A one-page summary of this morning's key market- and stock-moving stories. Headlines link to the original article. Use Wall Street Breakfast as a starting point, and check the original before trading.
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Earnings: Which Sectors Will Shine? [Business Week]
Summary: According to the research director at Standard & Poor's, both the materials and energy sectors are likely to post double digit gains, 45% and 25% year-over-year advance, respectively. The following sectors are expected to lag: IT with only a 2% gain, consumer staples at 4%, and healthcare at 6%. According to Stephen Biggar, VP of U.S. equity research at Standard & Poor's, "a continued weak capital spending environment and product delays are likely to cap upside potential for information technology." Lower gas prices and the tumbling housing market are expected to play a tug-of-war with consumer discretionary spending. S&P also suggests overweighted sectors such as consumer staples, telecom, and financials. Given their instabilty, sectors in the underweight category include information technology and consumer discretionary.
Related links: A Funny Thing Happened on the Way to the Deflation Scare • Health Care Is Propping Up the Entire Economy [Business Week] • What a U.S. Recession Would Mean for Sectors , Foreign Stocks • 10 Most Popular Sectors This Week
Potentially impacted stocks and ETFs: Stocks mentioned: Yahoo (NASDAQ:YHOO), Apple (NASDAQ:AAPL). Sector ETFs: iShares Dow Jones U.S. Energy Index (NYSEARCA:IYE), iShares Dow Jones U.S. Healthcare Index (NYSEARCA:IYH), iShares Goldman Sachs Technology Index (NYSEARCA:IGM), Materials Select Sector SPDR (NYSEARCA:XLB), Consumer Staples Select Sector SPDR (NYSEARCA:XLP), Consumer Discretionary Select Sector SPDR (NYSEARCA:XLY), iShares Dow Jones U.S. Telecom Sector Index ETF (NYSEARCA:IYZ), Financial Select Sector SPDR ETF (NYSEARCA:XLF)
Summary: This month’s Bloomberg News survey of 82 economists indicates that the U.S. housing slowdown, categorized last week by Fed Chairman Ben S. Bernanke as a “substantial correction,” is expected to weaken the economy more than previously forecast. They expect interest rate cuts in 2007, but do not anticipate an accompanying recession. The economy is expected to grow 2.6%, after expanding 3.3% in 2006, its weakest performance since 2003. The forecast for slow growth might attract investors to U.S. Treasuries, which are offering three-week-high yields. Lower gas prices and higher incomes should ease the effects of the housing slowdown on consumers, but the expected 3% gain in consumer spending would still be shy of last decade’s 3.7% percent average quarterly increase.
Related links: No Agreement on Economy, Yet the Market Marches Higher • Goldilocks or the Wait-and-See Bears? • Economist & Traders Square Off on Housing • Mortgage Applications Don't Indicate Housing Rebound • Moody's Forecasts 3.6% Median House Price Decline in 2007 • Don't Believe Advocates of a Soft-Landing for Housing
Potentially impacted stocks and ETFs: SPDR Homebuilders (NYSEARCA:XHB), Toll Brothers (NYSE:TOL), Pulte Homes (NYSE:PHM), Beazer Homes (NYSE:BZH), Hovnanian (NYSE:HOV), MDC Holdings (NYSE:MDC), Ryland Group (NYSE:RYL)
Mortgage Mirage [Wall Street Journal]
Summary: The Mortgage Bankers' Association [MBA] today releases data for its mortgage applications index. The index is up 20% since July as long term interest rates have fallen. But Northern Trust economist Paul Kasriel says the rise in mortgage applications is due to refinancings as home owners switch out of variable rate mortgates before they reset higher, and shouldn't be taken as a positive indicator for housing demand.
Related links: Soft Housing Market, Falling Commodities Prices Are Lowering Developer Costs • Moody's Forecasts 3.6% Median House Price Decline in 2007 • Housing Bubble and Real Estate Market Tracker
TECHNOLOGY AND INTERNET
MySpace Seeks a Wider Relationship With YouTube Victor, Google [Wall Street Journal]
Summary: Google's acquisition of YouTube puts it into direct competition with News Corp's MySpace, which also allows users to post their own content. News Corp execs are reportedly upset about Google's purchase of YouTube, as they expressed interest in purchasing YouTube but were rebuffed. Over the weekend News Corp discussed cutting off links to YouTube from MySpace. YouTube claims that fewer than 20% of its video views come from MySpace. This week Google's CEO and VP Ad Sales are expected to meet with News Corp execs including Rupert Murdoch. Google and MySpace recently signed a $900 million ad deal.
Related links: News Corp most recent conference call transcript • News Corp: We're Not Interested in Buying YouTube • Google's MySpace Deal Is Better Than Reported • Yahoo is the Biggest Loser in the Google/News Corp. Deal • MySpace Founder Alleges News Corp. Merger Defrauded Investors Out Of Billions
Potentially impacted stocks and ETFs: News Corp (NASDAQ:NWS), Google (NASDAQ:GOOG).
Yahoo Feels Breath on Neck [New York Times]
Summary: Yahoo is suffering a variety of serious problems: its competitive advantage in advertising has been neutralized by Google; its user growth is slowing; it is plagued by bureaucratic slowness and internal squabbling; its deal-making is being stymied by slow and inconsistent negotiating techniques; and it is experiencing significant attrition among senior executives. Despite a well-respected management team led by Terry Semel, Yahoo is slipping seriously behind the much wealthier Google ($11 billion in cash and a market value of $131 billion versus Yahoo’s $4 billion in cash and $34 billion market value). Google, which can afford to move faster than Yahoo and take larger risks, recently scooped Yahoo by acquiring the video-sharing site YouTube -- a purchase that will dramatically enhance its drive into video and further ratchet up its competitive advantage over Yahoo. Yahoo is contemplating countering Google's YouTube acquisition with a bid for Facebook, a social networking site. Such a purchase, if successful, would mitigate the failure of Yahoo’s own networking site (Yahoo 360) and broaden Yahoo’s appeal to young people, a demographic that appears to be losing interest in the Internet giant.
Related links: Yahoo Gets GooTubed: Stock Down On Ad Competition • YouTube Founders' YouTube Video on the Google Deal • Google's YouTube Acquisition May Just Work • GoogTube: Huge Ad Platform for Small Businesses • Why the Facebook/Yahoo Deal Won't Happen So Soon • Is $1 Billion a Fair Price For Facebook?
Potentially impacted stocks and ETFs: Yahoo Inc. (YHOO), Google Inc. (GOOG)
Google's Free Web Services Will Vie With Microsoft Office [Wall Street Journal]
Summary: Google will today announce a plan to offer its free, browser-based word-processing and spreadsheet products as an integrated package called Google Docs & Spreadsheets. Google is targetting the online applications at consumers and other price-sensitive customers who don't require all the features of Microsoft Office. CEO Eric Schmidt recently stated that Microsoft's hold on consumer and small business users "may be vulnerable." Office costs about $400 for consumers. Google had 9.7 million Gmail users and 896,000 Calendar users as of September according to comScore. Google launched email, calendar, instant messaging and web design services for small businesses, called Google Apps for Your Domain, in August, and said that its speadsheet and word-processing products may later be included. The Office suite is Microsoft's largest revenue and profit generator, accounting for $11.8 billion in sales in the year ended June 30th. Microsoft Office 2007 is due by the end of this year and won't include an onlilne version, but will be integrated with online services.
Related links: Background: Google Docs & Spreadsheet website • Impact on Microsoft: Microsoft's most recent conference call transcript including revenue and profit numbers for Office • Google Apps: A Long-Term Threat to Microsoft's Packaged Software Business • Microsoft's Ballmer Sees Online Services as 'Core' Going Forward • Impact on Salesforce.com: Salesforce.com's Apex Uses Google Office to Challenge Microsoft • Reviews of Google Docs & Spreadsheets: Richard MacManus • Michael Arrington • Phil Windley.
Potentially impacted stocks and ETFs: Google Inc. (GOOG) • Competitors to Google's bundling of online productivity software: Microsoft (NASDAQ:MSFT), Yahoo (YHOO), Corel (CREL) (owns WordPerfect).
This Maker of Music Players Did Think Different [New York Times]
Summary: Apple says, "Think different." To-date its competitors in portable music have pretty much tried to copy Apple's success. Now, Samsung might finally shake things up with its new YP-K5, which differentiates itself with built-in 1" speakers with, "enough power to fill a room with background music." It's a Microsoft-oriented device, meaning it will not play Apple iTunes songs, but will play from any PlaysForSure online stores. It also has an FM radio receiver. The downside? It's about $50 pricier than comparable iPod Nano models ($210 for 2GB or $260 for 4GB). It underperforms in menu operability, and has weird and overly loud/bassy earbuds, unadjustable screen brightness, 6-hour battery life using speakers vs. 30-hours with headphones, and an issue with showing finger prints on its glossy black finish.
Related links: Can the iPod Wannabes Get it Right This Time? • Microsoft and Sony Do It Wrong With the Zune and PS3 • Microsoft Zune's As Good As Dead On Arrival • Apple Starts Its March Into the Consumer's Living Room • Samsung YP-K5 reviews: CNET.com • GIZMODO.com PCMAG.com • Samsung.com • YouTube.com
Potentially impacted stocks and ETFs: Apple (AAPL), Creative Technology (OTCPK:CREAF), Microsoft (MSFT), RealNetworks (NASDAQ:RNWK), SanDisk (SNDK), Sony (NYSE:SNE)
Sun, Fujitsu promise Sparc speed surge [New York Times]
Summary: Sun Microsystems and Fujitsu have already delayed the launch of their "Advanced Product Line" servers until early 2007, but at the Fall Processor Forum in San Jose, CA, representatives promised 'significant performance increases with two next-generation chips.' Sun's eight-core Niagara 2 chip will target lower-end servers running Java or Web server software. Fujitsu's dual-core Sparc64 VI will target higher-end servers offering twice the performance of its predecessor. Both chips run Sun's Solaris operating system and use a 65-nanometer process, compared to the 90-nm in prior models. Sun says the Niagara 2 has twice the throughput of the first Niagara.
Related links: Prudential Initiates Coverage of IT Hardware Sector With "Unfavorable" Rating: Research Excerpts • Sun Still Searching For a Profitable Business Model • Sun Gaining Share from HP, IBM and Dell, or Healthy Tech Market? • Sun Microsystems Risk/Reward Now Favorable • Conference call transcript: Sun Microsystems F4Q06
Potentially impacted stocks and ETFs: Sun Microsystems (NASDAQ:SUNW), Fujitsu (OTCPK:FJTSY), Advanced Micro Devices (NYSE:AMD), Dell (NASDAQ:DELL), Hewlett-Packard (NYSE:HPQ), Intel (NASDAQ:INTC), International Business Machines (NYSE:IBM)
TRANSPORTATION AND AEROSPACE
HEARD ON THE STREET: Lower Fuel Costs Lift Airline Hopes, Trump Terror Fear [Wall Street Journal]
Summary: Fuel costs account for 20%-30% of airlines’ operating costs. At American Airlines, each $1 swing in the price of a barrel of oil has an $80 million impact on annual operating costs. So it comes as no surprise that airline stocks have been reacting positively to the recent slide in oil prices. But, not all airlines are benefiting equally: United Airlines locked in third quarter fuel costs at $69.84/barrel, above the current market price for jet fuel of about $60/barrel. Other airlines with such hedges include Northwest, U.S. Airways, JetBlue, Continental and Delta. Contrast that with Southwest, which has 73% of its fuel requirements hedged at $36/barrel for the second half of 2006. In other airline news, Continental, JetBlue, Sothwest, Airtran and U.S. Airways announced that their year over year growth in passenger revenue per available seat mile has not met expectations.
Related links: You Don't Have to be Crazy to Buy Airlines • Airlines Vie for Lucrative New China Route • The Significance of Oil's Drop Under $60 • Forbes: Lower Fuel Costs Seen Bolstering AMR
Potentially impacted stocks and ETFs: Airtran (AAI), Alaska Air (NYSE:ALK), American (AMR), Continental (NYSE:CAL), JetBlue (NASDAQ:JBLU), US Air (LCC), Southwest (NYSE:LUV). ETFs: iShares Dow Jones Transportation Index (NYSEARCA:IYT), U.S. Oil Fund ETF (NYSEARCA:USO).
Summary: Delphi may receive aid from its former parent company and top client GM to avert a threatened strike that would cut production for the bankrupt auto-parts maker. The agreement means that GM will subsidize workers' pay and prolong necessary contracts according to anonymous sources. A strike at Delphi would be a disaster for GM -- which needs its air conditioners and radios -- and would close North American GM plants within 48 hours. GM also owes between $5.5 to $12 billion in retirement pay for those were were employed by the company before the Delphi spin-off, although according to two sources close to the negotiations, this shouldn't dramatically affect the total subsidy.
Related links: Background:A Bumpy Road for Delphi, GM and U.S. Auto Workers [Knowledge@Wharton] • GM, Delphi, US autoworkers’ union agree to massive job-cutting program [WSWS] • Delphi investors: GM owes $26B [Detroit News Online]
Potentially impacted stocks and ETFs: General Motors (NYSE:GM)
Equity Firms Raise Bid for Harrah’s [New York Times]
Summary: The largest private equity deal in the history of the casino business got even larger as Apollo Management Group and the Texas Pacific Group increased their bid to take over Harrah’s. The new bid is estimated to be between $83-$84/share, up from their initial bid of $81 which was rejected by Harrah’s board. While analysts think Harrah’s can fetch as much as $85/share, investors are more pessimistic; Harrah’s shares closed yesterday at $76.39.
Related links: Valuing the Casino Industry: Are There More Harrah's Out There? • Harrah's Seems Underwhelmed by Buyout Offer • Harrah's Gamble Not Without Risk • Wynn Resorts Sued Over Dealer Compensation
Potentially impacted stocks and ETFs: Gambling stocks: Wynn (NASDAQ:WYNN), Las Vegas Sands (NYSE:LVS), Trump Entertainment Resorts (TRMP), Monarch Casino & Resort (NASDAQ:MCRI), Pinnacle Entertainment (NYSE:PNK)
Tool May Lead To Genetic 'Scoring' [StarTribune.com]
Summary: Fair Isaac, the company behind credit scores (“FICO scores”) is going biotech. Using the same data mining and statistical techniques employed in its credit score, Fair Isaac has introduced its first commercial product to come out of its four year old bioanalytics division. FICO’s FlatPanel Diagnostics will allow veterinarians to test cats for multiple diseases based on a single DNA sample. Previously the vet would have to test for each disease individually. Fair Isaac hopes to use this technology to eventually develop diagnostic tools for humans that will both detect diseases and recommend the best treatment.
Related links: RNA Interference Technology's "Home Run" Potential • Quest Diagnostics Gets Much Cheaper - But is It Now Cheap? • Test Tube Steaks?
Potentially impacted stocks and ETFs: Fair Isaac (FIC)
Barr Buys Over 70% of Pliva Shares [Business Week]
Summary: Barr Pharmaceuticals Inc. has succeeded in acquiring over 70% of generic drug manufacturer Pliva DD, based in Zagreb, Croatia, ending its feud with Iceland-based Actavis Group HF. Barr's paid 820 kuna ($139)/share. It was not immediately clear who sold the shares, although Croatian media reported that at least two banks, and the government, which controlled 18% of Pliva, were among the sellers. There was even speculation that Actavis, which had acquired 21% of Pliva during its battle with Barr, might have sold some of them.
Related links: Background: Barr Labs On the Road to Zagreb (BRL)
Potentially impacted stocks and ETFs: Barr Pharmaceuticals Inc. (BRL). Generic drugmakers ranked by sales: Teva Pharmaceutical Industries Ltd. (NASDAQ:TEVA), Watson Pharmaceuticals Inc. (WPI), Alpharma Inc. (NYSE:ALO), King Pharmaceuticals Inc. (KG), Mylan Laboratories Inc. (NASDAQ:MYL), Andrx Group (ADRX), Pfizer Inc. (NYSE:PFE). ETFs: SPDR Pharmaceuticals ETF (NYSEARCA:XPH) has a 5% holding in BRL.
AT&T-BellSouth merger expected to get OK [Business Week]
Summary: The justice department is expected to give the go-ahead today for AT&T's $78 billion buyout of BellSouth. The FCC is expected to vote on the merger on Thursday. The merger would create the largest wireless and traditional telecommunications networks in the country. Consumer advocates are concerned that this consolidation is harking back to the days of Ma Bell and will result in price hikes and weaker Internet service due to lack of competition. The two Republicans on the FCC panel are expected to directly approve the deal while the two Democrats are expected to demand conditions.
Related links: Citi: Buy AT&T and Sell Verizon • Jim Cramer "Although AT&T has terrible margins, this will be corrected with the completion of its merger with Bell South • Size Matters at AT&T -- Looking Good Post-Acquisition • Acquisition background: BellSouth Acquisition Impacts Telecom Holders ETF (T, BLS, ETF: TTH) • Key Quotes From The T/BLS Acquisition Conference Call • AT&T + BellSouth: Big and Scary Nonsense • AT&T's BellSouth Acquisition: An Overview • Initial Reactions . Conference call transcripts: BellSouth Q2 2006 • AT&T Q2 2006
Potentially impacted stocks and ETFs: AT&T Inc. (NYSE:T), BellSouth Corp. (BLS), Verizon Communications Inc. (NYSE:VZ), Sprint Nextel Corp. (NYSE:S), Comcast Corp. (NASDAQ:CMCSA). ETFs: Telecom HOLDRS ETF (NYSEARCA:TTH)
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Notable articles on Seeking Alpha today: Earnings conference call transcripts: Genentech Q3 2006 • Emmis Communications F2Q07 • LG Philips LCD Q3 2006 • Mathieu Lagarde's Five High Yield, Low Beta Dividend Stocks • In WiMax, It's Qualcomm vs. The World • Keep an Eye on Alvarion as WiMAX Picks Up Steam • Alcatel Talks Up Video; WiMAX Gathering Steam • Death of the All Optical Network • What Does the YouTube Deal Mean for Google China? • An In-Depth Look at ICF International's IPO • VitalStream Post-MySpace: A 'Black Diamond' Buy? • Challenges Facing an Independent Fundamental Analyst • Jim Cramer's latest stock picks.
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