U.S. Retail Sales Relatively Strong as Holiday Season Ends
American consumers swarmed stores the weekend before Christmas in a last-minute spree that gave national retail sales figures a 23% lift -- a figure that does not include sales at massive retailer Wal-Mart, which has been struggling during the holiday season. According to research firm ShopperTrak, December 23 alone saw sales of $8.72 billion, second only to Black Friday (the day after Thanksgiving), when consumers purchased $8.96 billion worth of merchandise. The weekend's combined figure was 22.5% higher than a year ago and may help the sector meet its forecast of a 5% sales gain, shy of last year's 6.1%. This would be the narrowest gain since 2002. The S&P 500 Retailing Index of 29 companies is nearly unchanged since October 31. Wal-Mart expects December same-store sales to rise about 1%, which would be the smallest gain since 2000. Wal-Mart shares have slid 7.6% and Federated Department Stores' shares 13%. The sector is now seeing dramatic post-holiday discounting in an effort to meet sales goals, particularly at mall apparel stores like the Gap and Ann Taylor.
• Sources: Bloomberg, Wall Street Journal (I, II), New York Times
• Related commentary: An Up-Close Look At Holiday Retailers, Retail Sales Data: A Closer Look, Retail Strength: Sustained Demand Or Deal-Hunting?, Retailers' Heavy Discounting Should Pressure Q4 Margins, Expecting Continued Weakness From Kohl's And Other Department Stores
• Potentially impacted stocks and ETFs: Wal-Mart (WMT), Federated Department Stores (FD), J.C. Penney (JCP), Nordstrom (JWN), Target (TGT), Sears Holding (SHLD), Pier One (PIR), Kohl's (KSS), Saks (SKS). ETFs: Retail HOLDRs (RTH), Consumer Discretionary SPDR (XLY)
TECHNOLOGY AND INTERNET
Panasonic Pushes Plasma Over LCD
Panasonic is running ads extolling the virtues of plasma sets over the L.C.D. variety, although the company produces both kinds of sets. The world's leading seller of plasma televisions offered picture comparisons for journalists at electronics shows and launched an aggressive holiday ad compaign outlining six reasons to buy plasma. Sony has initiated an equal and opposite marketing strategy citing reasons to prefer L.C.D sets over plasma, including the absence of a fluorescent glow from L.C. D. televisions. Although Panasonic sells L.C.Ds in smaller sizes, the company suggests buying plasma sets for more life-like images. L.C.Ds and plasma sets are both quickly seizing market share from traditional sets; 2006 was the first year that L.C.D. sales were higher than those of old-fashioned TVs. L.C.D sets grabbed 49% market share up from 26% in the previous year, and plasma's market share doubled in 2006 from 5% to 10%.
• Sources: New York Times
• Related commentary: LCD Revenues Down in 2006 Despite Unit Sales Being Up 29%, Improving Q3 & Q4 Outlook for LCD Makers, LCD Makers in Collusion? , Flat Panel Makers to Avoid Production Cuts Amid Investigation.
• Potentially impacted stocks and ETFs: Sony (SNE), Matsushita Electronics Industria (MC), Koninklijke Philips Electronics NV (PHG), Corning (GLW)
More Flaws Found in Microsoft's Vista
After a nearly 4 1/2-year wait for its launch, Microsoft's Vista has some serious flaws. The update to the Windows' operating system has a few holes that potentially enable users to exand their privileges, and at least five other problems, including a mistake in Internet Explorer 7 software code which could infect computers if users visit trapped sites. Determina, a Silicone Valley computer security firm, followed up on an initial flaw discovered by a Russian programmer, and found other problems, including a bug that would allow an attacker to repeatedly disable a Microsft Exchange mail server just by sending a contaminated e-mail message. Microsoft had promoted Vista as its most secure product, and created the system as an answer to the increase in software attacks. Microsoft shares finished Friday down 34 cents at $29.64.
• Sources: New York Times, TheStreet.com, CNN Money.com
• Related commentary: At Least Microsoft Still Has Vista , Microsoft's Vista Has Been Released: What Happens Now?, Getting Ready to Pull the Trigger on a Microsoft Sale, Microsoft: Some Serious Question Marks. Conference call transcripts: Microsoft F1Q07
• Potentially impacted stocks and ETFs: Microsoft (MSFT). Competitors: Google (GOOG), International Business Machines (IBM), Oracle (ORCL), Apple (AAPL). ETFs: iShares Goldman Sachs Technology Index (IGM), iShares S&P Global Technology (IXN), NASDAQ 100 Trust Shares (QQQQ). Technology Select Sector SPDR (XLK), Vanguard Information Technology (VGT)
Online Ad Rates Are Going Through the Roof - But Which Ones?
The costs advertisers are paying for web advertising have been rising significantly. According to Joanne Bradford, MSN’s corporate vice president and chief media officer, pricing pressure over the last two years has led ad pricing on the front pages of some popular MSN sections to rise tenfold. But with no accurate measurements for across-the-board ad pricing trends online, it is unclear how deep-seated the rise in ad prices actually is. According to Jordan Bitterman, vice president and media director for Digitas, an online marketing agency, many sites have 20-30% ad inventory left unsold meaning price increases are counter-intuitive for filling their ad space capacity. The idea that not all online ad prices are going through the roof has been confirmed by Matt Coffin, chief executive of LowerMyBills.com, who has said that in his experience (his company advertises extensively online), publisher pages that attract a general readership - as opposed to readers of a specific demographic - have actually dropped their rates.
• Sources: New York Times
• Related commentary: British Online Ad Spending Outpacing U.S. By Nearly 2 to 1, Online Ads Steal the Show From Traditional Media, U.S. Online Ad Revenue Sets New Record; Yahoo's Semel Feels Ad Growth Underestimated, Online Advertising Tops $4 Billion Per Quarter
• Potentially impacted stocks and ETFs: Google (GOOG), YAHOO (YHOO), Microsoft (MSFT), IAC/InterActiveCorp (IACI). ETFs: First Tr DJ Internet Index Fd (FDN)
Sun Microsystems Has a New Sales Approach (And It's Working)
After reporting net losses in 16 of its last 21 quarters, Sun Microsystems finally revamped the way its sales team operates earlier this year. Sun's recent results speak to the success of its new approach to sales: sales increases of 29% and 17% year- over-year in the last two quarters and world server market share growth at the expense of its two main competitors, Hewlett-Packard and Dell (from 8.9% to 10%). Many clients were complaining that Sun's ever more complex organizational structure was making it difficult to gain the type of assistance they needed when technical problems arose. Additionally, Sun sales teams were pitching products as opposed to trying to help customers with their own particular needs. According to Tim Lieto, rehired to revamp Sun's sales approach, customers "were frustrated with our inability to communicate what we had in the lineup." When Lieto reported his findings to Sun CEO Jonathan Schwartz, Schwartz responded with several initiatives: he cut down Sun's sales teams from seven to four, assigned clients one contact at the company who would become an expert on their particulars and increased the commissions for sales of Software and other products so that the sales team stopped continuing to push only server sales, regardless of a client's needs.
• Sources: Wall Street Journal
• Related commentary: IBM, Sun Lead the Pack in Q3 Server Sales, Sun: Investors Still Looking For Clear Daylight, Sun Microsystems' Data Center in a Shipping Container Will Transform Corporate Computing. Conference call transcripts: Sun Microsystems F1Q07 (Qtr End 10/01/06), Sun Microsystems F4Q06
• Potentially impacted stocks and ETFs: Sun Microsystems (SUNW). Competitors: Hewlett-Packard (HPQ), Dell (DELL), International Business Machines (IBM). ETFs: Internet Architecture HOLDRS (IAH)
Microsoft To Introduce Behavioral Online Ad Targeting on a Global Scale
In a bid to compete for a larger share of the online advertising market with leaders Google and Yahoo, Microsoft is launching its behavioral ad targeting campaign globally. Active in the U.S. on a trial basis since September, Microsoft's global head of advertising sales Chris Dobson claims the companies new ad-targeting methods have increased click-throughs by as much as 76%. Combining data provided by Microsoft's 263 million hotmail email users upon signing up for their free accounts, as well as data culled from online searches, the company's database of advertisers is then searched to produce ads that cater to individual hotmail user needs and wants. The company declined to comment on which advertisers it already has lined up.
• Sources: Wall Street Journal, Reuters
• Related commentary: Online Advertising Tops $4 Billion Per Quarter, Small to Medium Enterprises: The Growth Market for Web Advertising, Yahoo Expands Panama Launch to Newcomers, Google’s Branded/Display Advertising Strategy in One Word: YouTube
• Potentially impacted stocks and ETFs: Microsoft (MSFT). Competitors: Google (GOOG), Yahoo (YHOO), IAC/InterActiveCorp (IACI). ETFs: Internet Architecture HOLDRS (IAH), Vanguard Information Technology (VGT), iShares S&P Global Technology Sect. (IXN)
Verizon Dips Its Toe Into Mobile Phone Advertising
Verizon announced that early next year it will allow limited banner advertising on Internet sites that appear on their mobile phones. The company's decision is a significant but cautious advance into the world of tiny screen advertising. Despite confidence that mobile advertising is "poised to take off", Verizon, major ad agencies and national brands are still unsure of the absolute value of the medium. All of the players are walking a fine line between reaching potential customers and annoying or inconveniencing them. Ad agencies maintain that until decent video and ad placement are available on mobile phones, it will not be a limited advertising medium. According to industry analysts, mobile ad spending was $45 million in 2005 and will probably increase to approximately $150 million this year. Mobile advertiser could spend as much as $1.3 billion by 2010.
• Sources: NYTimes
• Related commentary: Time For Wireless Carriers to 'Unlock' Customer Handsets, Verizon: 2007 A 'Tipping Point' For Earnings Growth?, Verizon and Sprint: The Prince and The Pauper Conference call transcripts: Verizon Q3 2006 Earnings
• Potentially impacted stocks and ETFs: Verizon Communications Inc. (VZ) Competitors: AT&T Inc. (T), Sprint Nextel Corp (S), BellSouth Corp (BLS) ETFs: Telecom HOLDRs (TTH), First Trust Morningstar Div Leaders Idx (FDL), WisdomTree High-Yielding Equity (DHS), WisdomTree LargeCap Dividend (DLN)
ENERGY AND MATERIALS
Oil Price Boosted by Iranian Ire at U.N. Sanctions
After a two-day losing streak, the oil price rebounded to $63 after Iran threatened to use oil exports as a weapon to combat U.N. sanctions on its nuclear research. The price was also helped by the onset of colder temperatures in the American northeast and by plans by Abu Dhabi to make good on the latest round of announced OPEC production cuts. On Saturday, the U.N. Security Council finally agreed to impose sanctions on Iran's trade in nuclear materials. Iran replied by announcing plans to speed up enrichment rather than rein it in, and in a newly belligerent shift of verbiage, now claims it will use "any weapon" to resist what it defines as illegal sanctions. Iran is the second-biggest oil producer in OPEC, which pumps 40% of the world's oil. The oil price is highly sensitive to political developments in Iran and also in Nigeria, where a group called the Movement for the Emancipation of the Niger Delta [MEND] has unleashed a campaign of terrorist attacks including kidnappings and car bombings at oil installations.
• Sources: New York Times, Bloomberg
• Related commentary: OPEC Opts for Delayed Production Cut, Oil Traders Testing the OPEC Cartel, Bulls Versus Bears on the Oil Outlook
• Potentially impacted ETFs: Oil Service HOLDRS (OIH), United States Oil Fund LP (USO)
Toyota Production Surges to Meet Global Demand
Toyota announced yesterday that its November production numbers reached a record breaking 736,003 units, a y/y increase of 12%, confirming the company's 25th straight month of growth. They plan to produce 9.42 million vehicles next year, a 4% increase that could make Toyota the world's largest carmaker, a title previously held by General Motors for 81 years. The company, which earns 60% of its operating profit from North American sales, expanded November exports to the U.S. by 43% to 126,000 units and 44% to 1.16 million vehicles in the first 11 months of this year. Toyota's international production climbed 11% to 350,300 units, and domestic production went up 14% to 385,703 units. Analysts are expecting growth for all Japanese auto companies in 2007.
• Sources: Bloomberg , AP
• Related commentary: Toyota: A Lesser Known Stock?, Hybrid Vehicle Marketing: Toyota Leads Here As Well, Toyota Versus GM/Ford: Classic Hedged Pair Trade, Toyota To Become World's Largest Automaker in '07
• Potentially impacted stocks and ETFs: Toyota (TM).
Competitors: General Motors (GM), Ford (F), DaimlerChrysler (DCX), Honda (HMC), Nissan (OTCPK:NSANY) ETFs: iShares MSCI Japan Index (EWJ), iShares S&P/TOPIX 150 (ITF), BLDRS Asia 50 ADR Index (ADRA), BLDRS Developed Markets 100 ADR Index (ADRD)
AEROSPACE AND DEFENSE
Defense Stocks Should Continue to Outperform in 2007 -- NY Times
According to this morning's New York Times these are very good times for military contractors. Few in the military industry are worried by the recent Democratic Congress victory: The Pentagon's 2007 budget is expected to exceed $560b, and in the spring, President Bush has indicated he will ask for another $100b for Iraq and Afghanistan. No one expects Democrats to make major changes in the last two years of the Bush administration, especially with the war continuing; Democrats are sensitive to being seen as “soft” on defense, and are more likely to use the term to establish their military qualifications in advance of the 2008 presidential elections. Lockheed Martin Corp., Boeing Co., Raytheon Co., and General Dynamics Corp. shares are all up around 33% over the year, and according to LMT spokesman Thomas Jurkowsky, they "certainly don't foresee any change."
• Sources: New York Times
• Related commentary: What Does a Democratic Victory Mean for the Defense Sector?, Barron's Post-Election Sector Analysis, Time To Get Defensive
• Potentially impacted stocks and ETFs: Lockheed Martin (LMT), Boeing (BA), General Dynamics (GD), Raytheon (RTN), Northrop Grumman (NOC), Armor Holdings (AH), SAIC (SAI). ETFs: iShares Dow Jones US Aerospace & Defense ETF (ITA), PowerShares Aerospace & Defense ETF (PPA)
Citigroup Loses Japanese Investment-Banking Business on Nikko's Impropriety
In the latest in a series of regulatory blows to Citigroup's Asian business, the world's biggest bank will lose its Japanese investment banking business over allegations of falsified earnings statements by partner Nikko Cordial Corp., Japan's third-largest securities firm behind Nomura and Daiwa.Two years ago, Citigroup had to close its Japanese private-banking group over rules breaches, and the year before that, it was hit with a 20-day trading suspension over investment-banking violations. Two top executives at Nikko Cordial have stepped down, with chief IT officer Shoji Kuwashima replacing Junichi Arimura as president. Citigroup owns 49% of investment bank Nikko Citigroup Ltd. and holds 4.9% of Nikko Cordial. Japan's Securities and Exchange Surveillance Commission is seeking a record fine of 500 million yen ($4 million) from Nikko Cordial for overstating profit related to a November 2005 corporate bond sale. Nikko shares nosedived 23% in three days, erasing $2.8 billion of market value. The Tokyo Stock Exchange is conducting a review to evaluate whether or not it should remove the firm's shares from trading. Several large local institutional investors, including Sumitomo Mitsui Asset Management and Societe General Asset Management Co., have announced that they will stop trading through Nikko Citigroup. Standard & Poor's has placed Nikko's BBB long-term debt rating on watch with negative implications, while Fitch Ratings has placed its BBB rating on watch for possible downgrade.
• Sources: Bloomberg, Forbes, Reuters
• Related commentary: Nikko Cordial CEO to resign, IT director at helm (Reuters), Risk Versus Reward In Financial Institution Stock Valuations
• Potentially impacted stocks and ETFs: Citigroup Inc. (C) Competitors: Bank of America Corp. (BAC), Deutsche Bank AG (DB), J.P Morgan Chase & Co. (JPM), Nomura Holdings Inc. (NMR) ETFs: First Trust Morningstar Dividend Leaders Index Fund (FDL) , WisdomTree High-Yielding Equity (DHS), WisdomTree LargeCap Dividend (DLN)
China Life to List on Shanghai Exchange
China Life Insurance, mainland China's largest underwriter with approximately 50% market share will list on the Shanghai Stock Exchange by January 11, at between 18.16 yuan to 18.88 yuan per share, valuing its IPO at 28.32 billion yuan (US$3.6 billion). Its mainland offering is a 29%-34% discount to its Hong Kong listed shares, reportedly in order for the listing to be accessible to mainland investors and have room to move to the upside. It will be the first mainland insurer to list domestically. In a statement, China Life said its proposed listing price values it at 94.1x-97.8x its 2005 earnings. Bloomberg reports China Life is the world's sixth most expensive life insurance company based on a book value of 7.32 (12/22 Hong Kong close). However, investors have not been turned off by rising valuation as its Hong Kong listed shares have more than tripled year-to-date making it the best performing Hang Seng Index stock. China Life's P/E is around 38-39 based on estimated 2007 earnings of 0.48 yuan/share.
• Sources: Bloomberg, The Wall Street Journal
• Related commentary: Chinese Blue Chips Soar to the Stratosphere, Investing in China: Rapid GDP Growth Rates Indicate Prosperous Future
• Potentially impacted stocks and ETFs: China Life Insurance (LFC). ETFs: China Fund (CHN), Greater China (GCH), iShares FTSE/Xinhua China 25 Index (FXI), Jardine Fleming China Region (JFC), PowerShares Gldn Dragon Halter USX China (PGJ)
Mixed Economic Data May Force BoJ to Postpone Hike
Japanese stocks closed higher today after mixed economic data releases showed inflation grew slower than expected, the unemployment rate fell to everyone's surprise and consumer spending fell less than expected year-over-year. What all this data means is the BoJ is less likely to raise rates in January. Of particular concern is the minimal growth in inflation, +0.2% in Nov. y-o-y, versus +0.1% in Oct., capped by lower fuel costs from peak summer levels and the wide availability of cheap imports. Also, consumer spending has fallen every month this year (y-o-y), -0.7% in Nov., compared to analysts' estimate of -1.5%. November unemployment fell 0.1% from Oct. to 4.0%. PM Shinzo Abe called on business leaders in a year-end address to the Keidanren (Japan Business Federation), saying "I would like you as company executives to shift your high earnings to individual households. It is necessary to build an economy in which everyone can share the benefits." The BoJ concludes its next rate decision meeting on Jan. 18.
• Sources: Bloomberg, Forbes XFN-ASIA, Taipei Times
• Related commentary: BoJ Keeps Target at 0.25%, More Data Watching, BoJ's Tankan Improves In-line, Stocks Climb Higher, Still No Love for Japan's Mega Banks, Japan: No "Soft Patch" Despite Weaker Economic Data,
• Potentially impacted stocks and ETFs: Mitsubishi UFJ Fin. Grp. (MTU), Mizuho Fin. Grp. (MFG). ETFs: iShares MSCI Japan Index (EWJ), iShares S&P/TOPIX 150 (ITF)
People's Bank Says China Should Improve Its Forex System -- But How?
The People's Bank of China released a statement Monday following the meeting of its monetary policy committee: China should improve its managed float foreign exchange system and promote the market's role in setting the yuan exchange rate. The bank pledged to continue to take steps to keep investment and credit growth in check, while continuing with its "stable and prudent" monetary policy to control the country's excessive market liquidity. China has been under global fire to move faster in giving its forex system more flexibility and reduce the unfair competitiveness its exporters enjoy due to an undervalued yuan. Since revaluing the yuan by 2.1% and decoupling it from the dollar in July 2005, the yuan has appreciated another 3.7%, the pace having picked up in recent months, but many critics say it remains seriously undervalued. The statement didn't detail how the central bank will 'improve' its foreign exchange system. The country is trying to ease its enlarging trade surplus, which has contributed to the market's liquidity, and instead focus on actively boosting domestic consumption. WSJ quotes Stephen Green of Standard Chartered Bank in Shanghai as saying the statement didn't contain any news: "It sounds like business as usual." But he did say he expects Beijing will allow the yuan to appreciate faster in 2007, without elaborating.
• Sources: Bank of China website, WSJ, Taipei Times, Reuters.uk
• Related commentary: The Yuan Dilemma; Stocks, Not Economy Overheating?, China : What to Do with Foreign Reserves At $1 Trillion and Counting?, Bernanke Ratchets Up Pressure On China Over Exchange Rate, Invest in China : Rapid GDP Growth Rates Indicate Prosperous Future, Full Seeking Alpha Coverage of China
• Potentially impacted stocks and ETFs: China Fund (CHN), Greater China Fund (GCH), iShares FTSE/Xinhua China 25 Index Fund (FXI), JF China Region Fund (JFC), PowerShares Golden Dragon Halter USX China (PGJ)
ACTIONABLE BARRON'S CALLS
Barron's articles likely to move stocks today, excerpted from Seeking Alpha's One-Page Barron's Summary
- Barron's cover story presents the theory of GaveKal, an international research boutique and respected advisor to some of the world's largest companies. Despite bears' worries over recession, overleveraged consumers, a collapse in home prices, and a huge current-account deficit, it says the consumer is healthy, the U.S. economy stable, a housing crash improbable, and U.S. stocks are dramatically underpriced even at their current levels. Profound economic changes have taken place that have been ignored by most commentators, it says, specifically a business model it calls the "platform company" that outsources low-return/volatile portions of its operations and focuses on value-adding ventures such as R&D -- the model seems to be behind the current surge in U.S. corporate profitability. Barron's agrees: "Optimism is often a tougher sell than bearishness. But based on the trends of the past half-century, GaveKal's argument looks like one worth buying." Platform companies named in the piece: Apple Computer Inc. (AAPL), Motorola Inc. (MOT), Hewlett-Packard Co. (HPQ), Dell Inc. (DELL), Black & Decker Corp. (BDK), International Business Machines Corp. (IBM), Danaher Corp. (DHR), and Analog Devices Inc. (ADI).
- This week's interview picks the minds of Rob Lyon and Jerry Senser, large-cap gurus and co-chief investment officers of Institutional Capital. Companies they like: Textron Inc. (TXT), Railroad stocks CSX Corp. (CSX) and Norfolk Southern Corp. (NSC), Hess Corp. (HES), Temple-Inland Inc. (TIN), Dominion Resources Inc. (D), European stocks Credit Suisse Group (CS) and Allianz Aktiengesellschaft (AZ).
- Shares of ITT Corp. (ITT) may reach $72 each in the next year as its defense-electronics and water-treatment unit sales grow. Based on its solid operating costs earnings should jump at a faster pace than most other industrial companies. The #1 maker of night-vision goggles expects an increase of 18% in 2007, to $3.30-$3.38 a share.
- Peabody Energy Corp. (BTU), the largest U.S. coal producer, may rise to $58 a share on increased demand from the U.S. and emerging markets such as China and India, according to Stifel Nicolaus analyst Paul Forward. Barron's cites its vast reserves, long-term forecasts for increases in global demand for coal, and its bottom-scraping P/E of 14 in '07 that give it one of the industries highest Ebitda.
- Analysts from Prudential Equity Group and Credit Suisse see EW Scripps Co. (SSP) shares ranging from $60-$76, so it's a steal now at $50. Scripps has sidestepped many of the problems of other media outfits through strong growth at its niche cable channels and its Shopzilla shopping search engine. Noting its consistently good instincts for consumer trends, Barron's agrees with the analysts: shares could easily rise another 20%.
U.S. Markets: Market Predictions for 2007
Long Idea: Boomer Retirement Could Boost US Asset Mangement Companies
Short Idea: After a 23% Drop, Mamma.com Shares Should Continue To Decline
Internet: Cutting Through the Noise of Microsoft’s RSS Patent Application
Telecom: Adtran Seeing "Unanticipated Softness" In Orders
Software: If You Like Cash, You'll Love Electronic Arts
Consumer Electronics: The iPhone Will Probably Be Released In 2007: Who Is Apple Up Against?
Media: What Will Happen When Global Satellite Broadcasting Actually Goes Global?
Healthcare: Ten High-Yield Healthcare REITs To Capture Aging Boomers
Retail: Apple Stores Now More Profitable Than Tiffany's Per Square Foot
Transport: Eye on General Electrics' Transportation Business
Energy: Solar Energy Goes Mainstream
Financial: The Naughty List: Santa Sees All And He Was Not Impressed
Asia: Online Recruiting Sites: A Booming Market For China's HR Conundrum
ETFs: The Style Cube: Thinking About Equity Performance
Small-Caps: Coastal Financial: Latest Discovered Financial Smallcap
IPO Analysis: Will Melco Hit The Jackpot In Macau?
Sound Money Tips: After-Christmas Shopping
Jim Cramer: Latest stock picks
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