The talk this morning is that we may be nearing a deal on the fiscal cliff as there is little talk out of Washington lately and we have big name Republicans writing Op-Eds discussing the need to compromise as well as not taking such a hard stand on tax increases. It appears that Republicans are coming to their senses and the bargaining table, so we must now hope that the Democrats do not push their luck and their hand and end up ruining any chance we have of a deal. Right now it appears that the markets like the direction of the talks and are giving their approval this morning.
We have economic news due out today, and it is as follows:
Trade Balance - -$42.8 Billion
Wholesale Inventories - 0.4%
Asian markets finished mixed today:
All Ordinaries - up 0.41%
Shanghai Composite - down 0.44%
Nikkei 225 - down 0.09%
NZSE 50 - down 0.11%
Seoul Composite - up 0.37%
In Europe markets are higher this morning:
CAC 40 - up 0.62%
DAX - up 0.54%
FTSE 100 - up 0.18%
OSE - up 0.30%
We have watched as Hewlett-Packard (HPQ) shares have rebounded since the revelation that their $10 billion purchase turned out to be a fraud and that the company would be taking a write-down of the vast majority of that amount. The shares caught fire yesterday after rumors began swirling that Carl Icahn was assembling a stake in the troubled technology giant. Shares finished the day at $14.16/share after rising $0.56 (2.61%) on heavy volume of 51.3 million shares. Icahn could shake up things here and possibly get a seat on the board but the real question moving forward is whether the company has corrected their controls and policies in order to avoid another embarrassment in the future. Our view is that Icahn is worth some short-term gains, but with the size of the company and the control he would be able to garner here, there is not a very good chance he is able to come in single-handedly and right the ship.
Thank goodness for the weekend. It seems everyone went home over the weekend and realized how ridiculous the rumor was that Google wanted to buy Groupon (GRPN), as shares fell $0.435 (9.28%) to close at $4.25/share with respectable volume of 22.2 million shares. Sometimes it takes a weekend to allow traders to step back and process these rumors as well as allow analysts the time to write up their responses and reports to situations such as this. The reality of the situation is that at one time the company did have a $6 billion offer on the table, but instead wanted to go the IPO route. There is no going back on that, and with the state of the business right now there is no one interested in buying the company unless it was somebody already in the industry who wanted to realize economies of scale (but why buy when you can take?).
It appears that Gap, Inc (GPS) shares broke through their 200-day moving average but did recover during the session to finish at $30.89/share having fallen $0.92 (2.89%). When you look at the situation here, you have the 200-day as a technical support level and then you have $30/share as the all psychological level. We have been bullish of Gap for the last year now as their business turned the corner and they were one of the few retail stocks actually delivering solid results. We still think that the company has earnings power and growth ahead, but they will trail the rest of the industry in the growth category as Gap was ahead of the curve during the past 12 months or so. Everyone else has been playing catch up, and now their growth is going to outpace that of Gap. We are not inclined to join the camp of analysts who think this is overpriced at this time, but we do recognize that the company's road ahead is much tougher than competitors.
Yesterday the Canadian government approved the buyout of Nexen by CNOOC but stated that this would no longer be the norm moving forward. Rather, this would probably be the last of the transactions (when combined with Petronas' purchase of Progress which was approved yesterday as well) where state-owned enterprises/oil companies are able to come into Canada and buy controlling interests in their oil sands projects. The message from Prime Minister Harper was that Canada is open for business, but not for selling their natural resources at discounts to foreigners. Majority stakes are no longer for sale and would not be approved unless in very rare circumstances, which brings us to Suncor Energy (SU). It looks like any takeover premium which may have been in the shares will dissipate in the near future as company will not be a viable takeover candidate for any Chinese oil companies and possibly not any of the international oil companies. This will be something to watch over the next few days.
Phillips 66 (PSX) hit another new 52-week high yesterday as the shares rose $1.24 (2.37%) to close at $53.76/share on volume of 7.7 million shares. The stock blew past the old 52-week high of $52.76/share and finished off of its highs for the day. The company announced that they plan to double the share repurchase program currently in place while also giving a boost of 25% to the dividend for the 1st Quarter of 2013. The company is able to achieve this due to their announced plan to keep spending for 2013 flat, thus allowing the company to divert resources from their capital expenditure program and direct them towards rewarding shareholders. A lot of people like this stock and we have to admit it is one of the refiners we like - momentum is to be ridden higher here.