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: Apple is in talks with movie studios to carry feature films on its iTunes Music Store. Negotiations with Walt Disney Co., Time Warner Inc.'s Warner Bros., News Corp.'s Twentieth Century Fox, Sony Corp's Sony Pictures Entertainment, General Electric Co.'s Universal Studios and Viacom Inc.'s Paramount Pictures are focused on pricing: Apple wants to offer new movies for $9.999-12.99 while the studios are pushing for a price of $14.99, with lower prices for older movies. Microsoft has also been in talks with studios, and has told at least one studio that it will launch a portable movie player as early as Q4 of this year.
- Comment on related stocks/ETFs: Mixed for Apple (AAPL), as it would benefit from offering movies (though that expectation could already be priced-in to the stock). But if the report of Microsoft's player is accurate, that's incrementally negative for Apple. Incrementally positive for Microsoft (MSFT) as the expectations currently priced-in to Microsoft's stock of it succeeding in this market are roughly zero. Net positive for movie studios owned by Disney (DIS), Time Warner (TWX), News Corp (NWS), Sony (SNE), Viacom (VIAB), and (although it wasn't mentioned) Lions Gate (LGF). GE is too diversified for this to impact its numbers. Internet sales of movies should reduce the studios dependence on the movie theater chains and cable companies, and probably lead to higher margins.
- Summary: Start-up cellphone network operators, established to offer multimedia services over capacity leased from larger networks, are floundering despite the fact that number of US cellphone users has doubled over the last six years to 215 million. The cellular market is satuarated and only about 1% of users regularly use their cellphones to watch video. Qualcomm is investing $800 million in a national TV network that Verizon Wireless has committed to use, and cellular tower company Crown Castle International hopes to raise $500-700 for a similar service. Verizon Wireless CEO Denny Strigl questions whether there will be sufficient demand for these services.
- Comment on related stocks/ETFs: Incrementally negative for every stock associated with the article: Qualcomm (QCOM), Crown Castle (CCI), and backers of the two struggling startups discussed in the article, Walt Disney (DIS), Viacom (VIAB) and Vivendi (V).
- Summary: Verizon Communications launched a law suite June 12th against Vonage, alleging patent infringement and seeking a permanent injunction and for Vonage to freeze its operations.
- Comment on related stocks/ETFs: Vonage's stock (VG), already down 50% from the IPO, is radioactive. Intellectual property is becoming more important in the voice-over-IP market as litigation increases, and Net2Phone, which has filed suit against Skype, could turn out to own valuable patents: eBay's (EBAY) expensive acquisition of Skype would then look lame. Net2Phone is owned by IDT Corp (IDT), perhaps a cheap stock.
- Summary: 250 US cities have deployed or are planning to deploy municipal WiFi networks. IDC estimates the municipal wireless market will expand to $512 million by 2010 from $88 million now. But cities that cut deals for paid subscription-based services are now asking for them to be free, supported by ads. WiFi provider MobilePro estimates that monthly revenue per subscriber from ads is only $2, not enough to cover maintenance and upgrade costs.
- Comment on related stocks/ETFs: Google (GOOG) and Earthlink (ELNK) have teamed up to offer free, ad-supported WiFi service. The articles has mixed messages for Earthlink: the difficulty making money is a clear negative, but the reduced competition as other providers drop out is a positive if Earthlink can indeed make money. More analysis of Earthlink's stock from ClearFish; it's also a John Dorfman stock pick. The biggest potential losers from rapid roll out of ad-supported municipal WiFi: the yellow pages companies, mostly owned by telcos AT&T (T) and Verizon (VZ).
- Summary: McDonald's plans "to announce today a deal with China's largest gas retailer, state-owned Sinopec Group, to build drive-throughs at filling stations", and is working on a menu for its Chinese stores that is more suitable for take-out. Currently, only 10% of fast food is taken out, so it's not clear that McDonald's will succeed. Competitor Yum Brands has opened only two drive-thrus, but business has been "lackluster". Drive-through customers account for 30% of revenue of the stores that have them, versus 60% in the US. McDonald's plans to open 1,000 outlets by the time of the Beijing Olympics in Summer 2008. KFT currently has 1,600 outlets in China.
- Comment on related stocks/ETFs: China is a key growth opportunity for McDonald's (MCD). See the company's own comments on drive-throughs in China. The mention of Yum Brands (YUM) is incrementally positive for the stock.
- Summary: An appeals tribunal in the UK overturned an earlier ruling by the Office of Fair Trading that MasterCard's fee structure was anti-competitive, but left open the opportunity to re-launch an investigation into MasterCard's pricing. MasterCard greeted the ruling as a "victory".
- Comment on related stocks/ETFs: Incrementally positive for MasterCard (MA); further analysis of the stock from Russell Bailyn, Catablast Media and cursory comments from Jim Cramer.
- Summary: Siemens is in talks to sell a majority stake in its enterprise communications business, which has annual revenue of about $4.4 billion. This follows Siemens' announcement yesterday that it is merging its wireless infrastructure business with Nokia's in a JV. Siemens' stock rose 6.7% yesterday.
- Comment on related stocks/ETFs: Incrementally positive for Siemens (SI) as it raises margins and monetizes assets.
- Summary: The stocks of mid-size telecom operators Global Crossing Ltd. (GLBC), Level 3 Communications Inc. (LVLT) and Broadwing Corp. (BWNG) have declined sharply in the recent stock market downturn, but fundamentals are strong. Consolidation is reducing competition, pricing is declining less fast, balance sheets have improved, and the networks are worth more than the stocks suggest. None of the three companies is expected to make a profit in 2006, and all have used higher stock prices to raise more capital.
- Comment on related stocks/ETFs: Like the optical communications equipment stocks, the long distance carrier stocks were boosted by improved sentiment due to increasing talk of Internet video and movies. But until the current correction ends, this is not a market to be buying stocks of unprofitable mid-sized or small companies. Full disclosure: short LVLT at the time or writing; can close out the position at any time without warning.
- Summary: KB Home is laying off 7% of its workforce due to a weak market for new houses. The construction sector was responsible for about 20% of the four million payroll jobs created in the US in the last two years, so job losses in that sector present a serious challenge to the economy. The Commerce Department will release data today on new housing starts, providing more insight. Employment currently looks strong, but its clear that the housing sector can't support jobs growth going forward.
- Comment on related stocks/ETFs: KB Home (KBH) and other home builders are now attracting value investors; here's a comparison of KB Home to Toll Brothers (TOLL). On recent weakness in the housing market, see the comments immediately below about yesterday's survey data from home builders.
- Summary: Housing-related small caps took a hit after the National Association of Home Builders reported that its index for sales of new, single-family homes fell to 42 in June from 46 in May, its lowest point since April 1995. Victims: Jucuzzi Brands (JJZ) and ElkCorp (ELK). Also: Symmetry Medical (SMA) lowered its Q2 forecast and its stock got chopped 18%.
- Comment on related stocks/ETFs: What an attractive short opportunity: small cap stocks (which are generally overvalued) and companies exposed to the new housing market. Add Jucuzzi Brands (JJZ) to your list. ElkCorp (ELK) has an alternative energy-related business, so that a riskier short.
- Summary: "Growth in alternative-energy indexes -- including the most recent offering from the Nasdaq Stock Market -- may lead to levels of volume and liquidity previously not seen in alternative-energy stocks." The Nasdaq launched its Clean Edge U.S. Index a month ago, and is already licensing it as the basis of a new ETF. Five new alternative indexes have been launched since January. "Research firm KLD is launching a publicly traded fund in Japan tracking its Global Climate 100... KLD managing director Thomas Kuh is discussing a domestic ETF."
- Comment on related stocks/ETFs: New ETFs will lead to more demand for the alternative energy stocks. The easiest way to play this: buy the Power WilderHill Clean Energy Portfolio (PBW) or its underlying constituents.
Other notable articles on Seeking Alpha: Today's earnings calendar. Most recent conference call transcripts from Amgen, Circuit City and Car Max. Jim Cramer's Mad Money in-depth picks. Rob Black's tech stock report and retail stock report. In-depth look at Golfsmith International's IPO filing, and stocks at risk from a short squeeze.
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