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:
Breaking News: Intel Plans to Sell Unit To Marvell for $600 Million
- Quick Comment: Intel's sale of its communications business to Marvell is a short-term positive for both stocks. Strengthens Marvel (MRVL) by reducing competition, generates cash and increases focus for Intel (INTC). In the long run, begs the question how Intel will diverisfy out of microprocessors.
- Summary: Short video site YouTube's phenomenal growth has been plagued by infingement of copyright problems. Although launched as a way for users to share home videos, it quickly became a destination for clips from TV shows and movies. NBC Universal has partnered with YouTube for promotion of its programs. By offering ads in video clips, YouTube now offers a way for content owners to generate revenue and therefore provide their programs for legitimate distribution on the site. Meanwhile, Warner Bros will distribute movies and TV shows via video search engine Guba, which currently has about 500,000 monthly users.
- Comment on related stocks/ETFs: NBC Universal is owned by General Electric (GE), but there's no stock impact here. More important is the longer-term threat of Internet sites like YouTube and MySpace to current distribution channels such as the cable and satelite network operators. MySpace, owned by News Corp (NWS), replaced YouTube with its own video service. Warner Bros. is owned by Time Warner (TWX).
- Summary: New home sales rose 4.6% month over month in May, the third straight month over month increase. But they were still down 5.9% year over year. Meanwhile, another homebuilder, Miami-based Lennar Corp, cut its 2006 EPS projection due to expected weaker orders and higher cancellation rates.
- Comment on related stocks/ETFs: Lennar (LEN) cut its 2006 EPS guidance dramatically, from $9.25 to a range of $8.00-8.25. The homebuilder stocks' earnings are highly leveraged to their revenue outlook, and perceived valuations can change abruptly.
- Summary: Google is planning to launch a test version of its GBuy online-payment service as early as this week. Merchants that accept GBuy will be highlighted in Google's search results, and Google users that purchase from a merchant that accepts GBuy will be channeled through a different checkout process. "Google plans to charge merchants a 2.2% commission on a sale, plus 30 cents per transaction using its payment service, according to people briefed on Google's pricing. That is higher than Pay-Pal's lowest published rate of a 1.9% commission plus 30 cents per transaction."
- Comment on related stocks/ETFs: Negative for eBay (EBAY). Although eBay's PayPal already has over 100 million users, a bundled offering of GBuy and AdWords could be highly attractive to merchants, capping PayPal's growth prospects. Expect limited impact on Google's stock (GOOG) because (a) this product ("Google Wallet") was widely expected by the market, and (b) investors will likely wait for evidence that the service is getting traction.
- Summary: AT&T launched its TV service in San Antonio, charging $59 per month for a bundle of services that it claims offer more than comparably-priced cable TV service. AT&T offers "faster channel surfing, three set-top boxes, an interactive program guide and digital video recorder", but cable offers more channels and digital TV.
- Comment on related stocks/ETFs: The competition to provide next generation TV and Internet services between the telcos, cable companies, and movie rental companies looks suspiciously like a zero-sum game, at least in the short run. The range of services that consumers are willing to pay for isn't growing, but competition is. A price war for the Internet/TV bundle will negatively impact all the stocks. AT&T (T) and Verizon (VZ), who bear the cost of building new fiber optic networks and whose core fixed-line telephone revenues are under threat, have most to lose.
- Summary: Yodlee, which manages online services for many banks, is introducing a product today that allows customers to track spending accross multiple accounts held in different institutions, make same-day bill payments, and pay bills from their bank's web site with a credit card. CheckFree and Online Resources are also improving their offerings with aggregation and personal finance tools.
- Comment on related stocks/ETFs: There are two ways for investors to "play" the increasing sophistication of online banking and the resulting concentration of assets by the banks that offer the best tools, rates and commissions. First, buy the stocks of the third-party service providers CheckFree (CKFR) and Online Resources (ORCC). The risk: they don't "own the customer" and can easily be swapped out for a competing service. Second, buy the stocks of institutions you expect to do the best job of accumulating assets. One possibility: the online brokerages Ameritrade (AMTD), E*Trade (ET) and Schwab (SCHW), all of which are moving aggressively into online banking, mortgates and other forms of asset and liability accumulation.
- Summary: The New England Journal of Medicine published a correction to an earlier article. According to the correction, risk of heart attack from Merck's Vioxx drug increases immediately on taking the drug and not only after 18 months as previously stated. "The correction could be a boon for plaintiffs' attorneys who have clashed with Merck on how quickly Vioxx's risks emerge in patients. The company faces 11,500 lawsuits from people alleging Vioxx caused their heart attacks and strokes. A cornerstone of Merck's defense in the litigation has been that the drug couldn't have had a hand in injuries in people who took the drug for fewer than 18 months. So far, Merck has won three cases and lost three cases."
- Comment on related stocks/ETFs: According to the article, "Theodore Mayer, co-lead outside counsel for Merck (MRK), said, "We believe our position is scientifically sound and we feel comfortable representing it."" He would say that, wouldn't he?
- Summary: Copper producer Phelps Dodge's stock fell 8.1% yesterday after it said it would take on $22 billion of debt to fund its acquisition of nickel and copper producers Inco and Falconbridge. On a conference call, Phelps Dodge's management claimed that "extremely strong cash flow" due to continued strong commodity prices would allow it to pay down the debt quickly.
- Comment on related stocks/ETFs: Phelps Dodge's (PD) CEO Steven Whistler is quoted in the article as saying "There's probably some froth in the current commodity prices", although he apparently added that strong fundamentals would continue to support metal prices.
- Summary: Two out of four oil refineries in southwestern Louisiana switched to operating at reduced rates yesterday due to a shipping bottleneck in the Calcasieu Ship Channel in Lake Charles caused by an oil spill last week. The price of gasoline and crude oil rose.
- Comment on related stocks/ETFs: One of the refineries is owned by ConoccoPhillips (CNC). This incident illustrates an interesting question for energy investors: if you expect the oil price to rise, are you better off buying the commodity via the new US Oil ETF (USO), or the diversified oil companies? Note a similar argument about buying the gold ETF (GLD) versus the largest gold producer, Newmont Mining (NEM).
- Summary: Berkshire Hathaway's stock fell slightly yesterday on news that Warren Buffett will be donating $37 billion of his stock to charity beginning later this year. But Buffett's eventual retirement is already priced-in the stock, which is relatively cheap at under 15x trailing EPS versus 17x for the S&P 500. Fund manager Whitney Tilson says Berkshire stock is trading 30% below intrinsic value.
- Comment on related stocks/ETFs: Berkshire's class A stock (BRKA) was down 0.65% yesterday, but its class B shares (BRKb) were down 2.05%. If you're going to buy Berkshire stock, compare the prices!
- Summary: The University of Michigan's consumer sentiment index and the Conference Board's consumer-confidence index paint different pictures, the former more pessimistic and the latter more optimistic. The difference is probably due to the impact of gas prices and a housing-induced slow-down on the two measures. There's little to worry about until they both "suddenly dropped". That's unlikely because gas prices seem to have stabilized.
- Summary: When companies pay more than is necessary into their pension plan in a given year, that creates a credit balance. They are then able to assign an assumed rate of return on those funds. Congress is now working on legislation, intended to pass before the July 4th break, that would change the rules about pension contributions.
- Comment on related stocks/ETFs: Two companies are mentioned in the article as potential candidates for having to increase pension payments: Xerox (XRX), CMS Energy (CMS) and Goodyear Tire & Rubber Co. (GT). Goodyear already states in its last annual report that its pension was significantly underfunded.
- Summary: Stocks rising on Sirius' (SIRI) interest in bidding for XM Satellite Radio: Westood One (WON), Cox Radio (CXR). Stocks moving on earnings reports or guidance: Leading Brands (LBIX) up 33%, Alliance One International (AOI) down 6%. Stocks moving on sell-side ratings changes: Redback Networks (RBAK) down 11%, WebEx Communications (WEBX) up 5.8%.
Other notable articles on Seeking Alpha: Today's earnings calendar. Rob Black's Tech Stock Report and Healthcare Stock Report. New currency ETFs hit the market, covering the Australian, British, Canadian, Mexican, Swedish and Swiss currencies. William Trent's stock watchlist for 3Q. Jim Cramer's Mad Money recap. Novell's rejuvenation? Analysis of Indian Internet stock Rediff. Leo Hindery on the end of the portals.
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