Summary of selected articles from this morning's Wall Street Journal with comments on related stocks. Links are to the original WSJ article, which requires a paid subscription. Use this summary as a starting point for research; check the summary against the original before trading:
- Summary: A new technology called perpendicular recording is enabling the leading disk drive manufacturers, Seagate, Toshiba and Hitachi, to increase drive capacity. Seagate plans to sell a $149 drive in July that will compete with flash memory used in cameras, cellphones and thumb drives, and has announced a hybrid disk storage and flash product for laptops.
- Comment on related stocks/ETFs: Rapid advances in space-efficient storage are positive for Apple (AAPL), as users will upgrade faster to a new generation of iPods. Incrementally postive for Seagate (STX), particularly given the size of the cellphone market. No mention of whether disk drive competitors Maxtor (MXO) and Western Digital (WDC) are keeping up with this technology. Incrementally negative for flash companies M-Systems (FLSH), Lexar (LEXR), Saifun (SFUN) and Spansion (SPSN). (Click on the ticker symbols to find full conference call transcripts for these stocks).
- Summary: Google will use Dell PowerEdge servers in its Search Appliances, the Google product sold to corporations for $30,000 and up. The Dell servers are the first product to use Intel's new Woodcrest processors.
- Comment on related stocks/ETFs: Looks like this deal was part of the wider Dell-Google alliance for Dell to bundle Google's search bar on its PCs. Incrementally positive for Dell (DELL), no impact on Google (GOOG) as the search appliance line doesn't swing Google's top line enough and there's no real kick from using Dell. Most interesting stock implication is probably for Intel (INTC), which is suffering from strongly negative sentiment.
- Summary: TiVo is launching a service (free for current subscribers) that allows viewers to watch Internet video on their TVs. Video content will be provided by the New York Times, the National Basketball Association and iVillage.
- Comment on related stocks/ETFs: TiVo (TIVO) is struggling to differentiate itself from DVRs offered by cable and satellite TV providers. The company lost $10.7 million in its most recent quarter, though the number of subscribers grew 33%. Will this help TiVo's short term profitability? Not likely.
- Summary: CEO Sam Palmisano said that IBM will triple its investment in India to almost $6 billion in the next three years. In recent months, Cisco, Intel and Microsoft each said they will invest over $1 billion in India.
- Comment on related stocks/ETFs: If IBM achieves India-level costs in its software business, that means more competition for Infosys (INFY) and Wipro (WIT). Note that Wipro's stock took a hit after the company missed consensus estimates, and some people think the recent Indian stock market sell-off is a buying opportunity.
- Summary: Nick Reilly, General Motors' president of Asia-Pac operations, said in an interview that he plans to expand GM's product selection at lower price points in emerging markets, and focus on cost cutting. GM has leading market share in China, and doubled its Asian market share to 6.5% in 2005 versus a few years ago. GM sold more cars abroad than in the US in 2005 for the first time. Proft margins in China and India are good, but he expects a price war and sees risk of a price glut. "GM could to better in India".
- Comment on related stocks/ETFs: Looks like increasing competition for Indian car manufacturer Tata Motors (TTM).
- Summary: National Association of Realtors Chief Economist David Lereah says "this is a time for the Fed to pause rate hikes because we have some interest-sensitive housing markets that have become vulnerable". The NAR now expects existing home sales to decline 6.8% in 2005, new home sales to fall 13.4%, median existing house prices to rise 5.3% and median new house prices to rise 0.8%.
- Comment on related stocks/ETFs: Another negative data point for the home builders? Perhaps, but negative sentiment might already be priced-in after Toll Brothers (TOL) lowered its own forecast. Some value investors are now looking at homebuilders on the long side, particularly since Jim Cramer, who some value investors regard as a contrarian indicator, hates the homebuilder stocks. If you side with Cramer against the contrarians, however, the homebuilder ETF (XHB) is a potential short, but it's hard to borrow.
- Summary: Homebuilder stocks took a hit yesterday after Wachovia Securities cut estimates on the group. Implied volatility in options on homebuilder Ryland Group rose to 43%. "It's a sign that people are speculating that the selling is overdone," explained William Lefkowitz, options strategist at vFinance Investments.
- Comment on related stocks/ETFs: See comments above about contrarian interest in homebuilders. Ryland Group (RYL) fell 4.5% yesterday.
- Summary: Home Depot stopped giving out same-store-sales stats last month, claiming that investors are too focused on short term performance. "Surely it's no coincidence that Home Depot has decided to chuck the measure after trailing Lowe's comp growth in each quarter since the last one of 2003."
- Comment on related stocks/ETFs: Home Depot (HD) is highly leveraged to home sales, but its stock has taken less of hit than the homebuilder stocks (see chart). That might make HD a better short play on the slowing housing market than the homebuilders. Or here's a pair trade for value investors: Long the beaten-down homebuilders, short HD.
- Summary: After missing consensus estimates for its Q1 results a few weeks ago, Target's quarterly SEC filing predicts "slightly greater" consolidated gross margin than last year's 31.9%. Last week Target disclosed that seven of its executive officers chose to index $70 million of deferred compensation to Target stock.
- Comment on related stocks/ETFs: Watch the value investors swarm around Target (TGT) -- they love insider buying after a stock takes a hit due to a quarterly earnings miss.
- Summary: Continental Airlines ordered 10 787 Dreamliners and 24 737s, worth $3.5 billion, for delivery in 2008 and 2009.
- Comment on related stocks/ETFs: Who can figure out the US airline industry? The WSJ reported Monday that the airlines are cutting back on capacity; now it reports that Continental is expanding capacity. Probably positive for Continental's stock (CAL); at least the company must have some money to spend, unlike its bankrupt competitors. But more clearly incrementally positive for Boeing (BA).
- Summary: AMD says it will market a Transmeta (TMTA) processor in certain emerging markets. Online apparel retailer Bluefly (BFLY) said it will sell $50 million of new stock to two institutional investors. New Frontier Media (NOOF) missed consensus estimates. Brightpoint (CELL) was downgraded by Deutsche Bank. Evergreen Solar (ESLR) "said it continues to expect its revenue to increase throughout the year, more than doubling from 2005"; the stock rose 16%.
- Comment on related stocks/ETFs: Retail investors often over-react to PIPE deals, not realizing that the institutions get preferential terms when they buy stock directly. So approach Bluefly (BFLY) with caution; it might be a mosquito. On NOOF's earnings, note that conference call transcripts of companies that recently reported earnings results are here, or click on the ticker symbols for: New Focus (NOOF), Alloy (ALOY), Nortel Networks (NT), Ciena (CIEN), and Novell (NOVL).
Seeking Alpha Updates:
We're now providing blanket-coverage of new IPO filings; you can find it together with IPO analysis from Seeking Alpha contributors here.
We've also noticed a flurry of discussion about hurricane season from a stock market perspective, so we've created a hurricane category. Hopefully the hurricane commentary will remain entirely theoretical.