MACRO AND HOUSING
Fed Minutes Show Continued Concern On Inflation [MarketWatch.com]
Summary: In October's Federal Reserve minutes, released yesterday, officials remained concerned about inflation. Although there was an improvement in CCI, "nearly all FOMC members viewed the current rates of core inflation as uncomfortably high and stressed the importance of further moderation," they said. "Some" FOMC members said that the upside risks to inflation had declined, and the risks had come down "only slightly." About housing, they said the decline in housing activity is unfolding as expected and that the "risk of an even larger contraction in this sector had ebbed." The Fed admitted its views had not changed substantially; at the Oct. 25 meeting, they left the benchmark short-term rate unchanged at 5.25%. Things could change: "Members noted that a significant amount of data would be published before the next FOMC meeting in December, giving the committee ample scope to refine its assessment of the economic outlook before judging whether any additional firming was needed to address those risks." The markets reaction to the release was muted.
Related links: Media coverage: WSJ. Commentary: David Fry's Daily Market Outlook • Housing Bubble and Real Estate Market Tracker • John Hussman: Low Yields Precede Market Hostility • Evil Inflation -- Or Is It?
Potentially impacted stocks and ETFs: S&P 500 Index (NYSEARCA:SPY) • NASDAQ 100 Trust Shares ETF (QQQQ) • iShares Russell 2000 Index ETF (NYSEARCA:IWM) • iShares Lehman 1-3 Year Treasury Bond ETF (NYSEARCA:SHY) • iShares Lehman 7-10 Yr Treasury Bond ETF (NYSEARCA:IEF) • iShares Lehman 20+ Year Treasury Bond ETF (NYSEARCA:TLT)
Icahn, Macklowe to Bid for Reckson [Wall Street Journal]
Summary: Activist investor Carl Icahn and real-estate firm Macklowe Properties are placing a competing bid of $49 in cash ($4.6 billion) for New York commercial REIT Reckson Associates. Reckson management earlier accepted a $44.89 cash/stock offer from SL Green, but the deal met some stockholder resistance due to alleged conflicts of interest for Reckson Chief Executive Scott Rechler. The offer from Icahn/Macklowe should delay a stockholder vote on the SL Green deal, but SL Green still has 'matching rights' against this move. Icahn's play for Reckson is via a private investment vehicle, not his broader fund.
Related links: Reuters coverage of latest bid • SL Green bid: Newsday, Long Island Business News • More articles on Real Estate and REITS
Potentially impacted stocks and ETFs: Reckson Associates (NYSE:RA), SL Green (NYSE:SLG)
TECHNOLOGY AND INTERNET
Summary: Applied Materials reported a doubling of Q4 net income to $449m, or $0.30/share, compared to $246.7m and $0.15/share last year. Sales surged 47% to $2.52b. But both figures fell short of analysts' estimates. Applied's CFO warned Q1 sales will come in 5%-10% lower y-o-y (est. $2.27b - $2.39b). CEO Michael Splinter guided net income to $0.26-$0.27/share (including $0.03/share for stock options expenses), which was short of analyst estimates of $0.29/share excluding some costs. Splinter did add that sales could accelerate in Q2, and fiscal growth could reach double digits, ahead of analyst estimates of 7%. A Pacific Crest analyst commented, "The results are decent but there seems to be little catalyst for the first half of this year. People will nitpick them on revenue, which is just shy of where the Street is." In pre-market trading 400,000+ shares have traded with AMAT down about 1.3% at $18.40. In yesterday's after-hours, 37.6 million shares traded with AMAT finishing at $18.30.
Related links: Applied Materials: Earnings press release. Media coverage: CNNMoney-Reuters and Forbes.com. Commentary: Applied Materials Reports Slightly Below Estimates, Lowers Outlook • Applied Materials On The Rise Ahead of Earnings • Semiconductor Growth Still Not Good Enough - Here's Why • World Semiconductor Trade Projections Overly Optimistic For '07 and Beyond. Conference call transcripts: Applied Materials F4Q06.
Potentially impacted stocks and ETFs: Applied Materials (NASDAQ:AMAT) • Competitors: KLA-Tencor (NASDAQ:KLAC), LAM Research (NASDAQ:LRCX), Novellus Systems (NASDAQ:NVLS) • ETFs: Semiconductor HOLDRs (NYSEARCA:SMH), iShares Goldman Sachs Semiconductor (IGW), PowerShares Dynamic Semiconductors (NYSEARCA:PSI), PowerShares WilderHill Clean Energy (NYSEARCA:PBW)
Summary: Cisco Systems' board approved the repurchase of $7 billion in company stock, the latest stage in a five-year program that has already bought back $36.9 billion in stock. Cisco's board had previously authorized $40 billion in buybacks; the latest approval is on top of that. The company's market cap is currently $161.47 billion.
Related links: Cisco press release • Commentary: Cisco's Scorched Earth Policy Claims Another Victim • Cisco: Catalysts That Make it a Buy • Cisco Reports A Blowout Quarter • Conference call transcripts: Cisco F1Q07 (Qtr End 10/28/06) Earnings Call Transcript
Potentially impacted stocks and ETFs: Cisco Systems (NASDAQ:CSCO) • ETFs: iShares Networking (NYSEARCA:IGN)
Web Pioneers eBay and Amazon Face a Threat From Older Retailers [Wall Street Journal]
Summary: The original online shoppers were generally tech-savvy, fairly well-off men who preferred the websites of web-only e-tailers like Amazon.com and eBay; such sites dominated the online marketplace until as recently as 2003. But from a total market share of more than 60% of all online purchases going to web-only businesses, the number has declined since 2003 to just 52% with the number likely to dip below the 50% mark in FY2007. Why? The demographics of online shoppers have changed significantly to more of a cross-section of the American shopper in general - less wealthy, less demanding in their taste, and interested in shopping online in the same brick and morter stores they frequent at the mall. And those stores have risen to the occasion - Wal-Mart, Target, Best Buy and Circuit City are now all among the top 10 online retail sites. But with overall online spending expected to come in at $132 billion this year - an increase of 19% from 2005 - there may be enough business to go around for everyone.
Related links: Media coverage: International Business Times • MarketWatch. Commentary: Amazon, The Virtual Virtual Store • Amazon's Bezos On Why It's Entering The Services Biz • Amazon.com Heads in Yet Another Direction But Wall Street is Skeptical • eBay To Test Universal Shopping Cart That Competes With Google • eBay Exceeds Q3 Expectations But Cautious on 2007. Conference call transcripts: Amazon.com Q3 2006 Earnings Call Transcript • eBay Q3 2006 Earnings Call Transcript.
Potentially impacted stocks and ETFs: Amazon.com (NASDAQ:AMZN), eBay (NASDAQ:EBAY), Overstock.com (NASDAQ:OSTK), Wal-Mart (NYSE:WMT), Target (NYSE:TGT), Best Buy (NYSE:BBY), Circuit City (NYSE:CC) • ETFs: First Tr DJ Internet Index Fd (NYSEARCA:FDN), Internet HOLDRS (NYSE:HHH), Retail HOLDRS (NYSEARCA:RTH), Vanguard Consumer Discretionary ETF (NYSEARCA:VCR).
Dell Accounting Inquiry Made Formal by S.E.C. [New York Times]
Summary: Dell said yesterday that the SEC had formally opened an investigation into its accounting practices, as a result of which is was postponing its quarterly earnings report scheduled for after today's market close. When it does report at the end of November, it will do so in the form of a press release with no accompanying conference call for analysts to dissect the company's results. The company failed to provide any other details regarding the SEC investigation, which began in August. Dell still hasn't filed its 10Q for 2Q'06 earnings, which it claims is also a result of the investigation. The company also canceled an analysts’ meeting in September citing the S.E.C.’s investigation. Dell has denied the investigation is related to the options backdating scandal currently sweeping Wall Street; company spokesman Robert Pearson said Dell was "fully cooperating" with the SEC.
Related links: Media coverage: Bloomberg • Business Week • The Money Times. Commentary: Citigroup: Hewlett-Packard Should Outperform Dell Through Year-End • Dell Losing PC Market Share - And Wall Street Doesn't Care • Dell Shares Rising Ahead of Earnings - Margins Improving? • Is Dell Hitting a Turning Point?. Conference call transcripts: Dell Q2 2007 Earnings Conference Call Transcript (NASDAQ:DELL).
Potentially impacted stocks and ETFs: Dell (DELL) Competitors: Hewlett-Packard (NYSE:HPQ), Lenovo (OTCPK:LNVGY), Apple (NASDAQ:AAPL) • ETFs: Internet Architecture HOLDRS (NYSE:IAH), Vanguard Information Technology ETF (NYSEARCA:VGT).
ENERGY AND MATERIALS
SunPower Buys PowerLight: $265M [Red Herring]
Summary: Yesterday, solar power chipmaker SunPower Corp. announced it was acquiring privately held PowerLight Corp., a designer of solar energy systems. The deal, valued at $332 million dollars in cash and stock benefits both companies; SunPower because it diversifies its stake in the solar power business, and PowerLight because it has been been looking to go public for some time. SunPower, which is owned by Cypress Semiconductor Corp., reported sales of $11 million just two years ago. This year, analysts project sales will reach $235 million and next year once the merger takes hold, sales should hit $600 million - an indication of how far the alternative energy market has come in a relatively short time.
Related links: Press Release. Media coverage: WSJ. Commentary: SunPower's Powerlight Acquisition: Both Companies Win • SunPower, PowerLight Merger: Company Aims to Reduce Solar Costs • SunPower Predicts Rosey, But Slow, Outlook for PV Solar • The Long Case for Solar Powered SunPower.
Potentially impacted stocks and ETFs: SunPower (NASDAQ:SPWR), Cypress Semiconductor (NASDAQ:CY). Competitors: Evergreen Solar (ESLR), Energy Conversion Devices (NASDAQ:ENER), DayStar Technologies (OTC:DSTI) • ETFs: PowerShares WilderHill Clean Energy (PBW).
Anglo American Coal Unit Plans $4 Billion China Joint Venture [MarketWatch.com]
Summary: Anglo Coal, a unit of Anglo American PLC, is working on a $4b coal mining joint-venture with China's geology bureau. The main project, the Xiwan project joint-venture located in Shaanxi Province, has already received $300m of investment from Anglo. A feasibility study on the project is underway, and investment is expected to begin in 2009, according to Anglo American's chairman. The WSJ reports Anglo has a 60% stake in the JV, but that could change as the project develops. China is the world's leading coal producer, and although Beijing plans to lower dependency on coal-fired power, absolute consumption is seen increasing due to power demand from China's sustained growth.
Related links: Anglo American: Transcript of Chairman's Speech on China and global mining and Presentation on China and global mining. Media coverage: Bloomberg and WSJ. Commentary: Alternative Energy, Oil Stocks Up Across the Board on Dems Win • SeekingAlpha's coverage of the Coal sector.
Potentially impacted stocks and ETFs: Anglo American ADR (AAUK) • Competitors: BHP Billiton (NYSE:BHP), Peabody Energy (BTU), Yanzhou Coal Mining (NYSE:YZC)
Hot Topic Meets Targets [TheStreet.com]
Summary: Hot Topic, a rock music clothing and accessories retailer, met Wall Street expectations when it reported a 19% rise in net income, and news that its revamped store design has met with customer approval brought HOTT shares up 9%. This upturn follows significant losses for the first and second quarter, and executives say that the recent success is due to higher markups, cost-cutting strategies and lowered freight expenses. Reported net income was $7.1 million, or 16 cents per share, up from $5.9 million or 13 cents a share for the third quarter last year. Sales increased 2% to $196.7 million, slightly under the expected $198.3 million, and same store sales decreased 6.8%. Videos and accessories slowed down same-store sales, while the company plans to increase sales by remodeling stores and eschewing the dark "Goth" appearance of older stores in favor of a brighter decor which is expected to appeal to younger shoppers. Hot Topic plans to remodel 60 to 80 of its stores and to build 15 new stores.
Related links: Media coverage: Reuters • Associated Press . Commentary: Teen Stocks - Tempting or Tempestuous?
Potentially impacted stocks and ETFs: Hot Topic (NASDAQ:HOTT) • Competitors: Abercrombie & Fitch (NYSE:ANF), Gap (NYSE:GPS), American Eagle Outfitters (AEOS), Pacific Sunwear (NASDAQ:PSUN)
Summary: Tyco International reported a 38% increase in its Q4 profit. Net income reached $1.27 billion, or 62 cents/share up from Q4:05's $917 million or 44 cents/share. Revenue increased 8% from $9.94 billion to $10.76 billion, beating analyst estimates of $10.5 billion. Tyco shares were down 3 cents to $29.90 yesterday. Tyco also said they will have to restate financial records from 1999 through 2002, the years during which the now-convicted Dennis Kozlowski served as CEO. "Sloppy bookkeeping" issues surrounding stock-options grants from this period will cost the company $171 million in after-tax expenses. The company also announced a restructuring program that promises to save Tyco $50 million in 2007 and $200 million in 2008. Analysts were pleased with these results.
Related links: Media coverage: MarketWatch, BusinessWeek . Commentary: Looking Beyond the Scandal at Tyco • Tyco Heeded Warning on Options Backdating.
Potentially impacted stocks and ETFs: Tyco International (NYSE:TYC). Competitors: Johnson & Johnson (NYSE:JNJ), Molex Inc (NASDAQ:MOLX) • ETFs: Vanguard Industrials VIPERs (NYSEARCA:VIS), iShares Dow Jones US Industrial (NYSEARCA:IYJ), Industrial Select Sector SPDR (NYSEARCA:XLI).
Citigroup Is Preferred Bidder for China Bank [Wall Street Journal]
Summary: Citigroup has won its bid (at $3.1b, beating Société Générale SA of France) to invest in Guangdong Development Bank (known as GDB), along with a Chinese consortium of investors, according to people familiar with the matter. Citigroup is limited by Chinese law to no more than 20% direct ownership. It plans to sell 5% of its stake to IBM. Citi's Chinese partners include State Grid Corp and China Life Insurance, each which will own 20% stakes. The Citi-led group will own 85% of the bank, with Citi seen taking control of daily operations. GDB has 501 branches across 26 cities, whereas Citi currently has only six branches. It has $48b in assets, but at the end of 2003 bad loans equaled 21.9% of its lending, according to Bloomberg. Separately, Citigroup is advising US Airways' in its $8b hostile takeover bid for Delta Air Lines. Delta is expected to emerge from bankruptcy next year. Its CEO rejected a merger proposal last month, saying Delta will operate as a standalone group. Citi will provide a financing package of $7.2b.
Related links: Media coverage: Bloomberg and Financial News Online US. Commentary: IBM and Citigroup Join Forces to Bid on Chinese Bank • China's Banking Sector Looks Better with New Law • Merger Mania Grips the Airlines • Citi Trades Lower after Q3 Earnings. Conference call transcripts: Citigroup Q3 2006.
Potentially impacted stocks and ETFs: Citigroup (NYSE:C), IBM (NYSE:IBM), US Airways (LCC), Delta Air Lines (DALRQ.PK) • Competitors: Société Générale (OTCPK:SCGLY), HSBC (HBC) • ETFs: First Trust Morningstar Div Leaders (NYSEARCA:FDL), WisdomTree High-Yielding Equity (NYSEARCA:DHS), streetTRACKS KBW Bank (NYSEARCA:KBE), Vanguard Financials (NYSEARCA:VFH)
AEROSPACE AND DEFENSE
Surprise Hostile Bid for Delta May Spur Airline Merger Wave [Wall Street Journal]
Summary: US Airways' $8.67b hostile takeover bid for Delta Air Lines would create the U.S.'s biggest airline and bring Delta out of the bankruptcy protection it's been in for more than a year. Other airline stocks were buoyed by the news. Delta CEO Gerald Grinstein says he wants Delta to emerge from bankruptcy proceedings on its own. US Airways will need Delta-creditor support and antitrust approval if it hopes to push the hostile bid through. Bankruptcy code requires 2/3 creditor approval for a restructuring claim, and Delta management has the exclusive right to file a plan with the courts until Feb. 15 -- hostile takeovers in the midst of bankruptcy protection are a rare breed. Ultimately Grinstein must make creditors believe he's got the better deal, especially after the market's "euphoric" reaction, which drove LCC shares up 17%. The offer is for $4b in cash, and 78.5m LCC shares ($4.67b as of yesterday's close); analysts say creditors would get $0.50 on the dollar (Delta bonds went from $0.40/$1 to above $0.50 yesterday). The combined airline, said US Airways' CEO Doug Parker, would be called Delta, and would cut about 10% of its capacity. Some unknowns: (1) Other bidders? Some suggest Northwest, the other big airline still in bankruptcy protection. (2) Can Parker win over self-interested, feuding creditors? (3) Will employees/unions cooperate with cost-saving measures? (4) Will the Justice Department approve the deal?
Related links: Media coverage: Flight Data: How US Airways/Delta Compare [WSJ] • Airline-Industry Experts React To Proposed Deal [WSJ]. Commentary: Citi Advises US Airways in Hostile Bid for Delta • Merger Mania Grips the Airlines • Delta Airlines Update • You Don't Have to be Crazy to Buy Airlines • Jim Cramer on LCC.
Potentially impacted stocks and ETFs: US Airways Group Inc. (LCC) • Competitors: AMR Corp. (AMR), Continental Airlines Corp. (NYSE:CAL), Southwest Airlines Co. (NYSE:LUV), JetBlue Airways Corp. (NASDAQ:JBLU), UAL Corp. (UAUA), AirTran Holdings Inc. (AAI)
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