One Page Annotated WSJ Summary, Friday June 16th

by: David Jackson
David Jackson
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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:

Gates Will Cede Day-to-Day Role At Microsoft

  • Summary: Bill Gates said he would stop overseeing Microsoft's product development in two years to work full time on his non-profit organization. He will remain as Chairman. CTO Ray Ozzie will immediately assume Mr. Gates' title of chief software architect and co-CTO Craig Mundia will become chief research and strategy officer. The changes could accelerate CEO Steve Balmer's plan to devolve more responsibility to lower-level managers.
  • Comment on related stocks/ETFs: Sentiment on Microsoft's stock (NASDAQ:MSFT) is so negative that any management changes can only be positive. See, for example, Is Microsoft This Decade’s RCA?. Full text of Bill Gates' speech here.

Oracle Adjusts Its Forecast Upward

  • Summary: Oracle's stock rose 6.6% in after-hours trading after the company pre-announced better than expected earnings for the quarter ended May 31st. EPS of $0.24 beat the company's prior guidance of $0.21-0.23, and revenue growth of 25% beat the prior 13-17% estimate. New software licenses grew 32% versus expectations of 8-18%, new licenses for "database technology", including middleware, grew 18% and applications sales grew 83% or 56% exclusing new revenue from Oracle's acquisition of Siebel.
  • Comment on related stocks/ETFs: This announcement took the market completely by surprise and should impact the entire software sector, not just Oracle (NASDAQ:ORCL), today. Note that Oracle seems to be taking share from SAP (NYSE:SAP), which reported 22% revenue growth in its most recent quarter, but only 14% in constant currency terms. (Details in the SAP conference call transcript.) SAP is also under fire from (NYSE:CRM), which launched a remarkable attack on SAP in its most recent call.

Factory Output Fell Slightly in May and Stock Market Extends Big Rally

  • Summary: The Fed announced that industrial production fell 0.1% in May month-over-month, but is still up 4.3% year-over-year. Capacity utilization fell to 81.7% in May from 81.9% in April. Fed Governor Ben Bernanke said that inflation expectations as measured by inflation-protected bonds had declined in the last month, though inflation expectations reported in surveys and the wider bond market had edged up and "bear watching". The recent rise in the price of oil could be responsible for some of the increase in core inflation. Meanwhile, the Labor Department said that new unemployment claims were low (the unemployment rate is 4.6%) and suggests that job creation is strong. The DJIA, up 80 points before Bernanke's speech, ended the day up 198 points.
  • Comment on related stocks/ETFs: The market is oscillating between worrying about inflation and worrying about growth. Impossible to invest based on fundamentals here; either buy volatility, or avoid making market calls.

Airbus, Parent Blame Each Other Over A380 Delays

  • Summary: European Aeronautic Defence & Space Co. [EADS] Co-Chairman Arnauld Lagardere, co-CEO Noel Forgeard and Airbus CEO Gustav Humbert traded accusations yesterday about responsibility for the A380's production delays. Mr Forgeard sold EADS stock less than three months before yesterday's delay announcement.
  • Comment on related stocks/ETFs: The worse things get for Airbus (and this is getting pretty messy), the better for Boeing and its stock (NYSE:BA).

Ford, in a Blow to UAW, Casts an Eye to Mexico

  • Summary: At the same time as closing factories in the US, Ford is considering building a plant in Mexico to manufacture a new subcompact car "that wouldn't be economically feasible in a UAW-staffed U.S. plant". The news was released just as the United Auto Workers holds its annual meeting, supposedly a show of force before negotiations with the large auto manufacturers.
  • Comment on related stocks/ETFs: Any weakening of union power is incrementally positive for Ford (NYSE:F) and General Motors (NYSE:GM).

AHEAD OF THE TAPE: Brother, Spare a Trillion?

  • Summary: The Commerce Department is due to release data today about the US trade balance and capital flows. The Q1 current account deficit is expected to be $220 billion, or just under 7% of GDP. While high, there's no sign that strong capital inflows are abating.
  • Comment on related stocks/ETFs: No sign of a short-term dollar collapse, but increasing long term pressure. Retail investors can diversify out of the dollar into Euros with the Euro Currency Trust ETF (NYSEARCA:FXE).

HEARD ON THE STREET: As Intel Slogs Through Tough Quarter, Shares Could Be Near Rock Bottom

  • Summary: Goldman Sachs analyst James Covello upgraded Intel Wednesday, arguing the stock has hit its cyclical bottom. Sentiment is negative and the company is due to roll out new chips in June, July and August and to announce cost-cutting measures from a 90-day operations review. On the other hand, " Analysts who attended the Computex trade show in Taiwan last week say computer makers there told them of major price reductions promised by Intel -- including cuts of as much as 60% on some older Pentium models. AMD later cut prices on some of its own models, they say." Price cuts would hit both companies, but could hit AMD more than Intel. Intel announces earnings July 19th.
  • Comment on related stocks/ETFs: William Trent provides details of the Intel price cuts. Intel (NASDAQ:INTC) chart here, AMD (NYSE:AMD) chart here. Andrew Schmitt has been prescient on Intel, including predicting the sale of its communications unit. His current commentary is here.

HEARD IN ASIA: A Threat to Metals Prices: Plastics

  • Summary: London commodity research firm CRU says that high metals prices are encouraging manufacturers to substitute plastics and aluminum for copper. Johnson Controls (NYSE:JCI) is promoting air conditioners that use aluminum instead of copper, and Chinese manufacturers may follow. Changes in usage have a strong impact on price because of the delicate supply-demand balance.
  • Comment on related stocks/ETFs: "...investors with a long-term outlook might want to hedge their bets by sticking with mining companies that produce a range of commodities rather than individual metals that are susceptible to substitution." BHP Billiton (NYSE:BHP) and Rio Tinto (RTP) are diversified, but Phelps Dodge (PD) and Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) are narrowly exposed to copper and gold.

SMALL STOCKS: Inter-Tel, Sonus Networks Rise; Semiconductor Sector Rallies and Mortgage Rates Rose Across Board in Week

  • Summary: Inter-Tel (NASDAQ:INTL) up 8.6% to $21.76 on an acquisition offer for $22.50 per share. Lattice Semiconductor (NASDAQ:LSCC) up 5.8% on positive revenue pre-announcement. Herley Industries (NASDAQ:HRLY) up 8.5% on announcement of stock buy-back. Home furnishings company Pier 1 Imports (NYSE:PIR) down 2.4% on announcement of wider loss due to weak customer traffic. Meanwhile, the average 30-year mortgage rose to 6.63% from 6.62% a week earlier, up from 5.63% a year ago.
  • Comment on related stocks/ETFs: The Pier 1 Imports (PIR) miss is another negative data point on housing-related stocks, and mortage rates rose again. Negative for the homebuilders and DIY suppliers Lowe's (NYSE:LOW) and Home Depot (NYSE:HD).

Other notable articles on Seeking Alpha: Today's earnings calendar. New conference call transcripts from Adobe (NASDAQ:ADBE), Omnivision (NASDAQ:OVTI), Mobile Telesystems (NYSE:MBT) and Lions Gate Entertainment (LGF). Rob Black reports on the retail sector and financial sector. Busy IPO market; full coverage here. Excellent discussion of the LCD market from William Trent.

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