Mead Johnson Nutrition Company (NYSE: MJN) and that is probably tied to this event for an index change.

Nike Inc. (NYSE: NKE) is on deck with earnings Thursday as well.  At $63.86, the stock is close to a 52-week high as the range has been $38.24 to $66.35.  Thomson Reuters has estimates of $0.71 EPS and $4.39 billion in revenues, and we may get to hear about what the company will do as far as backing Tiger Woods now that Woods is out of golf until he mends his personal problems.  With so much of Nike sales now outside the U.S., we’ll get to see what a weak dollar before the latest pile into the US Dollar did for the company.  Don’t hold your breath on this happening, but maybe the company will change some slogans to “Just Did It!” or “Just Tap It!”…

Oracle Corp. (NASDAQ: ORCL) is going to be one of the big tech earnings this week.  At $22.78, the stock is almost at a 52-week high with its annual range of $13.80 to $23.00.  What is surprising is that options trading has been somewhat light on the name, and that expiration is on Friday.  Thomson Reuters has estimates at $0.36 EPS and $5.68 billion in revenues.  Its fiscal May-2010 estimates are $1.53 EPS and $23.66 billion, giving this one multiples of 14.9-times earnings and 4.8-times revenues.  The issue of the Sun Microsystems Inc. (NASDAQ: ORCL) has started to become more of a liability, so we’ll probably hear some more data on where that stands.

OSI Pharmaceuticals Inc. (NASDAQ: OSIP) already had its analyst meeting on December 3.  This is one we had marked as December 16 with an FDA advisory committee meeting for Tarceva as a first-line maintenance therapy treatment against non-small cell lung cancer.  OSI says, “Tarceva is the only oral, non-chemotherapy agent shown to provide a statistically significant improvement in both progression-free survival and overall survival in the NSCLC maintenance setting.”  At $34.75, its 52-week trading range is $27.01 to $43.00.  If we use the 4 closest strike prices on put and calls combined, there is only just over 5,000 contracts in the open interest, so it seems that binary event traders in biotech are not giving this much of a grade one way or the other.

PowerShares DB US Dollar Index Bullish (NYSE: UUP) is a very odd pick to watch among our traditional unusual suspects.  Before you accuse me of cheating or looking for filler, hear me out on exactly why an ETF is fair game.  For starters, this is one of the most easy and simple ways for an investor to bet on the recovery of the US Dollar.  We may be entering a new inflation age, but it would be extremely rare for the US Dollar to decline indefinitely.  When global investors see Dubai, Greece, Ireland, and Spain all in trouble, it could end up being the saving grace.  But you don’t even need our word on this when you have the market action telling you something.  The UUP traded over 15.1 million shares, almost 4-times normal volume and the highest volume in shares seen EVER since its March-2007 launch, and it rose 0.8% to $22.68 versus a 52-week trading range of $22.02 to $26.83.  The real kicker is the options trading as Friday had 342,682 contracts trade of the MAR10 $23.00 CALLS versus an open interest of 105,007.  That represents a 34 million share bet on a fully leveraged basis.  The Dollar-Trade was one of the most crowded on the way down, and it will be one of the most crowded on the way back up if that occurs.  Whenever you see long-term currency bets pop up like this, you usually end up with a confused rush in and out and many  uncomfortable investors.  As a day trader friend of mine named Ike called trading for gains and investing with disbelief during the tech bubble of 1999 and 2000 because of the inflows and herd chasing and chasing… PIPO: panic in, panic out!

Research-in-Motion Ltd. (NASDAQ: RIMM) is on deck with earnings this coming Thursday after the close.  We would watch the DEC09 PUT and CALL option activity on Wednesday and Thursday because options expire on Friday and it is almost certain that traders will be making volatility trades to see if R-I-M will pull another 20% up or down reaction.  Unlike other key tech stocks, this $63.84 close on Friday is not at all close to any key tops or bottoms with a 52-week range of $35.05 to $88.08.  But… here is where this gets interesting…. The averages will change slightly by Thursday, but the 50-day moving average is $62.79 and the 200-day moving average is $67.14.  Even with a near 3% drop Friday, R-I-M is up from $58.00 in just over a week and the stock is now crammed right between the two averages.  In short, you could see a major move based upon what R-I-M delivers.  Thomson Reuters has estimates of $1.04 EPS and $3.79 billion for the November quarter.  The fiscal year-end is next quarter, and those estimates are $4.15 EPS and $14.86 billion and that in turn gives implied ratios of 15.3-times earnings.

Visa, Inc. (NYSE: V) is the biggest one to watch this week as an S&P 500 Index addition. Its market cap varies from every source: $63.28 billion at Yahoo! Finance,  Google Finance is $68.65 billion, and Bloomberg is at $60.4 billion; but either way you will have millions of shares which get purchased this week ahead of the addition and particularly on Friday toward the closing bell.  That also coincides with the options expiration date.  Shares rose 3.3% to $84.10 in the after-hours session on Friday evening after S&P made its huge index change announcement after closing down 1.2% at $81.34 versus a 52-week trading range of $41.78 to $83.40.   We would expect a move of 5% or even more in total based upon the market cap.  Visa trades almost 5.5 million shares a day and the stock only traded 64,000 shares in the after-hours session.

Wells Fargo & Co. (NYSE: WFC)…. Will it or won’t it?  That is the question we’ll again be hanging for whether or not the bank will try to get Uncle Sam out of its executive suites by repaying the TARP.  A financial industry leader meeting Monday with the Obama administration may bring more light on the topic.

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Jon C. Ogg
December 13, 2009