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AHEAD OF THE TAPE: Cold Water Club (Wall Street Journal)
Summary: Remember the good old days of 1972? On November 10th, the Dow closed at 995.26, breaking the six-year-plus record of 995.15 from February 1966. Then after peaking at 1051.7 in January 1973, it fell, and took a decade to recover. According to Bollinger Capital Market's John Bollinger, yesterday's peak looks all too familiar: "Great bull markets are born from periods of excessively low valuations. All the current cycle has allowed us to do is bring us to just above average valuations." Plagued by Watergate, inflation, oil woes and recession the 70s turned out to be no picnic. While these days may be better, as the article notes, "It hardly seems like a time for lots of bubbly."
Related links: Full article • First Time in a Decade the Dow's P/E is Higher Than the S&P 500's • New Stock Bubble Theory Picks Up Steam • Not All Markets are Hitting Highs
Potentially impacted ETFs: S&P 500 Spiders (SPY), Diamonds Trust (DIA), Nasdaq 100 (QQQQ), iShares Dow Jones Select Dividend (DVY).
Summary: Since being spun off from Cendant Corp. in July, Realogy Corporation's (H) shares have dropped more than 10 percent in the midst of a widespread housing crisis (in August, home prices fell for the first time in 11 years). The company, which owns several real estate franchises including Coldwell Banker, Century 21, ERA and Sotheby's International Realty is three times larger than its next largest competitor, RE/Max International, and reported earnings of $1.2 billion last year with a profit margin of 16%. But with the end of one of the nation's greatest real estate booms in decades coinciding with Realogy's introduction as an independently-traded public company, there has been speculation that Realogy will throw in the towel and de-list. This would allow the company more operating flexibility, without being under the constant scrutiny of Wall Street. While the company has offered a tender to buy back 20% of its outstanding shares, private equity firms have been positioning themselves to snap up the company, which has little debt and a solid profit margin. CEO Richard A. Smith believes it is still to soon to put the company onto the private market, considering the tax liabilities it would face if it were privatized too soon after its tax-free divestiture from Cendant. Says Mr. Smith, "Remember, the reason we did this [the Cendant breakup] was to increase shareholder value. The board will be obligated to consider taking Realogy private if the stock continues to struggle but it's too early to come to any of those conclusions."
Related links: Full article • Housing Bubble and Real Estate Market Tracker • Does Realogy Contain Real Value? • Cendant Lobs Up a Fat Pitch in the Form of Realogy Corp. • Cendant Spinoffs: Which One's Worth Owning? • Why I'm Long Realogy • FTC Action Strengthens Online Real Estate Sites
Potentially impacted stocks and ETFs: iShares Dow Jones U.S. Broker/Dealers (IAI), PowerShares Dynamic Building & Construction (PKB), SPDR Homebuilders (XHB), iShares Dow Jones U.S. Home Construction (ITB)
TECHNOLOGY AND INTERNET
AOL to Get a Software Makeover (Business Week)
Summary: Starting today, America Online [AOL] is offering a new service called OpenRide in an attempt to stem the tide of users who abandoned the company for free email providing counterparts like Yahoo (YHOO) and Gmail (GOOG). The move reflects the Time Warner (TWX) owned company's shift away from its long-time approach of charging for services and features, in the hopes that it can keep broadband multi-taskers glued to its key free offerings through an all-in-one program. OpenRide is actually quite revolutionary: Unlike traditional Web browsers in which users perform just one task at a time, OpenRide splits the main window into four panes -- e-mail, instant messaging, video and general Web browsing. It also features AOL's search engine on top of the page. Microsoft (MSFT) also stands to gain from AOL's new web formatting: OpenRide requires Microsoft's Windows XP operating system with Service Pack 2. In addition, the company is planning a version for the upcoming Windows Vista due out in 2007.
Related links: Full article • AOL Restructures - Again • AOL's Free Content Plan • AOL's Free Content Plan is Fraught With Risks • Time Warner's Free AOL Initiative Makes Good Business Sense • Microsoft Needs to Get it Right This Time
Summary: Yesterday Nintendo (OTCPK:NTDOY) boosted its dividend and announced higher projected sales and net income for the first-half and full-year. This news sent its ordinary shares higher by 3.4% today for their highest close in a month. Intraday it traded as high as 25,100 yen, its highest since Feb. 21, 2000. Meanwhile, Fidelity Investments Japan increased its stake in Nintendo to 14.5% from 5.83% per a Sept. 26th filing with the Ministry of Finance. Nintendo has considerably outperformed the MSCI Japan Index over the past six months: +39.0% vs. -7.1%. Some analysts however are questioning its valuation. A DB Tokyo analyst downgraded Nintendo to "sell" from "hold" saying, "We expect the DS boom to run its course and the firm's products to compete with each other following the launch of the new Wii game console."
Related links: Full article . Nintendo Press Releases: Dividend Modification and Financial Forecast Modifications • Nintendo Raises Guidance Again, Sees Strong Sales Ahead • Significance of the Surprisingly Weak Yen • Nintendo: Solid Business, Share Price Too High • Sony's Headache: Nintendo Wii Launch Dates, Prices Announced • Nintendo Posts Strong Q1, Boosts Full-Year Forecast • Nintendo Dominates First Half Game Sales in Japan
Potentially impacted stocks and ETFs: Konami (KNM), Microsoft (MSFT), MoSys (MOSY) and Sony (SNE)
Summary: With the global LCD market continuing to face falling prices and an inventory glut, South Korea-based LG.Philips (LPL) is expected to report a loss for the second consecutive quarter. After prices for its LCDs fell 18% last quarter, prices slid an additional 10% this quarter. What's worse, the world's largest LCD producer is expected to be in the red until 2007, negating the likelihood of a quick turnaround as some had predicted. In the meantime, top competitors like Samsung and AU Optronics (AUO) have managed to downscale their inventories and largely avoid the pricing glut cutting into LG.Philips' profit margins. According to Korea Investment & Securities analyst Michael Min, "LG.Philips has a structural problem and it will take some time to fix it. The company is failing to control costs and has a relatively weak client base." Adds Jason Kang, a Daewoo Securities analyst, "I think a turnaround will come only in the third quarter next year or so."
Related links: Full article . LG Philips LCD Co., Ltd. Q2 2006 Earnings Conference Call Transcript • LCD Market Update: Caught in 'No Man's Land' • LCD Market Difficulties Lead AU Optronics to Consolidate, Ease Capacity • Trent's Takeaways for a Market in the Midst of a Sales Glut . LG.Philips LCD Misses Q2 Numbers, Issues Weak Forecast; Impact on Flat Panel Stocks?
Potentially impacted stocks and ETFs: Sony (SNE), Toshiba (OTCPK:TOSBF), Sharp (OTCPK:SHCAY), Corning (GLW)
Summary: McAfee and Symantec (SYMC), producers of popular security software, are voicing complaints that Microsoft's (MSFT) new operating system, Vista, prevents consumers from using their products and leads them to Microsoft's security programs. Although they have yet to lodge a formal complaint, the companies have brought the issue to the attention of authorities at the European Commission and to the committee that oversees Microsoft's antitrust settlement with the Justice Department. F-Secure, a Finnish company that produces security software is also critical of Vista, which will be available to consumers in January. Microsoft insists that with Vista it has made needed improvements to cope with internet viruses designed to attack Microsoft desktop products, and that they are not taking steps to eliminate competition. McAfee argues that Vista's console, which hinders replacement with other systems, is a step backward for security. Trend Micro, a supplier of virus scanners for Microsoft's Hotmail, believes that Vista's exclusivity is a hindrance to fighting malicious software.
Related links: Full article•Adobe, Symantec Challenge Microsoft's Vista For Antitrust Violations • Symantec and McAfee Have Little to Fear From Microsoft Antivirus Software • Symantec Looks Secure Despite Microsoft's Competition • Antitrust Chief Barnett: Innovators Like Apple Should Be Left to their Own Devices • Why The EU's Fines Against Microsoft Aren't So Significant (MSFT)
Potentially impacted stocks and ETFs: Adobe Systems Inc. (ADBE)
Sony Shares Fall on Playstation Concerns (Washington Post)
Summary: Macquarie Equities analyst David Gibson opened a can of worms when he wrote in a report that PlayStation 3 units displayed at the Tokyo Game Show (about 10 days ago), "operated erratically and had to be repeatedly reset." Gibson noted, "While the reason for this is unknown, we suspect it may be due to overheating as a result of enclosing the units and the high temperatures at the venue. We are concerned that such a problem has occurred so close to full production and is clearly negative news for the company." News of Gibson's report and a downgrade by Goldman Sachs to "neutral" from "buy" earlier in the day put downward pressure on Sony's shares yesterday. Sony spokeswoman Nanako Kato blamed the "overheating" on the close proximity of about 200 PS3's on display and poor ventilation. Kato added, "It's not a problem with the PlayStation 3 unit itself. For a normal player at home, there shouldn't be any problem."
Related links: Full article • Goldman Downgrades Sony, Cuts Target • Sony's Battery Recall Costs Mounting • Why the PlayStation 3 Will Bankrupt Sony • Sony's Headache: Nintendo Wii Launch Dates, Prices Announced • Sony's PS3 Will Underperform its Predecessor . Conference call transcript: Sony Q107
Potentially impacted stocks and ETFs: Potential heat-issues with the PS3 is potentially a positive development for both Microsoft (MSFT) and Nintendo (OTCPK:NTDOY) with potential negative implications for game developers should the PS3 be further delayed. Editor's note: Sony's ordinary shares (Tokyo: 6758) took another hit in Wednesday trading as they lost 3.26% to close at 4,450 yen ($37.68) -- after losing 2.75% yesterday -- establishing new calendar year intraday and closing lows.
Intel Could Face EU Antitrust Case (Wall Street Journal)
Summary: After a five year probe of a variety of Intel's business practices, people familiar with the case say that the European Commission in Brussels has prepared a draft of charges against the company. The next step in the process is for the commission to present its case to an expert panel to screen the argument for holes, then European antitrust chief Neelie Kroes will examine the evidence and decide whether to charge Intel, probably before the end of the year. Intel would have up to two months to respond to Ms. Kroes' charges, and would be entitled to a hearing. Ms. Kroes could end up fining the company. Thomas McCoy, AMD's (AMD) VP of Legal Affairs noted that Intel typically uses, "false rebates schemes and the threat of price increases," with computer manufacturers. Intel is up against antitrust authorities in South Korea as well, but in the U.S. has not faced an antitrust suit since the '90s.
Related links: Full article • Intel & AMD: Where the Chips Fall • Intel vs. AMD: What the Cuts Mean
Potentially impacted stocks and ETFs: Dell (DELL), Hewlett-Packard (HPQ).
A Big Bet on Natural Gas (NY Times)
Summary: In a bid to double U.S. imports of natural gas by 2011, Charif Souki's Cheniere Energy (LNG), in a joint project with Sempra Energy (SRE) and Exxon (XOM), is building three new terminals for liquefied natural gas along the Sabine River Channel by the Gulf of Mexico. Even though natural gas prices have sagged recently, Mr. Souki is forging ahead, because he sees a greater reliance on imported natural gas as U.S. production declines. According to Sempra Energy's chairman Donald E. Felsinger, liquefied natural gas ("LNG") "is going to have a growing importance... the gas that we find here in North America is getting more and more expensive to produce. And because there is so much stranded gas around the world, L.N.G. can be shipped here and compete very effectively with traditional supplies." While LNG currently accounts for 3% of U.S. gas consumption, that figure is expected to rise to 10% by 2010 and 25% by 2020. Mr. Souki is betting that increased demand in the long run will prove him right, regardless of how low gas prices go in the short term.
Related links: Full article • CNX Gas Ready to Rise • Chesapeake is a Natural Pick in Natural Gas • Russian Government Muscling In on Anglo-Russian Gas Field Venture • Nabors Should Capitalize On Strong Natural Gas Demand • Natural Gas Stocks Starting to Feel a Double Pinch From Low Prices, High Seasonal Inventory • Natural Gas a Better Bet Than Crude Oil
Potentially impacted stocks and ETFs: BG Group (BRG), Magellan Midstream Partners (MMP), Plains All American Pipeline (PAA), TEPPCO Partners (TPP)
Summary: Rising supplies and a (thankful) lack of hurricanes in the Gulf of Mexico are contributing to oil's continued slide. Oil prices are down 25% from July's peak ($78.40/barrel), and have already fallen about 7% this week, dropping 3.9% yesterday to close at $58.20/ barrel. Analysts believe that last week's U.S. stockpiles of distillate and gasoline rose 1.5mm and 1.6mm barrels respectively. Additionally, the Energy Department said that for the week ending September 22, supplies of crude, gasoline, heating oil and diesel were above their five year seasonal averages. On the hurricane front, despite earlier predictions of an active hurricane season, there were no such storms this year -- the first time in the past five years. Analysts are now watching to see if any further declines will trigger OPEC production cuts.
Related links: Full article • Discussions on Oil • Inflated Oil Prices: Your Tax Dollars at Work • Debunking the Bear Case for Energy • OPEC Keeping Its Eye on Prices • Oil Price Falls Below $60 • OPEC's Dilemma: When and How to Cut Production
Potentially impacted stocks and ETFs: U.S. Oil Fund ETF (USO)
Summary: BP PLC (BP) can't seem to catch a break. The company announced on Wednesday declines in quarterly production for a fifth period in a row. Both the August shutdown of the Prudhoe Bay oilfield and the delays at the Thunder Horse platform in the Gulf of Mexico have contributed to these declines. The Gulf of Mexico site was damaged by Hurricane Dennis in 2005 and production is not expected to restart there until mid-2008. BP's problems are compounded by the current investigation into alleged oil and propane market manipulation, in addition to lawsuits from a 2005 refinery explosion in Texas. The company's refining global indicator margin, which reflects the average profitability of all of its refineries, fell to $8.40 a barrel in the third quarter, down from $12.35 during the same period last year. This was also lower than 2Q's $12.59.
Related links: Full article • BP, ConocoPhillips and ExxonMobil: Oil Field Shutdown Should Cause Only Short Term Losses . Reuters: BP seen down around 2 pct after trading statement
Potentially impacted stocks and ETFs: Oil Service HOLDRs ETF (OIH), United States Oil Fund ETF (USO), ConocoPhillips (COP), Chevron Corp. (CVX), Royal Dutch Shell (RDS.A).
TRANSPORTATION AND AEROSPACE
Summary: Toyota's (TM) U.S. sales increased 25% in September thanks to fuel-efficient cars and truck incentives, versus industry-wide sales growth of 1.9%. Ford sales rose 4.6%, GM's fell 3.1% and DaimlerChrysler's fell 2.3%. Honda (HMC), Nissan (OTCPK:NSANY) and Hyundai's sales declined by 4.1%, 5.6% and 13% respectively, while Mitsubishi, Mazda, Suzuki and Subaru's sales rose by 14%, 1.7%, 11% and 0.2%. Japanese and South Korean automakers gained market share for the 14th straight month. Toyota's increase was the largest in 17 months. Toyota has outsold DaimlerChrysler AG (DCX) for six consecutive months; it is now the U.S.'s third largest-selling automaker, and is challenging Ford (F) and General Motors (GM),who face lower demand for pickup trucks, SUVs, and minivans. Asian automakers' market share increased 1.7% even as U.S. sales rose 1.9 percent. Smaller cars such as the Prius gasoline-electric hatchback, Corolla, Yaris and Scion were responsible for much of Toyota's gains; sales of light trucks such as Tundra and the Sequoia SUV increased 35%, bolstered by rebates, low-interest loans and other incentives.
Related links: Full article • Why Japanese Cars Earn $2400 More Profit Each•Toyota Ups Guidance, Sets Global Production Targets • Japan's Big-3 Auto to Further Expand Fuel Efficiency • Toyota Comments on U.S. Sales Outlook, Denies Tundra Production Cut • Nikkei inches up as Toyota gains, oil stocks down
Summary: According to a Newspaper Association of America study, newspaper web site traffic rose from 42.2 million unique visitors a month for the first half of 2005 to 55.5 million unique visitors for the first half of this year, up almost a third. The number of page views at online newspaper sites rose 52% during the same period. The rise in internet traffic is good news for newspaper publishers, who have been wrestling with advertisers looking to increase their presence in growing media outlets such as the Internet. As print readership growth slows or even declines, newspaper web sites have been placed in the driver's seat. Print readership has been declining at The New York Times (NYT), Gannett's (GCI) USA Today, Tribune's (TRB) Chicago Tribune, and the Los Angeles Times. On the flip side, the increase in newspaper web site traffic is concentrated among younger readers. For example, www.washingtonpost.com (WPO) saw more than a 60% increase in readership among 25-34 year olds.
Related links: Full article • Barron's Buries the Lede on Newspaper Stocks • Gannett Co. Inc. --They're Buying and So Am I • McClatchy Co. - A Solid Past and a Vision for the Future • Is the Newspaper Industry's Crying Just Crocodile Tears? • Dow Jones' Profit Beats Consensus, Online Ads Grow 23% • Gannett Discusses its Online Business. Earnings Conference Call Transcripts: Dow Jones & Co. Q2 2006 • The New York Times Q2 2006 • Journal Communications Q2 2006 • The McClatchy Company Q2 2006 • Tribune Company Q2 2006 • Gannett Co. Q2 2006
Potentially impacted stocks and ETFs: Journal Communications (JRN), Knight-Ridder (KRI), News Corp. (NWS)
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