Seeking Alpha
Long/short equity, special situations, momentum, growth
Profile| Send Message|
( followers)  

Yesterday the markets rallied on the belief that the government shutdown was not going to be a lasting exercise. As the trading session progressed however we did see the day's gains shrink as high ranking aides to Republicans began to spread the word that expectations were now that this might last a week. The national and local news stations all picked up on the story and everyone is now aware of it, and those who are not we would expect to quickly become aware of it as many across the country realize services have disappeared.

The longer this lasts, the bigger the impact, but markets will be impacted this week if there is no resolution, with jobs numbers not being reported tomorrow already being reported. Worse, this could spill out into the real economy and in a big way because people applying for mortgages will not be able to have their tax returns and other information verified by the IRS and other agencies, thereby seriously hampering a large part of the economy.

Chart of the Day:

The euro is trading near a three month high versus the U.S. dollar, and if the shutdown continues we could see a breakout to new highs. This might be something worth watching in the coming days.


(Click to enlarge)

Source: Yahoo Finance

We have economic news today and it is as follows:

  • MBA Mortgage Index (7:00 a.m. ET): Est: N/A Actual: -0.4%
  • ADP Employment Change (8:15 a.m. ET): Est: 170k Actual: 166k
  • Crude Inventories (10:30 a.m. ET): Est: N/A

Asian markets finished mostly higher today:

  • All Ordinaries -- up 0.17%
  • Shanghai Composite -- CLOSED
  • Nikkei 225 -- down 2.17%
  • NZSE 50 -- up 0.53%
  • Seoul Composite -- up 0.03%

In Europe, markets are lower this morning:

  • CAC 40 -- down 0.67%
  • DAX -- down 0.49%
  • FTSE 100 -- down 0.66%
  • OSE -- down 0.10%

Activists At The Gates...

This morning there is news that some of Microsoft's (NASDAQ:MSFT) largest shareholders are lobbying the Board of Directors to get Bill Gates to step down as Chairman of the company (see Reuters story here). Currently it is a small contingent of the top owners, but this has to be a bit concerning for management as it is now obvious that some of their top shareholders are now acting together. These activist groups usually start off small at large companies and then have others pile on once it appears that the ball is rolling and there is a decent chance of getting something done, so we would not be surprised to see activism grow here over the next 6-18 months.

Currently it appears that the shareholders are trying to flex their muscles and see what they can get the company to agree to, which is why we are doubtful that Bill Gates will be stepping down as Chairman of the company due to this. It would signal too much weakness on Microsoft's part, plus they are searching for a replacement for CEO Steve Ballmer who they chased out early due to performance and potential activism.

Microsoft is not alone as a target, because Apple (NASDAQ:AAPL) too faces activists who are intent on getting the company to adopt a better capital allocation program and to return more cash to shareholders. For years technology companies got away with stashing large sums of cash on their balance sheets under the promise that they would use it for future growth, but now we are seeing the transformation of these companies from growth oriented entities to cash cows. There is too much money involved not to attract the attention of activist investors and with the report out by Moody's this morning that indicates 10% of all cash held by nonfinancial companies is the $147 billion held by Apple, well one can see why this is such a big deal.

Technology

Weakness in Cree is to be bought, it was the truth last quarter and it remains the truth today.


(Click to enlarge)

Source: Yahoo Finance

When Cree (NASDAQ:CREE) was selling off after providing guidance a bit below analysts' expectations this past quarter we remained bullish. This is a technological shift that investors have waited years to take place and with manufacturing costs having come down significantly and new government regulations now in place, there is no reason to be bearish this name for the next couple of years. The analysts are starting to come back to the bullish side of the trade now, with Canaccord Genuity upgrading the shares to a "Buy" from a "Hold" and simultaneously raising their price target on the company's shares to $80/share from $65/share. The stock price rallied $9.57 (15.90%) to close at $69.76/share on volume of 11.01 million shares. We continue to believe that being long this name is the way to play the trade, for both traders and investors.

Drugstores

There are very few subsectors in the retail industry that one can be bullish of and look to invest money over the long-term using the buy and hold strategy and not experience large fluctuations in the value of their portfolio based on the health of the economy. One subsector that we have always liked and seems to defy the large corrections based on the consumer is the drugstore segment.


(Click to enlarge)

Source: Yahoo Finance

Lately these names have come back to life, with many of them hitting fresh all-time highs and nearly all sitting within striking distance of their 52-week highs. Rite-Aid (NYSE:RAD) has come back from the brink of death and been one of the top performers in the entire market this year and Walgreen (NYSE:WAG) has managed to continue to scale their operations while also rebounding from their recent missteps. Rite-Aid continues to be a deleveraging story and with the Affordable Care Act going into effect we suspect that business is going to pick up for all the players in the drugstore business. Rite-Aid is for those readers looking for a bit of risk while Walgreen is, in our view, a great long-term play and something even we would look at adding to our retirement portfolios in the next few months.

Source: Today's Market: Activist Investors Agitating For Change, Tech And Retail Outperformers