It appears that today will be a green day for stocks as investors are beginning to believe that a deal is reached to avert the fiscal cliff. Our guess is that Republicans have to suck it up and swallow the pill to get this thing passed, but we believe that the Democrats will throw them a bone and raise the income threshold from $250,000 to a higher level for the capital gains issue. Both parties have to realize that raising taxes on the middle class is not going to help the economy and would only cause more serious issues going forward. It will be interesting to see exactly how the deal turns out, but at this time at least it appears that a deal is being worked out. So long as that is the case, the market can move higher in anticipation.
We have economic news due out today and it is as follows:
Existing Home Sales - 4.70 million
NAHB Housing Market Index - 42
Asian markets finished higher today:
All Ordinaries - up 0.52%
Shanghai Composite - up 0.11%
Nikkei 225 - up 1.43%
NZSE 50 - up 0.13%
Seoul Composite - up 0.93%
In Europe markets are mixed this morning:
CAC 40 - up 0.07%
DAX - down 0.03%
FTSE 100 - down 0.26%
OSE - up 0.52%
Sears Holdings (SHLD) had another rough quarter and will embark on further cost cutting efforts in order to restore profitability. The company has been on a never ending quest to cut costs and wring as much cash out of operations as possible while investing as little as possible into the stores. It has left the stores dated and certainly not a place one wants to go to shop. We had to run into one of their stores not long ago, and based off of what we saw this has to be the discount retailer we would want to visit the least when given a choice. The company needs to reinvest in the stores and make the place presentable to customers it has since lost to Wal-Mart and the dollar stores recently, all of which have newer stores and have spent to remodel older units. The company has done a lot of financial engineering over the past few years, however we think that with the real estate market where it is and the state of the stores, Eddie Lambert may be running out of time to turn this ship around before it is to late.
It might be a tough holiday season for Best Buy (BBY) which has been taking a hit from online retailers and consumers essentially using its stores as a testing ground for tech purchases to be made elsewhere. We have found it somewhat humorous that each time we have gone into the stores recently that as we were checking out certain products another customer has told us where we could find the exact same product for up to 50% off. Not exactly the type of activity you want going on in your stores, but that is the reality for Best Buy these days. One thing the retailer is doing right now is putting people on the floor to actually talk to customers and help them find stuff. That had been one of our biggest complaints recently, but that appeared to be solved the last time we were in the stores - although the store did appear to have very light traffic. Shares in Best Buy fell another $1.50 (9.84%) on Friday and closed at $13.75/share while volume spiked to 17.4 million shares. The company will report earnings tomorrow and no one is expecting good news, the stock did after all hit a new 52-week low on Friday.
Outside of Apple there are very few computer makers doing well these days, which holds true for Dell (DELL). The company has been on a losing streak for some time, and it appears that the plan to use their cash stockpile to buy their way out of the hole they find themselves in may not be working as planned as the new growth is not high enough to offset the deterioration of the computer hardware business. On Friday the shares hit a new 52-week low of $8.69/share with the stock finishing the session at $8.86/share on volume of 71.4 million shares. The company's profits are decreasing and their revenue numbers are missing estimates; maybe Windows 8 will help them more than Wall Street believes, but at this time it is hard to buy into that logic. We continue to believe that investors should stay away from the non-Apple computer manufacturers as they have commoditized the market and the razor thin margins seem to favor the Asian manufacturers.
Sina (SINA) saw shares fall $8.03 (15.13%) to close at $45.07 after the company reported their third quarter earnings. The quarterly results were good by almost any measure, however the company's outlook for next quarter provided the drag for shares. The company's current quarter was impacted by the London Olympics, however moving forward China's macroeconomic situation will probably play a role in providing headwinds for operating results. In news coming out over this weekend, it appears that Sina is close to selling a minority stake in its Weibo service to Alibaba Group, which could value the unit anywhere from 2-3x the current market valuation. It should be interesting to watch and see how shares react to that news this morning.
Penn National Gaming (PENN) saw shares close at $48.23/share after rising $10.62/share (28.24%) on volume of 11.3 million shares during trading on Friday. The catalyst was the company's announcement that they would be altering the structure of the company and splitting into two separate entities whereby one would remain a casino/hotel/racetrack operator and the other would be a casino-focused REIT. The move would lower the company's cost of capital and allow for the company to better distribute cash to shareholders in a cash efficient manner.