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: Warner Issues Counterbid Of $4.56 Billion for EMI Group
- Summary: EMI and Warner Music are bidding to acquire each other. Analysts are speculating about the size of potential synergies, while both CEOs want to run the combined entity. It's not clear the EU would allow the merger.
- Comment on related stocks/ETFs: The result for Warner Music's stock (WMG) is probably positive. Tougher competition for Vivendi's (ADS: V) Universal Group?
- Summary: Although Apple's "obsessively enforced" secrecy about its new products contributes to its successful marketing, it also damages partners, customers and suppliers. HP's deal with Apple to resell iPods collapsed because HP was informed about new iPod models too late to brand, package and market them, and corporate customers are loathe to commit to Apple PCs without knowing the timing of expected new product releases.
- Comment on related stocks/ETFs: The article illustrates the difficulty Apple is having penetrating the corporate market, contributing to the lack of "halo effect" as iPod sales spill over to Mac sales. On the other hand, the article mentions that Apple spent $287 million on advertising in 2005 versus $995 million for Microsoft and $1.1 billion for HP. Stock impact: incrementally negative for Apple (AAPL), but limited impact.
- Summary: Heinz has been shedding brands on focusing on its core products. A key sales opportuntiy is selling ketchup to McDonald's, which uses mostly own-brand ketchup from Golden State Foods of Irvine, Calif. in quantities equivalent to 11% of Heinz' worldwide ketchup sales. (Heinz does supply Burger King and Wendy's.) McDonalds has replaced its own ketchup with Heinz in about 4,000 foreign restaurants, but not its 13,700 US restaurants, and there's no sign that it plans to switch to Heinz in the US. "Ketchup, condiments and sauces produce 41% of Heinz's sales and a greater share of profits."
- Comment on related stocks/ETFs: Incrementally positive for Heinz (HNZ) as McDonalds (MCD) US restaurants are only upside opportunity for the company.
- Summary: GM issued a disappointing sales forecast for June and July, and acknowledged that the overall sales-comparison numbers will look "brutal" compared to last year's sales which were boosted by incentives. "The auto makers' cost of incentives, including rebates as well as interest-rate offers and leasing deals, amounted in May to $3,668 per vehicle for Chrysler, $3,209 for Ford Motor Co., $2,761 for GM and $886 for Toyota Motor Corp., according to Edmunds.com, an auto-shopping Web site."
- Comment on related stocks/ETFs: GM's stock (GM) fell 6.7% yesterday on the news, so this is now priced-in.
- Summary: CEO Carlos Ghosn warned that Nissan's sales in Japan for the fiscal year ending March 2007 may be 800,000-846,000 vehicles, potentially lower than its prior forecast of 846,000. May sales in Japan fell for the 8th straight month and were down 12% year over year, and exports also fell, causing Nissan to cut output by 25%. Raw materials costs are now expected to exceed prior estimates by $430 million.
- Comment on related stocks/ETFs: Nissan (ADR: NSANY) is lanuching 8 of its 9 new models in the second half of the year. The question for investors is whether the current shortfall results from outdated models and is therefore a buying opportunity.
- Summary: Treasury secretary nominee Henry Paulson told the Senate that the US should encourage China "fairly aggressively" to allow its currency to respond to market forces and appreciate against the dollar. "A notable omission in Mr. Paulson's remarks was mention of a strong dollar -- nor was he asked about it by the senators. That stands in contrast to departing Secretary John Snow, who backed a strong-dollar policy in his confirmation hearing in 2003." Meanwhile, China's cabinet is planning a closed-door, two-day policy meeting later this year to determine an agenda to overhaul the country's financial system.
- Comment on related stocks/ETFs: The prospect of a rising yuan/falling dollar favors skewing asset allocations to international stocks versus US stocks, and to US large caps versus small caps. A slew of currency ETFs just launched, but they don't yet include a China yuan ETF. Abnormal Returns discusses the pluses and minuses of currency ETFs. Chinese stocks may benefit from a yuan appreciation; you can buy them though the two China stock ETFs, the iShares FTSE/Xinhua China 25 Index Fund (FXI) and the Power Golden Dragon Halter USX China Portfolio (PGJ). The two ETFs are compared here.
- Summary: Rambus"said a preliminary board review found improperly dated stock-option grants that may lead to a restatement of prior financial results". "Separately, six other companies -- VeriSign Inc., CNET Networks Inc., Foundry Networks Inc., Applied Micro Circuits Corp., Cyberonics Inc. and Progress Software Corp. -- announced new federal inquiries into their options practices."
- Comment on related stocks/ETFs: Strongly incrementally negative for Rambus (RMBS), VeriSign, (VRSN), CNET Networks (CNET), Foundry Networks (FDRY), Applied Micro Circuits (AMCC), Cyberonics (CYBX) and Progress Software (PRGS).
- Summary: Luxury retailers, attracted by high average incomes, new residential developments and relatively low rents, are moving into lower Manhattan, creating a luxury shopping alternative to Fifth Avenue. "Fifth Avenue rents have reached $1,400 a square foot, compared with $38 for space in the average American mall and $60 to $225 in Lower Manhattan.
- Comment on related stocks/ETFs: Not clear that there's much incremental impact on the retailers, such as Tiffany (TIF). A better play might be the REITs that own office and/or residential space downtown, such as Brookfield Properties (BPO).
- Summary: Existing home sales fell for the 7th month running in May, by 1.2% month over month. The average rate on a 30 year mortgage moved up to 6.6% from 6.5%. The Conference Board's consumer confidence index improved slightly in June.
- Comment on related stocks/ETFs: John Hussman has not impressed by the recent improvement in housing stats, and even argued that the May gain in housing starts was an "important negative".
- Summary: Nike's fiscal 4Q results included revenue up 7.6% year over year to $4.01 billion, driven by high end baseball sneakers, net income down 4.8% to $333 million. EPS of $1.27 was hit by a $0.12 litigation charge. Gross margin fell to 43.8% from 45.2% partly due to rising transport costs.
- Comment on related stocks/ETFs: More details in the full transcript of Nike's conference call.
- Summary: Vonage plans to unveil a USB keychain device today that allows business travellers to make calls on their Vonage accounts by plugging the drive into a PC. Vonage Chairman and Chief Strategies [sic] Jeffrey Citron say "This will fundamentally alter the way people do business", but sell-side analyst Richard Greenfield fo Pali Capital says he's struggling to understand why this is useful, and the device was shown to investors on Vonage's IPO roadshow so it's priced into the stock in any case. Moreover, "SanDisk Corp. has a USB device on the market with Skype software, and Mplat Technology Co. is marketing a similar product."
- Comment on related stocks/ETFs: Two stock related issues for Vonage Holdings (VG) here. First, note that the sentiment in Vonage-related articles is still strongly negative; it's unusual to see this depth of skepticism about a new product launch. Second, Vonage's ability to penetrate the business market is more dependent on the quality of its phone connections than on new functionality. Seeking Alpha, for example, has abandoned using Vonage for international calls due to frequently dropped calls and poor sound quality. Marginally negative for eBay (EBAY) due to increased competition for its Skype service. Marginally positive for the flash memory vendors including Sandisk (SNDK).
- Summary: The market correctly pushes down shares of acquiring companies in mergers, but sometimes overreacts when the mergers of companies in the same industry that reduce competition. Recent deals include Phelps Dodge's acquisition of Inco and Falconbridge, Mittal Steel's bid for Arcelor and Anadarko Petroleum's bid for Kerr-McGee and Western Gas Resources. These deals will generate economies of scale, but instead of investing in the acquiring companies, it may be more attractive to invest in other large commodity producers.
- Comment on related stocks/ETFs: Stocks mentioned positively: BHP Billiton (BHP), ConocoPhillips (COP).
- Summary: Walter Mossberg reviews the latest Sidekick, which launches July 10 for $300 with a 2 year T-Mobile contract. Negatives: bulkier than a Treo or Blackberry, poor screen resolution, slow Internet connection, lousy phone functionality, overall poor usability. Positives: better navigation, good instant messaging functionality, good camera. Verdict: unimpressive.
- Comment on related stocks/ETFs: Incrementally positive for competitors Motorola (MOT), Rimm (RIMM) and Palm (PALM).
- Summary: Catalog retailer J Crew starts trading today, after completing its IPO last night. CEO Millard Drexler is a retail genius who build the Gap but has expressed frustration with running a public company. He's advocated "controlled growth" for J Crew to avoid the misteps that hit the Gap.
- Comment on related stocks/ETFs: Excerpts from J Crew's (JCG) IPO filing here. Comprehensive coverage of IPOs here.
- Summary: Two lawsuits have been brought against Wall Street firms relating to naked short selling. The suits allege that prime brokerages charge fees to clients for borrowing stocks without actually borrowing them. "Josh Galper, managing principal of Vodia Group LLC, a financial-services consultancy in Concord, Mass., says the lawsuits may threaten the profit margins of the prime-brokerage business."
- Comment on related stocks/ETFs: Stocks potentially impacted: Goldman Sachs (GS), Morgan Stanley (MS), Bear Stearns (BSC).
- Summary: Front-month futures prices for gasoline on the New York Mercantile Exchange rose to their highest average since August, above $2.10 a gallon. Demand from drivers over the 4th July weekend is expected to be strong and refineries in Lake Charles have cut production due to shipping delivery problems. Gas prices could rise to over $3 a gallon.
- Comment on related stocks/ETFs: If you drive a lot and want to hedge against rising gas prices, consider buying the US Oil ETF (USO).
- Summary: 12 executives and directors of the International Securities Exchange Inc. sold $19.8 million worth of shares since the stock hit a high March 16th. Meanwhile, "Dan Snyder, the Washington Redskins owner who took over as Six Flags Inc. chairman in December after a proxy fight, bought nearly $3 million of Six Flags stock as it fell Friday on news of potential credit problems. The purchase was Mr. Snyder's first since the proxy contest and raised his stake to 12.1%."
- Comment on related stocks/ETFs: Negative for International Securities Exchange Inc. (ISE), positive for Six Flags (SIX).
- Summary: Stocks moving on earnings results or guidance: InFocus (INFS) down 17%, Maximus (MMS) down 21%, Micronetics (NOIZ) up 23%. Ev3 got FDA approval for a stent-replacement device. OraSure Technologies (OSUR) won a multiyear contract from NYC for advanced HIV tests.
- Comment on related stocks/ETFs: InFocus (INFS) is an interesting stock. The TV market is undergoing a multi-year upgrade cycle as consumers move to flat panels; many will discover that projectors are better value. According to its most recent 10-Q, InFocus has over $52 million of cash on its balance sheet; its market cap is about $123 million. In the press release announcing the shortfall in its Q2 revenue, InFocus said that gross margins are still expected to improve from their Q1 level of 15%. But the company won't reach operating profitability in Q2 and may be delisted by the Nasdaq.
Notable articles on Seeking Alpha today: Today's earnings schedule. Most recent conference call transcripts -- Nike and drugstore Walgreen. Flash memory stocks are cash rich. Roger Nusbaum's model ETF portfolio. Why selling covered calls is problematic. How to save money on prescriptions.
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