Equities Update: Earnings Power

4:14 PM, Oct 14, 2009 --

• NYSE up 150.5 (2.1%) to 7,182.38.
• DJIA up 144.80 (+1.5%) to 10,016.
• S&P 500 up 18.83 (1.8%) to 1,092.
• Nasdaq up 32.43 (1.5%) to 2,172.

GLOBAL SENTIMENT

• Hang Seng up 1.95%
• Nikkei down 0.16%
• FTSE up 1.9%

UPSIDE MOVERS

(+) JPM beats with Q3 profit.

(+) INTC easily tops with Q3 results.

(+) AMR gets analyst upgrade.

(+) RFMD reports multiple design wins.

(+) CHIO reports higher FY sales, income vs year ago.

(+) ACPW inks second large order from search provider.

(+) ABT beats with Q3, raises earnings view.

(+) RTP issues positive outlook for iron ore output.

(+) BMTI reports positive bone graft study results.

(+) ACOR says FDA panel met today on MS treatment.

DOWNSIDE MOVERS

(-) CBS reaffirms outlook.

(-) CSIQ continues extended-hours decline on outlook.

(-) GWW tops with Q3 results but loses early gains.

(-) UCBH says China Minsheng Bank reportedly cannot take a stake in company.

MARKET DIRECTION

Stock averages hit new highs inside the final hour of trading and end with 1.5% gains. The blue-chip Dow Jones Industrial Average closed above 10,000, a line it hadn't crossed in a year. Better-than-expected results from Intel (INTC) and JP Morgan (JPM) have inspired a new leg higher for what most analysts have said is an overbought rally, especially now that the DJIA has pierced 10,000.

September retail sales came in better than expected, which added to the generally upbeat mood.

September retail sales declined following the end of the government's "Cash for Clunkers" program. Outside of autos, sales were generally considered impressive, according to analysts.

Retail sales dropped 1.5% for the month. Sales of motor vehicles dropped 10.4%, the largest decline in four years, more than reversing a 7.3% gain in August. Excluding autos, sales rose 0.5% in September. The overall sales decline was smaller than Wall Street expected.

Stocks showed little reaction to a 1.5% decline in August business inventories. The drop was more than economists' mean forecast for down 0.9%.

Minutes from the Federal Reserve's last meeting show a split among members over the best policy as the economy shows recovery signs. Policymakers were conflicted over whether to expand or trim a program intended to drive down mortgage rates and support the housing market.

Fed Chairman Ben Bernanke and his colleagues agreed to slow down the pace of a $1.25 trillion program to buy mortgage securities from Fannie Mae (FNM) and Freddie Mac (FRE). Instead of wrapping up the purchases by year-end, the Fed last month said it would do so by the end of March, the AP reported.

Financial shares rallied broadly. JP Morgan (JPM) reported Q3 earnings of $0.82 per share, up from $0.09 per share a year ago and well ahead of the analyst mean of $0.52 per share on Thomson Reuters. Revenue was $26.6 bln, ahead of expectations of $24.9 bln.

Intel (INTC) reported Q3 revs of $9.4 bln, better than the analyst mean of $9.03 bln on Thomson Reuters. EPS was $0.33 per share, a nickel ahead of the Street view. For Q4, the company expects revs of $10.1 bln, plus or minus $400 mln. The Street is at $9.5 bln.

In other earnings news, Abbott Labs (ABT) also beat Q3 expectations and raises its FY guidance. It earned $0.92 per share, better than the analyst mean of $0.90 per share on Thomson Reuters. Sales were $7.76 bln, in line to just better than the Street view of $7.75 bln.

Looking forward, the company raised its ongoing earnings outlook for 2009 to a
range of $3.70 to $3.72 per share, above its prior view of $3.65 to $3.70 per
share and ahead of Street estimates of $3.69 per share.

Conseco (CNO) jumped on news the hedge fund led by billionaire investor John Paulson agreed to buy 16.4 million common shares and warrants to purchase another 5 million, Conseco said. The warrants will have an exercise price of $6.50 per share.

S&P this morning also raised its outlook on CNO to stable from negative.

AMR (AMR) was higher on an upgrade to overweight from equal weight at Barclays.

Harley-Davidson (HOG), which is due with Q3 results on Thursday morning, is gaining on an upgrade to outperform at Wells Fargo.

The dollar trades at a 14-month low. Crude futures close above $75 for first time in a year.

Overseas, stocks in Asia closed mixed and Europe was higher.

Comments

[David White:]

Great article. Art Cashin says this market reminds him of the dot.com bubble.

Also some banks are making very questionable upgrades of troubled companies. An example would be the Barclay Capital upgrade of AMR. AMR has a debt to capital ratio of 1.42%. It's underwater! It is estimated to lose -$4.57 in 2009. It's average analyst rating was 1.9 on Yahoo Finance. In contrast, LUV has a debt to capital ratio of 40%. It is estimated to be barely profitable for the rest of 2009. Yet its average analyst rating is 2.8. Go figure! Are the banks protecting the loans they are most worried about? Surely this dichotomy is not justified on a fundamental basis.

Oct 14 05:01 PM

[an0dize:]

As long as people continue to value bank recommendations despite glaringly obvious conflicts of interest, banks will continue to issue these unethical and self-serving ratings as well as profit from them.

On Oct 14 05:01 PM David White wrote:

> Great article. Art Cashin says this market reminds him of the dot.com
> bubble.
>
> Also some banks are making very questionable upgrades of troubled
> companies. An example would be the Barclay Capital upgrade of AMR.
> AMR has a debt to capital ratio of 1.42%. It's underwater! It is
> estimated to lose -$4.57 in 2009. It's average analyst rating was
> 1.9 on Yahoo Finance. In contrast, LUV has a debt to capital ratio
> of 40%. It is estimated to be barely profitable for the rest of 2009.
> Yet its average analyst rating is 2.8. Go figure! Are the banks protecting
> the loans they are most worried about? Surely this dichotomy is not
> justified on a fundamental basis.

Oct 14 06:16 PM

[mws:]

Actually, Art Cashin (the head of floor operations at UBS) on the topic of a 10,000+ DOW, also stated, "It's nice, it's somewhat joyful, but it's also a reminder that in a buy and hold strategy, we haven't gone anywhere in 10 years."

Mr. Cashin also mentioned that shortly before St. Patrick's Day, he called for a massive rally but never dreamed there would be anything like this and that he "started taking money off the table in July." Mr. Cashin also said, "Everybody's looking for a pullback -- perhaps that why it won't come."

And, sporting a bit of tongue-in-cheek humor, his departing comments were, "It's been painful to even have got out early or not been in it. It's like being at a great party, you're looking at a banquet and you think that the food is tainted. So you're watching everyone having a good time and you're not doing it."

See the interview for yourself at: www.cnbc.com/id/33315124

Oct 14 06:24 PM

[robert.b.fe...:]

I wonder how many of these glowing estimates and bank upgrades are coming from terrible Tim the tax cheat's minions? After all it's the Chicago way.

Oct 14 10:15 PM

[Teak:]

Yes, buy-and-hold may not have worked over the past decade if you were a growth-only investor; i.e., invested in "growth" stocks that don't pay dividends. My dividend-payers have done quite, well, not in price growth but in seeing my dollar cost average drop with the reinvested dividends.

Oct 15 08:51 PM