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Crude Aid: As Global Oil Demand Tightens, A Big Producer Has Own Agenda

  • Summary: Venezuela's state-run oil company, PDVSA (pronounced peh-deh-VEH-za), has seen output reduced to just 1.6 billion barrels a day from a high of nearly 3 billion a day in 1998. The reason: Venezuela's flamboyant leader Hugo Chávez. Since taking power in 1999, the world's third largest oil & gas exploration and production company has been forced to spend upwards of 10% of it's annual budget on social projects -- cutting heavily into exploration and improving an outdated infrastructure. For example, the company spent just 60 million on exploration in 2004 compared with 174 million just three years earlier. Chávez has used the company's social spending to boost his own approval ratings to nearly 60%, at the same time cuts in the company's production have meant a 1% reduction overall on the world oil supply, a lot when you consider the current sparsity of crude around the globe.

IBM to Expand AMD Chip Use As Intel Steps Up Counterattack

  • Summary: IBM will today announce five new servers that will use AMD's Opteron processor, including two new blade servers. While IBM was the first systems vendor to adopt Opteron, it did so only in high-end models, in contrast to Sun Microsystems and Hewlett-Packard Co. which adopted the chips thoughout their server lines. The general manager of IBM's System X product line said that customers were requesting the AMD chips.
  • Comment on related stocks/ETFs: IBM (IBM) lost server market share to Sun (SUNW) and probably also to HP (HPQ) during Q2, and actually saw declines in server revenue year over year. Part of the reason for that was likely IBM's failure to use AMD chips with better performance than comparable Intel chips. But now the two laggards in the server market, IBM and Dell (DELL), are both adopting AMD chips more widely in their server product lines. Dell's announcement to adopt AMD chips was made on its May 18th conference call. That will increase the competitive pressure on the vendors who are using AMD chips already: HP (HPQ), Sun (SUNW) and Rackable Systems (OTCQB:RACK). IBM's expansion of AMD chip use is obviously incrementally positive for AMD (AMD) and negative for Intel (INTC).

Web Start-Ups Lure Executives At eBay, Yahoo

  • Summary: In an irony of the internet business, yesterday's 'it' companies, e-commerce portal eBay (EBAY) and search behemoth Yahoo! (YHOO) have seen their talent pools drained by smaller, newer internet companies. The trend of employees at some of today's most established and profitable internet companies voluntarily leaving to take jobs where they earn as little as a 10th of their previous paychecks but gain added responsibility has been accelerating of late. Yahoo! and eBay shares have recently dropped heavily, lowering the value of employee stock options and therefore the fiscal incentives for employees to stay put at the more established, publicly-traded internet companies.
  • Comment on related stocks/ETFs: Yahoo! and eBay's current predicament is reminiscent of what Microsoft (MSFT) must have been facing during the dot com boom of the late 90's, when employees were jumping ship to find, newer, 'hip-er' companies such as Yahoo! and eBay. Read up on past Microsoft employees who abandoned the company for other, smaller internet companies in this Business Week piece from 1999 entitled Outta Here at Microsoft: The software giant is losing key talent to the Internet.

FDA Moves Toward Approving Over-the-Counter Plan B Sales

  • Summary: The FDA yesterday sent a letter to Barr Parmaceuticals announcing that it plans to allow women to purchase the emergency contraceptive Plan B without a prescription. The FDA's acting commissioner, Dr Andrew von Eschenbach, is set to appear before a Senate confirmation hearing. Two Democratic members of the committee said that they still planned to block his nomination because he had failed to provide a clear positive decision to allow Plan B without a prescription. The FDA letter said that Barr would need to ammend its application to focus on women aged 18 and older rather than 16 and older, but was signed by Dr Eschenbach himself.
  • Comment on related stocks/ETFs: Incremental positive for Barr Pharmaceuticals Inc. (BRL).

Avian-Flu Study Reveals Hurdles for a Pandemic and Tyson Pares Its Outlook, Posts Loss

  • Summary: In research published in the latest Proceedings of the National Academy of Sciences journal, CDC scientists reported that a simulation of one of two main paths the H5N1 virus could take to adapt itself to humans -- mixing genes with a common human-flu virus -- didn't create a lethal superbug that could jump from human to human. Still, such findings don't mean that the deadly H5N1 virus, which has ravaged poultry flocks across Asia, Europe, and Africa and killed at least 134 people since 2003, doesn't pose a pandemic threat, CDC Director Julie Gerberding warned. Instead, they indicate "that it is probably not a simple process." Meanwhile, Tyson Foods, in a sign the chicken industry is still struggling with the effects of avian-flu worries, cut its fiscal-year outlook for the third time and announced plans to further reduce production. Tyson also said its electricity and fuel costs climbed $137 million during the first nine months, cutting into its profits for FY06. Tyson reported a third-quarter loss of $52 million, or 15 cents a share, for the quarter ended July 1. In the year-ago period, Tyson earned $131 million, or 36 cents a share. Sales fell 4.8% to $6.38 billion from $6.7 billion a year earlier. Tyson said its expects to generate a fiscal-year loss in the range of 41 to 51 cents a share, after initially forecasting a loss of 25 cents to a gain of ten cents per share. In trading yesterday, shares of Tyson fell 42 cents, or 2.9%.
  • Comment on related stocks/ETFs: Leading up to yesterday's earnings report, the experts had the outlook for Tyson Foods all wrong. Read Investopedia Advisor's The Bull Case for Tyson Foods and S&P's 10 Stocks for a Struggling Market summarized by David Jackson.

Brooks Automation Cites 'False' Options Document

  • Summary: Robert Woodbury, Brooks Automation Inc.'s (BRKS) CFO, said in an interview that the fortuitous timing of options grants to former CEO Mr. Robert Therrien, year in and year out, appeared to be coincidental. In addition, Woodbury claimed that an outside law firm's review related to options practices of two other former executives at the Chelmsford, Mass., maker of semiconductor equipment, Roger D. Emerick and Amin J. Khoury, may have contained many "crazy, stupid accounting errors" but were in no way illegal. The two stepped down from the company in May. Among the suspicion arousing cases being investigated at Brooks are grants dated May 31, 2000, to Messrs. Khoury and Emerick, as well as Mr. Therrien and others, at the nadir of a sharp dip in share price.
  • Comment on related stocks/ETFs: To read more about which other companies are involved in the current options backdating investigation being conducted by the SEC, see WSJ Options Scandal Scorecard.

Teck Raises Bid for Inco to Lure Shareholders From Phelps Offer

  • Summary: The bid to takeover Canadian mining company Inco (N) just got more complicated as Vancouver-based, NYSE-listed, Teck Cominco Limited (TCK) just upped their bid for the company. It was Teck's initial bid in May, following Inco's announcement that it was looking into a merger with fellow Canadian mining company Falconbridge (FAL) that ignited a bidding war for Inco involving Phoenix-based Phelps-Dodge (PD) and Swiss mining company Xstrata (LON: XTA). Teck's recent bid values Inco at 18.8 billion Canadian dollars (US$16.61 billion), including a cash value of $40 Canadian per share, or nearly double the cash-per-share Phelps Dodge is offering.
  • Comment on related stocks/ETFs: For more on the bidding war for Inco and Falconbridge until now, see William Trent's July 13 piece Not So Fast, Phelps! Proposed 3-Way Mining Merger Runs Into Bidding War with Swiss.

American Express Is Overhauling Its Rewards Plans

  • Summary: American Express is today announcing sweeping changes to its credit card reward programs, that effectively redue rewards and raise fees. Double rewards for purchases in groceries, supermarkets and gas stations will end, and the annual fees on AmEx cards will rise as much as $35 to $125 for some card holders. American Express says that the aim of the double rewards was to encourage cardholders to use credit cards for everyday purchases, and that has now been achieved. American Express accounted for 22.3% of the $1.58 trillion in US credit card spending in 2005 according to Nilson.
  • Comment on related stocks/ETFs: For many customers, these changes will make AmEx cards less attractive than Visa or Mastercard credit cards. There are two ways this could play out in terms of the stocks: if few customers defect, this will raise American Express' profits and boost its stock (AXP). If it results in widescale defections, competitor Mastercard (MA) will benefit. For consumer advice on optimising credit card use, see The Radical Guide to Credit Cards.

China's Rise as Auto-Parts Power Reflects New Manufacturing Edge

  • Summary: Not long ago, Chinese auto-parts were known for their poor quality, lack of precision and relatively high prices in comparison to their US and German competitors'. But these days China is turning out much better auto-parts, and now exports more than it imports for its high-growth domestic auto industry. Heavy investment in computer assembly and machinery have taken Chinese manufacturing beyond the simple consumer goods of years past and into 'the entire range of products, from telecom equipment to textiles.' U.S. employment in the auto-parts industry has fallen to about 644,000 in 2004 from about 721,000 in 2002. Delphi Corp., which has plants in China, is in bankruptcy protection, and smaller suppliers are finding it increasingly difficult to compete with China. Meanwhile, rising wages have forced Chinese manufacturers to seek out higher-value products, such as car parts, and increase productivity to reduce reliance on low-cost labor.
  • Comment on related stocks/ETFs: As noted in the article, these trends spell ongoing challenges for parts producers such as TRW Automotive (TRW), Clarcor (CLC) and Dura Automotive (DRRA), while makers of high-end factor equipment, such as Rockwell Automation (ROK) and Johnson Controls (JCI) should prosper from the Chinese business.

HSBC Posts a 15% Profit Rise On Growth in New Markets

  • Summary: HSBC Holdings PLC, the world's third largest bank, posted a 15% increase in first-half net profit to $8.73 billion, driven by strong revenue growth in new businesses and emerging markets and benefiting from lower costs. Operating income increased by the same rate to $34.33 billion. HSBC cited sustained strength in the global economy led by intense growth in China and said that it is well-positioned to benefit from shifts in the world economy. HSBC's finance director Douglas Flint said he was pleased with the firm's diversification strategy into new markets and mentioned the "outstanding" contribution from corporate investment banking. Areas of possible concern include a slowing U.S. mortgage-lending market and the U.K. unsecured-credit market. HSBC said it plans to enter Japan's retail-banking market for the first time, targeting personal-financial services, comprising traditional retail-banking products.
  • Comment on related stocks/ETFs: HSBC Holdings PLC (HBC) not only posted solid first-half results but emphasized what it sees as continued strength in the global economy. Regarding HSBC's desire to enter the Japanese retail-banking market however, Steven Towns, editor of Japan on SeekingAlpha questions this move. He commented that the competition is already very intense as both traditional banking institutions and investment banks are moving quickly to expand operations and cater to baby boomer money. A joint venture or equity investment might make more sense than going it alone.

Hitachi, Toshiba And Pioneer Post Improved Results

  • Summary: Hitachi Ltd. trimmed its net loss in Q1, while both Pioneer Corp., and Toshiba Corp., returned to profitability. Despite improved sales in a number of its segments however, Hitachi is still struggling with its hard disk drive business, in which its most recent quarterly loss was larger than expected due to falling product prices. Hitachi is Japan's largest electronics maker by revenue and was able to boost quarterly revenue y-o-y by 9.7% to 2.25 trillion yen ($19.5b) and narrow its net loss to 22.04 billion yen ($191m) versus 24.08 billion yen y-o-y. Toshiba credited its return into the black to stronger earnings at its chip division and a turnaround in its broadcasting, medical-systems, and flash-memory businesses. Net profit totaled 4.04 billion yen ($35m) versus its year-earlier loss of 8.92 billion yen, on a 12% increase in revenue to 1.45 trillion yen ($12.6b). Pioneer, which is still restructuring posted a net profit of 5.66 billion yen ($49m) against a loss last year of 5.34 billion yen, on a 20% jump in revenue to 191.68 billion yen ($1.7b). Pioneer raised its full-year guidance citing smaller than expected declines in prices of plasma displays and recordable DVD drives.
  • Comment on related stocks/ETFs: Generally we are seeing positive earnings out of Japanese CE firms. A weaker yen and the World Cup Soccer effect certainly helped, although CE firms are constantly fighting falling product prices and could have benefited more if the Japanese national team had advanced out of the first round. See Steven Towns' Japanese Stocks Earnings Roundup for Monday, which includes a more detailed look at the earnings of Hitachi (HIT), Toshiba (OTCPK:TOSBF), and also Elpida Memory (Tokyo: 6665).

Japanese Makers of Cars Produce More Overseas

  • Summary: The Japan Automobile Manufacturers Association said that for the year ended March 31st, Japanese auto makers produced 10.92 million vehicles abroad versus 10.89 million domestically -- the first time overseas production has ever exceeded domestic production. Overseas production increased 10.6% year-over-year. This feat is despite surging oil prices, proving the attractiveness of Japan's fuel-efficient autos. Japan-based auto makers have been able to expand market share in the U.S. while General Motors Corp. and Ford Motor Co. have struggled and been forced to scale back production and contain costs. For the month of June, Japan's domestic production rose 7.2% y-o-y while exports increased 14.6%. Honda and Nissan have already reported quarterly earnings with the former's net income soaring 30% and the latter's rising a modest 4.2%. Toyota reports this Friday.
  • Comment on related stocks/ETFs: Japan's Big-3 Auto companies trade in the U.S. with Honda Motor Co (HMC) and Toyota Motor Corp (TM) listed on the NYSE and Nissan Motor (OTCPK:NSANY) on the Nasdaq. This actually may not be the best of times for Japan's Big-3 but I wouldn't expect things to get worse either. For instance, Toyota has had problems with recalls as of late leading many to question its quality image. And Nissan is struggling to put up better numbers due to a lack of new models on the market. Nevertheless, analysts still seem to like Japan's Big-3 and there's a good chance their shares will easily outperform the broader market. Investopedia Advisor recently made a bull case for Toyota. As for the potential three-way tie-up between Nissan-Renault and General Motors (GM), John Bethel questions the likelihood of the deal in: Going, Going, Ghosn? GM-Nissan-Renault Merger Seeming Increasingly Unlikely. Lastly, a summary of Honda's quarterly earnings can be viewed by clicking here.

Japanese Banks' Results Show Shift

  • Summary: Two of Japan's three mega-banks, Mitsubishi UFJ Financial Group and Mizuho Financial Group have already reported earnings and both posted increases in earnings in areas such as investment banking and sales of financial products, representing successful expansions outside of the traditional banking business. This is a positive shift towards diversifying revenue sources since corporate lending tends to be characterized by thin margins. Overall Mizuho fared better with a 33% increase in net income to 230.84 billion yen ($2b) while Mitsubishi UFJ's net fell 16% to 219.54 billion yen ($1.9b) due to losses in bond trading. Japanese banks have been reducing their large exposure to government bonds in anticipation of further rate hikes. The Bank of Japan ended its five year zero-interest-rate-policy by raising rates by a quarter percentage point on July 14th. Retail sales of financial products and investment banking commissions jumped 24% for Mitsubishi UFJ to 260.9 billion yen ($2.26b) while Mizuho's income grew 12% to 116 billion yen ($1b).
  • Comment on related stocks/ETFs: Mitsubishi UFJ Financial Group (MTU) is listed on the NYSE and rival Mizuho Financial Group (Tokyo: 8411) plans to list on the NYSE by the end of September. In Steven Towns' coverage of Mitsubishi UFJ's Q1 earnings yesterday he said the following, "I wouldn't exactly call Mitsubishi UFJ's Q1 financials disappointing despite coming in lower than Q1 in the year prior. Actually on a comparative basis the earnings are kind of misleading since Mitsubishi and UFJ had not even merged yet (not until October). And Mitsubishi incurred heavier NPL obligations from the acquisition. On the positive side, net income at nearly 220 billion yen is nothing to complain about and overall the merger seems to be going well. One concern is the losses in bond trading. I wonder why Mitsubishi UFJ didn't reduce its exposure earlier on. There is also a concern about baby boomers shifting funds out of very low-yield savings deposit accounts into securities. In this respect I think MUFG has done well with its securities arm and has a lot of potential via its tie-up with Merrill Lynch (MER). Its interest spread and corporate lending should improve with time and future Bank of Japan rate hikes."

AHEAD OF THE TAPE: Running Low on Gas and Ford to Cut Incentive Reliance In Selling '07 Model-Year Cars and Detroit's Cash Cow Stumbles

  • Summary: U.S. automakers report sales figures today, and are likely to show a significant drop from last year's July sales, which were bolstered by big incentives. Eyes will also be on composition of sales, as consumers move toward smaller cars that are (1) less profitable for the U.S. automakers, and (2) less popular than those from Toyota and Honda. Both higher fuel prices and a demographic shift account for the move to smaller cars -- baby boomers no longer have little kids to move about in SUVs. Edmunds estimates Ford sales down 26% y/y and General Motors' down 21%. Ford's two-month 'Drive On Us' national incentive program for this year ended yesterday, as the 2007 line hits showrooms. Sticker prices will be lowered for Ford vehicles this year. Meanwhile, sales of big pickup trucks -- a Detroit cash cow --have slowed amid the housing market's weakening and higher fuel prices. Fullsized pickup sales dropped about 20% over the first half, and are expected to fall further. Moreover, 'personal use' pickup buyers (suburban cowboys) have begun buying cars and more fuel efficient vehicles.
  • Comment on related stocks/ETFs: Poorer than expected numbers today could mean GM stock (GM) finally loses its momentum. Lower truck and SUV sales is also negative for Daimler-Chrysler (DCX) and Ford (F), and mean that Toyota (TTM) and Honda (HMC) take share. John Bethel notes that the GM-Nissan-Renault merger is looking increasingly unlikely, but Travis Johnson thought it was a bad idea for GM anyway. In June, Toyota's sales surged while the US manufacturers took a hit. For more detail on the impact of fuel prices on the composition of auto sales, see this breakdown of June sales by manufacturer.

HEARD ON THE STREET: Can This Disney Ride Continue?

  • Summary: Since Robert Iger took over as CEO of Disney last October, the stock has run up more than 20%. Upon looking forward to next year, however, some analysts have lowered their outlook, citing lower theme park attendance and rising sports rights costs. Others, like Prudential, see recent cost-cutting in Disney's studio unit, strong performance of the latest 'Pirates of the Caribbean' film, and an adjustment in the amortization of Disney's NFL deal as reason for bullishness on the stock. There's some concern that Disney paid too much for Pixar ($7.4 billion), which has yet to produce a major blockbuster under its new ownership. The ABC network has recovered nicely on the back of hits like 'Lost' and 'Desperate Housewives', and new fall shows like 'Ugly Betty' have met positive initial feedback. Disney's P/E for the remainder of 2006 is about 20, vs. 18.5 for Time Warner and 22.7 for News Corp.
  • Comment on related stocks/ETFs: Glenn Curtis concurs with the bulls on Disney, and sees the stock as a solid long term pick. Carl Howe explains how 'Pirates' can be a hit even in our 'long tail economy.'

FUND TRACK: ETF Appeal Shifts to Main Street

  • Summary: ETF leaders Barclays and State Street Funds report that at least half of their funds' investors now come from the retail, rather than institutional, sector. While institutional investors were first to adopt ETFs, marketing efforts by the funds have focused on retail investors more aggressively, since 'retail has always been the real target' according to a Barclays spokesman. At the end of June, ETF assets were $335.1 billion, up 38% in the past year. Vanguard says that about 80% of its ETF business is retail, while PowerShares puts the figure at 90%. However, about 80% of daily trading volume on ETFs is institutional, according to State Street, who note that hedge funds are the driving force behind that volume.
  • Comment on related stocks/ETFs: Retail investors surely have more variety to choose from -- ETFs have recently been marked by a continual rollout of new funds, such as commodities ETFs, currency ETFs, and fundamental indexed ETFs. The article doesn't, unfortunately, note what percentage of new or veteran retail investors choose ETFs over traditional OEFs, and if that market share is growing apace. Is the growth of ETFs among retail investors boosting commission volume at the online brokerages, such as Ameritrade (AMTD) and E*Trade (ET)?

SMALL STOCKS: July Was a Loser For Small Stocks; Scottish Re Dives

  • Summary: Small stocks finished flat yesterday, and lost significant ground for July overall. The Russell 2000 index of small-cap stocks gained 0.08% while the S&P's SmallCap 600 index gained 0.31% meaning the Russell lost 3.3% in July while the S&P 600 fell 3.5%. The semiconductor-related sector, however, had a good day with acquisition-related news raising sentiment in the sector, most notably after large-cap SanDisk (SNDK) agreeing to buy msystems (FLSH), an Israeli supplier of data storage technology, in a stock deal valued at about $1.55 billion catapulting shares of msystems up a bar-mitzvah worthy 13%. In addition, Conexant Systems (CNXT) gained 3.5%, while Mindspeed Technologies (MSPD) also rose 3.5%. In terms of individual performers, Scottish Re Group (SCT) plunged 75%, the biggest percentage decliner on the NYSE, after the Bermuda-based life reinsurance specialist said it expects a second-quarter net operating loss of about $130 million, lowered guidance for the rest of the year and announced the resignation of its chief executive; Playtex Products (PYX) rose 12%, after reporting higher second-quarter sales and profits; Repligen (RGEN) was up 25% after a District Court in Massachusetts rejected large-cap ImClone Systems' (OTCQB:IMCL) defense in Repligen's patent-infringement suit on the production of Erbitux, a colon-cancer drug; and Gehl (GEHL) climbed 14% after the company's second-quarter earnings topped the average analyst estimate.
  • Comment on related stocks/ETFs: For more on SanDisk's acquisition of msystems, read Shlomi Cohen's recent piece M-Systems Investors, Don't Be Disappointed By SanDisk Acquisition.

Notable articles on Seeking Alpha today: Earnings calendar for August. Why the first day of the month looks good for being long. PIMCO bond manager Bill Gross predicts a house price melt-down. Rob Black's Tech Stock Report, Media Stock Report, Retail Stock Report and Energy Stock Report. David Jackson outlines the short case for TheStreet.com, and Travis Johnson explains why he dumped The India Fund. Affymax files for an IPO, and more on this week's IPOs. XM Satellite Radio's churn problem. The long case for Cryo-Cell and the short case for Fairfax Holdings. A graphical look at freight transportation stocks (clue: UPS doesn't look too good). Jim Cramer recommends Intel. Craig Berger on iPod-supplier PortalPlayer. William Trent on capacity shrinkage in the flat-panel industry (finally!). The lastest buzz about Sony's PS3 game box. Latest conference call transcripts: Affymetrix, Glamis Gold, Exelon, Avon Products, Regal Entertainment.

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Source: One Page Annotated WSJ Summary, Tuesday August 1st