One Page Annotated WSJ Summary, Thursday June 22nd

by: David Jackson
David Jackson
Seeking Alpha's flagship daily business news summary, gives you a rapid overview of the day's key financial news. It is published before 7:00 AM ET every market day and delivered to over 900,000 email subscribers.

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:

Concerns Prompt Some Hospitals To Pare Use of Drug-Coated Stents

  • Summary: Some hospitals are cutting back on the use of drug-coated stents in favor of non-coated stents due to concerns that drug-coated stents actually lead to higher mortality rates. Drug-coated stents cost about $2,300 versus $700 for non-coated stents.
  • Comment on related stocks/ETFs: Boston Scientific (NYSE:BSX) and Johnson & Johnson (NYSE:JNJ) dominate the $5.3 billion drug-coated stent market. This carefully researched article will certainly raise alarm bells for both stocks. Of the two, Boston Scientific has greater revenue exposure to drug-coated stents. The article states that Abbott Laboratories (NYSE:ABT) and Medtronic (NYSE:MDT) make non-coated stents and could therefore benefit.

Big Buyers Push For Steep Price Cuts From Drug Makers

  • Summary: "...big buyers... are extracting steep price cuts from pharmaceutical companies on some of their brand-name medicines. Competition on prices paid by the biggest customers is now heating up in some categories, like pills for impotence and osteoporosis. Remarkably, that rivalry is often hot even in cases where generics are either unavailable or not used widely."
  • Comment on related stocks/ETFs: Negative for all the big pharma stocks: Pfizer (NYSE:PFE), Merck (NYSE:MRK), Schering-Plough (SGP), GlaxoSmithKline (NYSE:GSK), and Eli Lilly (NYSE:LLY).

Merck Will Sell Zocor Below Price of Generics and OPTIONS: Merck Pricing Move Stirs Teva Options Amid Stock Decline

  • Summary: Generic alternatives to Merck's Zocor, called simvastatin, become available tomorrow, but in an aggressive action, Merck has chosen to price Zocor cheaper than the generics and has locked up business with UnitedHealth Group. The price cut has surprised analysts, but a Teva manager still called Zocor "the largest generic opportunity in history". Teva's stock fell 9.5% yesterday on the news, but trading in call options was heavy implying expectations of a snap-back. "In an interview, Teva North America Chief Executive George Barrett said "we think that the Merck-United program on Zocor is going to have limited impact on our business.""
  • Comment on related stocks/ETFs: Everyone loses in a price war: Merck (MRK) and the two generic competitors, Teva Pharmaceutical (NYSE:TEVA) and Dr Reddy's (NYSE:RDY). Himanshu Pandya thinks Dr Reddy's and 5 other stocks got cheap in the recent Indian market sell-off. Teva's discussion of the generic drug market is in the transcript of its recent conference call.

FedEx Posts Stronger Net Profit, Expects Economy to Stay Strong

  • Summary: FedEx reported strong results yesterday, driving its stock up 5.1%. But more important, the company said "We see solid economic growth in the United States and international markets." Package volume rose 4.1% year over year and trucking volume was up 8.4%. Air shipment volume fell 2.5% as FedEx steered customers to cheaper ground delivery options. FedEx raised its 2006 EPS guidance to $1.45-1.60, higher than the consensus estimate of $1.43, and said it would raise capex to $2.9 billion from $2.52 billion.
  • Comment on related stocks/ETFs: The results are now priced-in to FedEx's stock (NYSE:FDX), so a more interesting question is who gains from the capex budget increase. Boeing (NYSE:BA)? See discussion from William Trent

Goodyear to Trim Low-End Tires, Warns of Rising Materials Costs

  • Summary: Goodyear Tire & Rubber Co., the largest US producer of tires, "said it is exiting from some low-end tire-making segments in North America and warned that weak industry conditions and rising raw-materials prices are likely to mean lower operating income in that region this year compared with 2005."
  • Comment on related stocks/ETFs: Perhaps Goodyear (NYSE:GT) is more effected by rising oil prices than the auto makers, because of the energy intensity of tire production.

Germany Plans Corporate-Tax Cut

  • Summary: Germany's Finance Minister Peer Steinbrück plans to cut Germany's nominal tax rate on corporate profits to just under 30%, from nearly 39%, next week. However, "Germany's move isn't likely to benefit companies much, though, because the coalition government under Chancellor Angela Merkel is under pressure from the EU to cut its budget deficit, and aims to claw back some of the tax cut by extending the taxable portion of corporate income and other measures."
  • Comment on related stocks/ETFs: Despite the Journal's caveat, Germany is clearly under pressure to cut the tax burden on companies. Play this via the iShares Germany ETF (NYSEARCA:EWG) and the closed-end New Germany Fund (NYSE:GF).

Japan's Economy Minister Says Zero-Rate Policy May End Soon

  • Summary: "Japan's economy minister said yesterday that the Bank of Japan would likely abolish its policy of keeping a crucial interest rate near zero before the end of the summer, indicating diminishing political opposition to a rate rise." Japan's economy grew at an annualized rate of 3.1% in Q1.
  • Comment on related stocks/ETFs: Will likely contribute to the market's oscillation between fear of higher rates and excitement at higher growth.

India Plans to Revive Urban Infrastructure Over Next Five Years

  • Summary: "India's prime minister said the government will spend 500 billion rupees ($10.9 billion) over the next five years on urban infrastructure."
  • Comment on related stocks/ETFs: The list of Indian stocks traded in the US is small (discussion of all of them here), so its not easy to find a pure-play to benefit from this. Perhaps Tata Motors (NYSE:TTM) benefits from better roads or less congestion?

Blade-Server Duel: IBM vs. H-P

  • Summary: IBM and HP have introduced sophisticated technology to reduce the power consumption of blade servers. In Q1, IBM's market share rose to 38% from 36% a year earlier, HP's to 33% from 31%, and Dell's to 14% from 10.6%. Dell introduced a new version of its PowerEdge blade server this month which it says cuts power consumption by 25%.
  • Comment on related stocks/ETFs: So who's losing market share? Presumably (please comment below if this is incorrect) Rackable Systems (RACK) and Sun (NASDAQ:SUNW). Rackable Systems took a hit when Dell announced it would use AMD chips; see discussion by Ben Thomas and David Gordon.

Samsung Aims To Increase Profit With New Phones

  • Summary: Samsung said it expects profits from its cellphone business to rise in Q2 from due to its slim phones (that compete with Motorola's RAZR). Samsung is the third largest cellphone manufacturer after Nokia and Motorola. "Mr. Chung [SVP of Samsung's mobile-communication division]... said the launch of new models and the popularity of its slimphones globally will enable Samsung to "significantly" surpass its earlier shipment target of 115 million units this year."
  • Comment on related stocks/ETFs: Samsung Electronics has no ADR that trades in the US, but its stock accounts for a whopping 21% of the iShares South Korea ETF (NYSEARCA:EWY).

Teens Seem to Be Losing Interest In Carbonated Drinks Like Colas

  • Summary: Morgan Stanley analyst Bill Pecoriello believes that carbonated-soft-drink sales volume will decline 1.5% this year as "health concerns and parental restrictions are steering teenagers to other beverages".
  • Comment on related stocks/ETFs: The big victim here is Coca-Cola Company (NYSE:KO) and the Coca-Cola Bottling Co. (NASDAQ:COKE). Pepsi (NYSE:PEP) has more exposure to non-carbonated drinks.

Morgan Stanley, Mack See Net Soar

  • Summary: Morgan Stanley reported FQ2 EPS of $1.86, beating the consensus estimate of $1.45. Net revenue in its Institutional Securities division rose 71%.
  • Comment on related stocks/ETFs: Nothing to do now; it's all priced in to Morgan Stanley's stock (NYSE:MS).

SMALL STOCKS: Revlon, Bob Evans Farms Gain; Centene, Lifetime Brands Slip

  • Summary: Medicaid managed-care company Centene (NYSE:CNC) cited cost pressures to analysts cut estimates. Fonar (NASDAQ:FONR) won a Defense Department contract. Lifetime Brands (NASDAQ:LCUT) fell 14% on guidance to a 2Q loss. Electronics cap equipment maker FSI International (NASDAQ:FSII) rose on growing earnings. Most interesting: "Lindsay Manufacturing (NYSE:LNN) rose 3.33, or 15%, to 25.03 on the NYSE. The Omaha, Neb., maker of irrigation systems posted a 34% increase in third-quarter revenue, saying dry weather in the U.S. and demand for biofuel crops are boosting sales of its irrigation equipment."

Other notable articles on Seeking Alpha: Today's earnings calendar. Latest conference call transcripts, from Jabil Circuit, Bed, Bath & Beyond, and Darden Restaurants.

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