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Bove Says Sell Bank Stocks – US-FOREX.US

Forex-Publisher — Tue, 11 Aug 2009 19:46:36 +0000

Dick Bove, vice president of equity research at Rochdale Research, thinks the banking industry is an attractive long-term investment, but for now he believes bank stocks are running on fumes and recommends investors take short-term profits.”The issue as I see it is that bank earnings will not improve in the third or even fourth quarter this year,” Bove said. “Many of these companies will show losses. The rational investor would step away from psychology at this point and take some profits. I suggest this even though I am not changing the long-term buy ratings on my favorite stocks.” In May, Bove said that the combination of more traditional banking operations with the economic recovery will lead to explosive earnings growth and unusually strong stock price performance. The banking industry, as measured by the SPDR KBW Bank
exchange-traded fund, fell 3.8%, in afternoon trading on Tuesday, while the broader-based Financial Select Sector SPDR
ETF slid 3.0%. Regional banks were especially hurt Tuesday, as the SPDR KBW Regional Banking
ETF fell 5.0%. Individual companies like Citigroup
fell 5.8%, while Bank of America
dropped 3.9%”Psychology toward the banking group had moved dramatically along with earnings,” Bove said. “Each shift in psychology carried with it change in how investors believed they should value banks.” Currently, the recent rise in the stocks does not appear to be driven by a change in the near-term earnings outlook, Bove asserted, but instead has been driven by a change in expectations: “Thus, it is our belief that these stocks are trading on fumes and not reality,” Bove said.
Though financials still make a good long-term investment, they’re probably not, if Roche is right, the place to keep money that will be needed soon. Now’s a good time for investors who don’t have three to five years to wait to take profits off the table.

Attention Retail Shoppers – US-FOREX.US

Forex-Publisher — Tue, 11 Aug 2009 19:46:22 +0000

Sales may be down while unemployment is up but retailers are doing well, nonetheless. Since the start of the year the sector has walloped the broad market by a wide margin. The SPDR S&P Retail ETF
gained 55% since Jan. 1 while the S&P 500 is up just over 10%. Now, with the biggest retailers reporting quarterly earnings this week and next, Deutsche Bank analyst Bill Dreher Jr., says there’s good reason to think investors will be pleasantly surprised.Like other sectors of the economy, retail chains responded to the recession, and falling sales, by slashing inventories and costs. Macy’s
, Kohl’s
, Saks
and J.C. Penney
all rushed to reduce overhead and get merchandise off the shelves in case the recession turned into a full-blown depression, notes Dreher. The result is that now, with sales no longer dropping fast, chains have far less clearance inventory that they need to discount.Stores also saw some unexpected benefits this summer. As shoppers traded down form high-end department stores, mass-market shops picked up some business while their own customers moved to in-house brands, which are more profitable. J.C. Penney gets 52% of sales from private-label merchandise, while Kohl’s gets 42% and Macy’s gets 40%. They should benefit from the trend.Tough times also mean opportunities for solid companies with cash to spend. With some regional and local chains going out of business, Dreher estimates there are 21.4 billion in sales that the biggest national chains can grab. Kohl’s recently bought dozens of stores from bankrupt Mervyn’s, for example.That’s not to say retail firms don’t face a tough environment. Unemployment has soared to over 9% so Americans are saving more, roughly twice as much as last year. Shoppers are hunting for bargains, not splurging, so don’t expect sales to accelerate, warns Dreher. Instead, look for a boost to earnings at companies that have aggressively reduced costs and done away with waste.Dreher likes Macy’s, which reports earnings Wednesday morning. He’s betting the department store will announce quarterly profit of 16 cents share, two cents better than the consensus among Wall Street analysts. A trimmed-down organization should save 400 million a year eventually and a lower dividend has improved the firm’s cash position. Weak rivals could also give it an advantage.
Another buy rating from Dreher is the big daddy of retailers: Wal-Mart
. The world’s largest store reports earnings Thursday and Dreher predicts a quarterly profit of 86 cents a share, in line with the consensus. Wal-Mart has turned its focus from opening stores to capturing more shoppers at existing ones with in-store foods brands, which are especially profitable. Wal-Mart’s rock-bottom prices also help.

Applied Materials Weathers Storm – US-FOREX.US

Forex-Publisher — Mon, 10 Aug 2009 20:46:30 +0000

Investors have accepted that 2009 isn’t the year for Applied Materials, making Tuesday’s fiscal-third quarter report an assessment of how well the semiconductor equipment maker has handled the downturn and positioned itself for the future.
In June, Applied Materials
‘ chief executive Mike Splinter warned of more failures in the industry as the number of customers declines. Splinter said that chipmakers are working together to survive weak demand and high development costs, but no such cooperation is occurring among equipment makers like Applied Materials. Splinter said acquisitions in the chip-gear sector are very difficult to conduct, leaving few options for consolidation, other than a company’s outright failure.
Wall Street expects the company to report a loss of 8 cents per share on Tuesday, well off its 14 cents profit recorded in last year’s corresponding period. Since the beginning of the year the company’s market value has risen 32.8%. Peers such as Novellus Systems
and Lam Research
have risen 45.4%, and 36.0%, respectively, over the same period. Meanwhile, the semiconductor industry, as measured by the SPDR S&P Semiconductor
ETF, has gained 56.1%, while the broader Technology SPDR
ETF has risen 27.4%.
The year got off to a rough start. Back in February, Applied Materials reported its first loss in more than five years, thanks to declining semiconductor demand and continued weakness in credit markets. The company also didn’t provide guidance for the rest of the year, only to say sales were expected to fall across its businesses.
Despite the bleak outlook, the company continued to push into the solar energy business. Applied Materials has already moved aggressively into the space over the past three years, but in an interview with Forbes earlier this year, Splinter talked about how he wanted more.

Derivatives Fuel Berkshire Hathaways 14 Q2 Earnings Rise – US-FOREX.US

Forex-Publisher — Sat, 08 Aug 2009 20:46:20 +0000

Even Berkshire Hathaway Chairman and Chief Executive Warren Buffett has taken his knocks this recession, but Friday he announced his company’s best quarterly results for nearly two years. A rising stock market boosted the value of his equity investments and derivatives bets, more than offsetting the continuing recession-induced softness in many of the group’s underlying businesses, notably the Geico auto insurance unit and some industrial units.
Berkshire
reported Friday a net income of 3.3 billion, or 2,123 a Class A share, for the three months to June 30, compared with 2.88 billion, or 1,859 a share, for the same period a year earlier. Earnings had previously fallen for six consecutive quarters. Earnings release. Revenue fell 1.6% to 29.6 billion, with Berkshire’s insurance businesses down 6.1% and utilities 13%. Finance and financial products businesses were up 72%. Investment losses shrank to 30 million from 429 million. But gains on derivatives, of which Buffet has publicly spoken with scorn on occasion, rose to 2.4 billion from 689 million. Berkshire’s are primarily long duration equity index put option contracts. The four underlying equity indexes rose during the quarter in a range of 8% to 23%. After adjusting for taxes and non-controlling interests, investment losses and derivatives gains represent a net 1.5 billion gain, up from 610 million a year earlier.
Berkshire is the largest shareholder of American Express
and Wells Fargo
. It also has holdings in Dow Chemical
, General Electric
, Goldman Sachs
, Swiss Re and Wrigley
. With the reported earnings falling short of analyst’s forecasts, Berkshire’s Class B shares were down 1.1% at 3,500 in after hours trading, giving up its pre-earnings-announcement gains for the day. The company advised investors to take the weekend to read its 10-Q filing with the SEC, also posted on its Web site, before trading opens on Monday.

AIG Shares On Giddy Tear – US-FOREX.US

Forex-Publisher — Fri, 07 Aug 2009 22:46:15 +0000

Shares of American International Group closed Friday trading in New York at more than double their price of a week earlier. Investors had been expecting the insurer that was only saved from collapse last year by 180 billion in federal bailout funds, to report Friday its first profit since the third quarter of 2007. AIG so surpassed expectations that its heavily-shorted stock rose 20% on the day. Net earnings for the three months to June 30 were 1.8 billion, or 2.30 a share, against a net loss of 5.4 billion, or 41.13 a share in the same period a year earlier. Earnings release. After paying dividends on the government’s preferred stock, profit attributable to AIG’s
common shareholders was 311 million. The U.S. government owns 80% of the company. “Our results reflect stabilization in certain of our businesses,” outgoing Chief Executive Edward M. Liddy said in a statement. But other operations, including its main insurance business, “remained challenged, largely driven by weak economic conditions and the lingering effect of the negative AIG events earlier in the year,” he said.
The company’s general insurance operations posted operating income, which excludes net realized capital gains, of 1 billion, down from 1.7 billion a year earlier. Meanwhile, write-downs and investment losses eased. AIG’s Financial Products division reported a 636 million unrealized gain in the market value of its credit default swaps portfolio, against a 5.6 billion loss in the same period a year earlier. In a filing with the Securities and Exchange Commission, AIG said it had sold 8 billion of assets this year, 4.6 billion of which would be available to begin repaying debts, including those to the government.A substantial challenge still awaits incoming Chief Executive, Robert H. Benmosche, former Chairman and Chief Executive of MetLife
, who is due to take over from Liddy on Monday, when Harvey Golub, former American Express
Chief Executive, will also become non-executive Chairman. As the second-quarter’s results showed, AIG’s core insurance business is still being buffeted by recession. And, as the company itself has cautioned, unwinding its 1.3 trillion worth of derivatives will take time, and may be expensive. Selling businesses, such as the two life insurance companies it has on the block, to pay off the government loan may proceed more slowly than hoped if the global economic recovery remains sluggish. Golub and Benmosche also have to step gingerly through the political minefield of executive compensation. AIG says it will earmark 249 million in the second half of this year for staff retention bonuses, bringing the total for the year to 1.1 billion. The company was severely criticized in Congress when it paid 165 million to employees in its swaps unit in March.Given the uncertainties, investors may look at the share price more soberly once their giddiness of this week subsides.

AIG Declares Quarterly Profit – US-FOREX.US

Forex-Publisher — Fri, 07 Aug 2009 14:46:14 +0000

American International Group, the insurer that, on the brink of collapse, in 2008 received 180 billion in federal bailout funds, has reported its first profit since the third quarter of 2007. Second quarter net earnings were 1.8 billion, or 2.30 a share, against a net loss of 5.4 billion, or 41.13 a share in the same period a year earlier. Earnings release. After paying dividends on the government’s preferred stock, profit attributable to common shareholders was 311 million. The U.S. government owns 80% of the company. The reported results beat analysts’ expectations. AIG
‘s shares rose strongly in early New York trading. “Our results reflect stabilization in certain of our businesses,” Chief Executive Edward M. Liddy said in a statement. But other operations, including its main insurance business, “remained challenged, largely driven by weak economic conditions and the lingering effect of the negative AIG events earlier in the year,” he said. The company’s general insurance operations posted operating income, which excludes net realized capital gains, of 1 billion, down from 1.7 billion a year earlier.
In a filing with the Securities and Exchange Commission, AIG said it had sold 8 billion of assets this year, 4.6 billion of which would be available to begin repaying debts, including those to the government.

MBIAs Split – US-FOREX.US

Forex-Publisher — Wed, 05 Aug 2009 22:46:13 +0000

The housing industry appears to be working its way back to health, and investors will find out Thursday if the same can be said for bond insurer MBIA.Wall Street expects MBIA
to report a loss of 92 cents per share on Thursday. MBIA’s report will be followed Friday by fellow bond insurer Ambac Financial
which is expected to record a loss of 1.04. During the hay-day of the 2000s, MBIA’s stock traded around the high 50s and low 60s. All that changed in the fall of 2007 when the walls came tumbling down, leaving MBIA and other bond insurers like Ambac struggling to maintain their investment-grade rating. They weren’t successful, which was a major blow as the purpose of bond insurance is to enable municipalities with lower credit ratings to ride on the higher rating of the insurer, thereby lowering their borrowing costs.The industry owes much of its problems to the ill-fated ploy to boost profits earlier this decade when it diversified into backing mortgage-backed securities, from the relatively safe but lower-margin business of guaranteeing municipal bond payments. Municipal bonds rarely default, whereas over-extended homeowners often do.By February of 2009, the company opted to split itself into two parts, with one focusing on international and structured finance, while the other covers public finance. ;”>”MBIA Splitting Itself Up.” and “Can MBIA Save its Bond Business?”) Since the beginning of the year MBIA’s stock has mounted something of a comeback, rising 31.5% to 5.35. In contrast, its chief rival Ambac Financial has faltered 10.8% since January. The industry is still experiencing problems, and the past week was particularly tumultuous. Last week Standard and Poor’s cut its rating on Ambac and its insurance arm to a very speculative level. The rating cut was quickly followed by Moody’s which said Ambac’s insurance arm is at high risk of regulatory intervention, thus increasing the likelihood that counterparties to the insurer will have to toss contracts they hold with the firm at a large loss.

Write Down Your Own Debt – US-FOREX.US

Forex-Publisher — Fri, 31 Jul 2009 19:46:06 +0000

The debate over mark-to-market accounting—whether to value assets at market prices—will take on a strange twist once banks, investors and regulators get wind of the latest proposal from the group that sets accounting standards. Under new rules being reviewed by the Financial Accounting Standards Board, companies will have to record gains or losses in the market values of assets they own and show them to shareholders on the income statement. The move is part of the broad push by regulators to force firms to recognize gains and losses where shareholders can easily find them. What will likely surprise investors more is that the new rules also allow corporations to mark their debts to market prices as well.For a troubled company like General Motors
before it filed for bankruptcy, it could have meant seeing a financial gain as the value of its bonds fell. Under current accounting rules, when a company like GM borrows 1 million it records the principal amount as a liability and the interest it must pay each year as an expense. If GM’s bondholders doubt the company’s ability to pay its debts, its bonds might fall to 80 cents per dollar face value. Under the proposed rule, creditors’ pain would be GM’s gain—the car company would recognize a 200,000 reduction in its liability, which is the same as a gain for a like amount.That sets up the paradox of troubled companies benefiting, at least in accounting terms, from their own misfortune, says Dr. Paul Miller, accounting professor at the University of Colorado at Colorado Springs. “If a liability gets smaller, the company is better off,” says Miller. “People don’t like the idea—if they’re in trouble, how could they possibly be showing gains?”From an accounting standpoint, the ability to write down one’s own debt makes some sense. If you believe the market accurately prices assets, then the price of a bond is the current value of all its future interest and principal payments. Theoretically, GM could go out and retire those debts at less cost because its lenders would be willing to accept the lower price. What shareholder advocates and frothing senators and congressmen could point to is that, in reality, if GM tried to buy up its own debt, the price would almost certainly rise, in the same way it would if an investor tried to buy all of GM’s stock.Still, the FASB rules will re-start the ongoing debate between corporations and regulators about how to best serve shareholders already burdened with financial statements running hundreds of pages and laden with opaque footnotes and exhibits. On the asset side, banks and other companies that hold large amounts of stocks and bonds may soon have to report the price swings of their portfolios directly on the income statement where it will impact the all-important earnings-per-share.
The accounting board will likely spend the rest of the year drawing up a formal draft and taking comments on it, before deliberating and making its final decision. All manner of public companies, as well as the major accounting firms, will likely weigh in with objections and modifications. But Professor Miller says FASB looks like it has picked up a head of steam and will push hard for mark-to-market rules. If that happens, investors might want to scoop up some shares of the nation’s most troubled companies, just in case.

Disney Seeks Digital Magic – US-FOREX.US

Forex-Publisher — Thu, 30 Jul 2009 07:46:03 +0000

Walt Disney hopes to show its movies overcame the weak economy and waning ad market during its fiscal third quarter, but Wall Street is more interested in its ideas about how to monetize the Internet.
Disney
‘s market value has risen 14.1% since the beginning of the year. The Street expects the media conglomerate’s quarterly earnings will reach 51 cents per share, below the 62 cents recorded in last year’s corresponding period. Disney’s report on Thursday will follow fellow conglomerate Time Warner
, which announced on Wednesday that, despite a falling ad market, it topped expectations thanks to its cable networks, and the success of the buddy-wedding comedy The Hangover.Disney, whose businesses include film, television, parks and resorts, as well as consumer products, is counting on a similar success. Basic earnings forecasts aside, investors will be anxious to learn more about the company’s plans to navigate an uncertain future in the digital world. Disney, led by Chief Executive Robert Iger, is working to be on the forefront of monetizing the Web. So far, it’s only left media companies-notably newsrooms-with eroding sales and unfulfilled promises. Iger expects that will change as the industry abandons the “free” model and begins using numerous methods to monetize content. Citing Disney’s own experience with making movies and television programming available on the Internet, he recently said there is significant room for charging fees. Among other things, he estimated that consumers would pay 5 per hour to see a movie playing in theaters, 75 cents to read a book or magazine, 50 cents per hour for cable content, and 25 cents per hour for Internet content.Iger also said ads will quickly become more sophisticated as companies begin following individual preferences and selling that information to advertisers. Disney also recently embarked on a new collaboration with Taiwanese manufacturer Asus to make the computer maker’s lightweight, pared-down laptops even more kid-friendly.

Volumes Could Hurt NYSE Earnings – US-FOREX.US

Forex-Publisher — Wed, 29 Jul 2009 15:46:10 +0000

Some analysts are lowering their quarterly and 2009 forecasts for NYSE Euronext’s earnings after cash equities, options and futures volumes have been slowing or declining as volatility works its way out of the markets. Though the NYSE has been strong in derivatives with NYSE Liffe up 9% this quarter, that’s unlikely to make up for lost ground in more active markets.Chris Allen, senior equity research analyst at Pali Capital, says the exchange’s earnings will be higher than expected because of some expense savings through mergers, such as the American Stock Exchange which formed NYSE Amex, and combining technology. He expects NYSE Euronext
to have better overall earnings than Nasdaq OMX Group
. Nasdaq also had some similar savings through its recent mergers with the Philadelphia and Boston stock exchanges, but these savings were figured into Nasdaq’s earnings in previous quarters, Allen says. But, he adds, that despite having better overall earnings, NYSE Euronext’s earnings per share will be down massively while Nasdaq’s will be flat. Allen’s estimate for NYSE Euronext’s EPS is 0.44 this quarter; it was 0.75 in the second quarter of last year.Part of the reason for this outlook is the steep competition in the U.S. cash equities business from Nasdaq and BATS Exchange, Allen says. Trading prices have been driven very low, with markets such as Nasdaq BX, from its Boston acquisition, which offers a rebate of 0.006 per share for providing liquidity on Tapes A and C. U.S. cash equities makes up about 20% of NYSE Euronext’s business, Allen says.Allen notes that NYSE Euronext’s European trading operations are “fundamentally challenged”, although he sees an opportunity for Nasdaq’s European trading operations since its OMX merger. In a Keefe, Bruyette & Woods report, Niamh Alexander and Nassime Ruch-Kamgar note the market shares of Nasdaq and NYSE have stabilized in the U.S., but market share loss has accelerated in Europe for NYSE Euronext.Keefe, Bruyette Woods forecasts that NYSE Euronext will have 0.46 EPS this quarter, down 39.4% year-to-date and 0.49 EPS in the third quarter, down 32.4% year-to-date. The firm forecasts Nasdaq’s EPS this quarter will be 0.48, down 1% year-to-date and 0.44 in the third quarter, down 15% year-to-date. A recent JPMorgan report gave NYSE Euronext a neutral rating, citing intensifying competition in the European cash equities business and deleveraging hurting NYSE Liffe volume growth. The NYSE reports its earnings on July 29; Nasdaq reports on August 6.