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.
Did you know? We compile Wall Street Breakfast every business day and publish it by email without heavy advertising. Please consider recommending it to friends or colleagues who you think would appreciate it.
Dow's Bull Run Puts Diamonds In Investors' Eyes [Wall Street Journal]
Summary: Diamond Trust Series I, the ETF that tracks the Dow Jones Industrial Average, has enjoyed a surge of investor interest this month as the Dow approached and then surpassed 12,000. While volume declined this month for other major index ETFs, the Diamond ETF saw a 4% increase, apparently among both retail and institutional investors. Because the economic slowdown is more likely to hurt small companies than large ones, funds that track bigger companies appear to be a better bet right now -- and the Dow is an index of 30 major corporations. "The profit picture is likely to get more Darwinian," says Richard Bernstein, chief U.S. investment strategist at Merrill Lynch. "That environment favors the large-cap companies who are better equipped to stick it out." Some argue that the very enthusiasm of the public for large-cap stocks at the moment could spell the end of the boom. "You're getting a lot of people now who are interested in the market who weren't previously," says Ken Tower, chief market strategist at CyberTrader, a unit of Charles Schwab. "That's usually something that happens near the end of a rally." Still, trends in futures trading and short selling suggest that sophisticated investors believe shares of big companies will outpace small ones: short interest in the Russell 2000, an index of small-cap stocks, has risen since June and is far above ETFs for the Dow, the S&P 500 and the Nasdaq 100.
Related links: Bulls and Bears Doubt This Rally -- Too Bad They Don't Listen to the Market • Dow's New Highs Not Matched By Other Indices • Large Cap Stocks Provide More Safety than Small Caps in the Current Environment • U.S. Large Caps Trending Positively • First Time in a Decade the Dow's P/E is Higher Than the S&P 500's • What Does the Dow's New High Actually Mean? • Investment Managers See a Soft Landing Followed By Strong Large Cap Growth • DJIA: The Most Useless, Overused Tool on the Planet • The Long Road to 12,000 [NY Times]
Potentially impacted stocks and ETFs: Diamond Trust Series I (NYSEARCA:DIA), iShares Russell 2000 Index (NYSEARCA:IWM), NASDAQ 100 Trust Series I (QQQQ), SPDRs (NYSEARCA:SPY), iShares DJ Select Dividend Index Fund (NYSEARCA:DVY)
TECHNOLOGY AND INTERNET
Cisco joins video-conference foray [Washington Post]
Summary: Cisco recently unveiled its TelePresence video conferencing system - a high-definition, business application Cisco believes it can grow into a billion dollar business in 5-7 years. The TelePresence is the latest indication Cisco is expanding from its traditional business of network routers and switches into high-end video. Analysts who were given a presentation by the company believe the TelePresence will be able to compete with Hewlett-Packard Co.'s Halo Collaboration Studio and other high-end video conferencing products by specialist technology firms like Teliris Ltd. and Polycom Inc. The product is being offered in 2 versions, one for 1-on-1 conferencing that will be priced at $79,000 and another for multi-person conferencing being offered for $299,000. The high pricing means Cisco executives believe it will be 3 years before they are able to turn a profit on the TelePresence. Cisco believes its new system can save companies thousands in travel expenses.
Related links: Cisco Q4 2006 Earnings Conference Call Transcript • Video-conference? No, Telepresence! • Cisco Launching Virtual Meetings Tool • Cisco Unveils HD Video Conferencing System • Analysts More Confident in Cisco
Potentially impacted stocks and ETFs: Hewlett-Packard (NYSE:HPQ), Polycom (NASDAQ:PLCM) • iShares Goldman Sachs Networking (NYSEARCA:IGN), iShares Dow Jones US Technology (NYSEARCA:IYW), Internet Architecture HOLDRS (NYSE:IAH)
We’re Google. So Sue Us. [New York Times]
Summary: Gulliver-like, Google has been the subject of a number of recent lawsuits, both large and small. Its business practices, which play fast and loose with copyright laws, have irked both individuals and companies who are seeking to protect their intellectual properties. The recent acquisition of YouTube adds another front ripe for potential attack. To fight back against these lawsuits, Google has increased its legal defense from one lawyer in 2001 to to almost 100 today. To protect its highly guarded search algorithms from the glare of the pretrial discovery phase and subsequent subpoenas, the Internet giant has a pressing interest in resolving all lawsuits quickly and in its favor, no matter how frivolous they seem. The company is also looking to build up a body of legal precedent in its favor, which is another reason it often, though not always, vigorously fights back in court rather than settling out of court. Many of the plaintiffs are looking not just for financial compensation but also to change Google's business practices. Even Google's sale of keywords for its ad business has come in to question. Geico Insurance sued the Internet company for the sale of the words "Geico" and “Geico Direct” to the insurance company's competitors. The companies settled out of court.
Related links: Yahoo and Google Earnings Indicative of Unhealthy Reliance on Online Advertising • Google Changes Terms of Service for Advertisers • The Washington Post: 'Click Fraud' Threatens Foundation of Web Ads • Australian PC World:YouTube deletes 30,000 files on request by Japan
Potentially impacted stocks and ETFs: Stocks: Google (NASDAQ:GOOG), Yahoo! (NASDAQ:YHOO), AOL (NYSE:TWX) • ETFs: First Trust Dow Jones Internet Index Fund (NYSEARCA:FDN), First Trust IPOX-100 Index (NYSEARCA:FPX), iShares Dow Jones US Technology (IYW).
Summary: Yahoo! Japan's net income rose 22% to 13.6 billion yen ($114.5 million), driven by new store openings on its online auction and shopping sites. Ad revenue, which makes up 40% of sales, was flat at 21.2 billion yen ($178.5 million). Overall, revenue grew 24.5% to 51.2 billion yen ($431 million). Yahoo! Japan doesn't issue annual earnings guidance, but did say it expects net income to be between 13.65 billion yen and 15.2 billion yen this quarter, on revenue between 51.7 billion yen and 55.2 billion yen. Yahoo! Japan is 41% owned by Softbank and 33% owned by Yahoo! Inc.
Related links: Yahoo! Q3 2006 Earnings Conference Call Transcript • Japan's Internet Giants Looking for New Growth Sources • Yahoo! Earnings: Company Continues To Face Challenges • eBay Losing to Yahoo! and Local Competitors in Asian Online Auctions • Google's Recent Quarter Impressive In Nearly Every Way (GOOG) • Softbank Profitable Again, But Faces Tough Road Ahead
Potentially impacted stocks and ETFs: Yahoo! (YHOO), Softbank (OTCPK:SFTBF), Google (GOOG)
A New Gadget on Campus. Who’s It For? [New York Times]
Summary: Sony's new Mylo Wi-Fi driven gadget has some interesting features, but it's not likely to catch on, even among the tech-savvy college kids it is targeting. For one, it costs $350. More importantly, it is not a good enough all-in-one device to avoid having to carry around other devices. Its features include: 2.4" LCD screen, Skype (with free calls to US and Canada land numbers through year-end), Gmail and Yahoo! chat, basic web browsing, 1 year free T-Mobile HotSpot access, MP3/WMA/ATRAC music playing, picture and video viewing, and 1GB memory with an open memory card slot. Its shortcomings: it's missing MSN and AOL chat, has difficulty viewing websites on its small display, it doesn't play songs from iTunes, Napster or Rhapsody, only supports Sony MPEG-4 video, slow picture loading, and it lacks a scroll wheel.
Related links: Sony Mylo Website • Sony Profit Forecast Drops 39% Due to Battery Recall, Sluggish Sales • Sony Video Walkman to Challenge Apple? • Two New Sony PSPs On The Way? • Sony Reader: Improvement, But Unlikely To Take Off • Gizmodo Critical of NY Times Mylo Review • Gizmodo's Original Mylo Review • Sony Mylo on YouTube • T-Mobile HotSpot Location Map
Potentially impacted stocks and ETFs: Sony (NYSE:SNE), BLDRS Asia 50 ADR Index ETF (NASDAQ:ADRA), Deutsche Telekom's (DT) T-Mobile unit sells the Sidekick/Hiptop device, which is seen as a close competitor to Mylo.
AOL to Focus on Ad Revenue in Europe [New York Times]
Summary: AOL Europe is implementing the same strategy as AOL in N. America, moving from an Internet access subscriber revenue business model to one driven by online advertisement revenue. Earlier this month AOL Europe sold the last of its three Internet access businesses -- earning about $2 billion total from sales in Britain, France and Germany. A London-based research firm estimates ad revenue will account for less than 20% of AOL's revenue in Britain this year. And from now on, AOL must share a sizable portion of ad revenue with the companies that bought its access businesses -- estimated at 40% in Britain. In September, AOL Europe drew 31 million unique visitors, or less than one-fifth the number that visited Google. A potentially positive sign however, is that only one-third of these visitors were subscribers to its access services. AOL plans to boost its online presence in Europe through new site openings and adding additional languages.
Related links: Time Warner Spins Off the Last of its European AOL Units • Time-Warner Considers Cutting AOL Loose • ComScore: Google, Ask Gain Search Share; Yahoo, Microsoft Lose Ground • AOL Ad Revenue May Drive Higher Valuation for Time-Warner • Time Warner to Spin Off Cable Unit
Potentially impacted stocks and ETFs: Time Warner (TWX), Google (GOOG), Microsoft (NASDAQ:MSFT), Yahoo! (YHOO), ETFs: Internet HOLDRs (NYSE:HHH), Consumer Discretionary SPDR (NYSEARCA:XLY), PowerShares Dynamic Media (NYSEARCA:PBS)
Summary: Royal Dutch /Shell plans to buy the remaining 22% of Shell Canada that it doesn't currently own for C$7.7 billion (US $6.8 billion). PR Newswire reported that the European company plans to offer C$40 for Shell Canada stock, a 22% premium over last Friday's closing price. Royal Dutch is looking to control the Canadian company's oil sands activities, which take place in Alberta's Athabasca region. Shell Canada expects this particular project to cost as much as C$12.8 billion. Overall, the Canadian National Energy Board forecasts that approximately C$125 billion will be spent to triple production on oil sands projects in the country.
Related Links: Oil: Prices and Producers -- Where They're Headed • Canadian Oil Sands Stocks Take a Hit, Recovery Uncertain • Falling Oil Prices: Producers Are Playing a Game of Chicken • PR Newswire: Royal Dutch Shell plc Proposes to Acquire the Minority Shares in Shell Canada Limited
Potentially impacted stocks and ETFs: Stocks: Royal Dutch/Shell (NYSE:RDS.A), Chevron (NYSE:CVX), Canadian Natural Resource (NYSE:CNQ), Nexen Inc. (NXY), Suncor Energy Inc. (NYSE:SU) • ETF's: Claymore Oil Sands ETF [CLO on TSX],
Summary: Schlumberger reported an 85% increase in net income from $540.8 million or 44 cents a share to $1 billion or 81 cents a share. The world's leading oilfield services provider beat estimates of 77 cents, and its revenue rose 34 percent to $4.95 billion. The gain was due to increased drilling and higher demand for oil and natural gas as well as services such as well-testing and reservoir mapping. The company was largely unaffected by the rapid drop in gas prices and expects to remain strong by providing resources for exploration. Schlumberger's shares rose 55 cents to $63.25 before the start of trading.
Related links: Schlumberger says no 'huge danger' of oil price collapse
Potentially impacted stocks and ETFs: Schlumberger (NYSE:SLB) • Competitors: Baker Hughes Inc. (NYSE:BHI), BJ Services (BJS), Haliburton (NYSE:HAL)
Summary: Halliburton reported a 22% rise in net income, beating Wall Street estimates. The increase, which was attributed to solid performance in its energy services group and an uneventful hurricane season, went to 58 cents per share, exceeding anaylsts' projections of 54 cents per share. The company's construction and engineering unit was responsible for a $1.2 billion in revenue from its work in Iraq. Halliburton reported $611 million, or 58 cents per share compared to $499 million, or 48 cents a share last year.
Related links: The Rise and Fall of Oil: Roach Motel Theory • Oil Economics in a Nutshell
Potentially impacted stocks and ETFs: Halliburton (HAL), • Competitors: Schlumberger (SLB), Baker Hughes Inc. (BHI), BJ Services (NYSE:BJ)
TRANSPORTATION AND AEROSPACE
HEARD ON THE STREET: Goodyear's Stock Treads Well Despite Strike [Wall Street Journal]
Summary: Surprisingly, the strike by over 12,000 Goodyear workers at 16 of the company's American and Canadian factories that began on October 5 has not yet had a significantly negative impact on the stock. Investor faith is sustained by 1) a belief that the workers will be forced to yield; and 2) indicators that the tire business will reap benefits from falling oil prices. Many also appear to expect a rise in the sale of replacement tires as Americans drive more. The main issue behind the strike is Goodyear's demand that it retain the right to close two of 12 unionized plants. Closing two factories could save Goodyear approximately $100 million a year, which would help the company stay competitive with rivals who supply the U.S. market with tires made either abroad or in non-unionized factories. The duration of the strike is a concern: it is already costing Goodyear about $2 million a day, and that figure could jump if the strike continues longer than a month.
Related links: Auto Suppliers' Troubles Point To Broader Industry Challenges • Michelin Raises Prices; Have Tire Makers Bottomed? • Goodyear Tires: Don't Count On a Recovery
Potentially impacted stocks and ETFs: Goodyear Tire and Rubber Company (NYSE:GT), Cooper Tire and Rubber (NYSE:CTB)
Slower Housing Puts a Dent in Caterpillar [Business Week]
Summary: Catepillar saw its shares plummet by 12% on Friday, and the slow housing market is blamed for the company's decline, which many see as harbinger for a lean 2007. The construction and mining equipment manufacturer reported a third-quarter income of $769 million, or $1.14 a share, which was 21% higher than the previous year, but fell short of its estimate at $1.35. CAT's lackluster performance sent the Dow lower by 20 points to close at 11,991.40 following a record close at above 12,000 on Thursday. In addition to a sluggish housing market, Catepillar had to face an $80 million legal settlement with Navistar International, higher operating costs and lower sales volume in the third quarter. However, CEO Jim Owens expects higher sales and revenues in 2007 in spite of a slowing economy.
Potentially impacted stocks and ETFs: Catepillar (NYSE:CAT), Navistar International (NYSE:NAV) • Competitors: Deere (NYSE:DE), ABB Ltd. (NYSE:ABB), CNH Global NV (NYSE:CNH), Parker-Hannifin (NYSE:PH)
ACTIONABLE BARRON'S CALLS
- Jones Apparel (NYSE:JNY) shares trade at $33 a share -- 13 times 2007 estimates. If it beats earnings forecasts in coming quarters, the multiple could expand and its shares could reach $40.
- Agilent Technologies Inc. (NYSE:A) makes measurement tools for wireless, chemical, and life-sciences industries. It has been aggressive both in its acquisitions and in its own-share buybacks. Margins continue to improve, and there is speculation it may initiate a cash-dividend. Barron's calls an Agilent buy "banking on the company that sells technology prospectors vital tools," instead of betting on new-gizmos or highly-touted drugs, and thinks shares should rise 15% over the next year.
- Pershing Square CEO Bill "Mr. Pressure" Ackman has been buying Barnes & Noble Inc. (NYSE:BKS) shares with a vengeance. He thinks current earnings estimates are low, and gives numerous reasons why the company makes an ideal takeover prospect, not the least of which is its healthy cash-flow and lack of debt. Shareholders could presently command a 25% premium on a buyout, although Ackman hopes patience will prevail -- he's sees shares (now $39) in the high 50s within a year and doubling in the next three.
- Barron's once again makes the bullish case for Newmont Mining Corp. (NYSE:NEM), the only pure gold stock in the S&P 500 Index: First-rate management, first-rate properties, and first-rate investments. And best of all, the analysts are all bearish. Any future surprises, says Barron's, will only be to the upside.
- A trade idea: Software HOLDRS Trust ETF (NYSE:SWH) has outperformed Semiconductor HOLDRs (NYSEARCA:SMH) by 25% since the spring; they usually have had an 80% correlation. The trade: Buy SMH and short SWH and play a reversion to the mean over the next 8-12 months. Current divergence is nearing extremes hit only twice in the past 5 years, after which it reversed dramatically.
- Integrated Device Technology (NASDAQ:IDTI) recently acquired ICS. The stock has thrived on its "wildly successful restructuring and merger-integration" and surging earnings momentum. Furthermore, competitor Cypress Semiconductor Corp. (NASDAQ:CY), which had been rising on takeover rumors, recently put an end to them. Shares are rather inexpensive at 12x P/E. And one of the major expected benefits of the merger, the ability to push ICS' chip production through IDTI's spare plants, hasn't even fully kicked in.
- For four years Nokia Corp. (NYSE:NOK) has missed the latest trends in cellphone designs, losing the sleekness war to competitors Motorola Inc. (MOT) and Samsung. But cutting-edge phones might not be what investors are looking for. "What's important to shareholders is having a reasonable operating profit, and that's what Nokia has focused on," says Albert Lin, of AmTech. Nokia's strongest sales are from its bargain units, and five new facilities will allow it to further cut costs. Its valuation is too low, even if it doesn't hit earnings estimates. Barron's thinks NOK's dip should be short-lived, and shares will soon ring-up nice gains.
Seeking Alpha is not affiliated with Wall Street Journal, New York Times, Bloomberg, Reuters, Washington Post, Briefing.com, or Barron's.
Notable articles on Seeking Alpha today: Seeking Alpha'sOne Page Barron's Summary • Pre-Market: U.S. Futures Trading Flat On Pre-FOMC Meeting Jitters • Long Ideas: PDS: Risky Yet Intriguing Company • Four Smart Silver Plays • BioScript: New Leadership Should Drive Growth • Boeing: Get Ready to Fly • Short Ideas: Bodisen Biotech: Red Flags Still Flapping in the Wind • Options Backdating 'Second Coming' At These Four Companies? • The Short Case On Downey Financial • IPO Research: Industrial & Commercial Bank of China Sets New IPO Record at $19.1 Billion • Small Caps: SIGA Shares Double on Smallpox Drug News • Avalon Holdings Trading at Twice NCAV: Unrecognized Value Within? • The Long Case for dELiA's, Inc. • Phil Davis'sWeekend Ideas • Macro: Philly Bank Index Not Supporting This Rally • Key Risks Challenging This Market • What's Really Driving CPI Data? (Hint: It's Not Energy Prices) • The Road to Alpha: Take the Benefits of Indexing and Invest for Value • Lon Juricic's 13D research: Shareholders to Optimal Group: Divvy Up Cash and Sell the Company • Oil Prices: The Rise and Fall of Oil: Roach Motel Theory • Earnings conference call transcripts: Satyam F2Q06 (Qtr End 9/30/06) Earnings Call Transcript • Jim Cramer's latest stock picks.
Have Wall Street Breakfast emailed to you every morning before the market opens (free/no spam).