Fannie, Freddie and WaMu Spearhead Subprime Borrower Help
Government-backed Mortgage company Freddie Mac announced at congressional subprime hearings yesterday that they would be purchasing up to $20 billion of subprime loans to help stem the wave of defaults plaguing subprime mortgage borrowers. Fannie Mae also said it could purchase "tens of billions of dollars in loans." Lender Washington Mutual announced separately that despite subprime losses, it would also set aside $2b to help borrowers. These efforts may be a drop in the bucket—there are an estimated $1- 1.4 trillion worth of subprime loans outstanding to reset in coming years. And Freddie and Fannie's motives may be guided less by altruism and more by currying favor after recent accounting scandals had regulators calling for Fannie and Freddie's mortgage divestiture. It's all part of efforts to help stop rising national foreclosure rates from subprime and adjustable-rate loan defaults. FDIC chairman Sheila Bair testified at the hearings that since most loans are securitized and sold to investors, lenders would not be able to adjust borrowers loan terms. Initially government and civic groups backed legislation, but instead are now calling on all parties in the subprime loan crisis to help each other out.
Sources: Bloomberg, Wall St. Journal, LA Times, MarketWatch, Hartford Courant
Commentary: Fannie Mae and Freddie Mac: OFHEO Releases Harsh Judgments • Bernanke: Link Fannie's and Freddie's Portfolios to Affordable Housing • Housing Double Dips Offer Short Opportunities • Washington Mutual : Riskiest Portfolio in U.S. - WSJ
Stocks/ETFs to watch: Freddie Mac (FRE) • Fannie Mae (FNM) • Washington Mutual (WM)
Related: Freddie Mac Corporate Press Release • Freddie Mac Q4 2006 Earnings Call Transcript
Nokia Posts Profit, Margin Beat -- Shares Up 3.4%
Nokia, the world's #1 cellphone maker, posted a 7% drop in net income this morning as low pricing in emerging markets took its tool on margins, but beat analyst estimates. Net income fell to €979 million from €1.05 billion last year; EPS was steady at $0.25/share. Revenue was up 3.7% to €9.86 billion. Analysts were calling for net profit of €983 million on revenue of €10.34 billion. Nokia said the average price of its phones fell 13.6% from €103 to €89, in-line with analyst estimates. Gross margin fell to 33.1% from 34.1% but beat analyst forecasts of 32%. It sold 91 million phones in the quarter, up 21%. It estimates its market share at 36%, short of analyst estimates of 37%. Shares traded up 3.4% in Helsinki after the announcement. This year Nokia shares are up 13%; competitor Motorola, who announced yesterday a 15% sales drop at its mobile device unit, has seen its shares shed 11%.
Sources: Press release, Bloomberg, Reuters, Wall Street Journal
Commentary: The Coming Upheaval In the Chinese Handset Market • Get Ready For An Ugly Quarter For Mobile Phones • Motorola: Forget Palm, Think Nokia
Stocks/ETFs to watch: Nokia Corp. (NOK). Competitors: Motorola Inc. (MOT), Sony Corp. (SNE), Telefonaktiebolaget LM Ericsson ADR (ERIC), Palm Inc. (PALM), Research In Motion Ltd. (RIMM). ETFs: streetTRACKS Morgan Stanley Technology Index Fund (MTK), HOLDRS Wireless (WMH)
Conference call transcript: Nokia Q4 2006 Earnings Call Transcript, Nokia Earnings Conference Call Transcript (later today)
Logitech Shares Down 8% on Earnings, Revenue Miss
Logitech, #1 computer peripheral maker in the world, posted a FQ4 net profit of $0.29/share ($56 million), up 10% from last year's $0.26 ($51 million), but short of analyst forecasts of $59.3 million. Sales were up 10% to $513 million, but lagged analyst estimates of $552 million. The company said that an unexpected 32% drop in webcam sales caused it to miss its 17% annual revenue growth target -- full year sales were up 15% to $2.07 billion. Logitech reiterated guidance that both revenue and operating profit will rise 15% in F2008. CEO Guerrino De Luca said he is confident the company can 'reignite webcam market growth' over the next few quarters through targeted marketing. Q4 sales of cordless keyboards were up 30%, gaming peripherals gained 35%, and remote controls jumped 78%. Shares fell as much as 8.3% in Zurich this morning, after losing 1.1% yesterday.
Sources: Press release, Bloomberg, Reuters, AFX
Commentary: Why Logitech Is Making Us Nervous • Logitech: Solid But Overpriced • CEOs Discuss the PC Market: Microsoft, Intel, AMD, Logitech, Symantec
Stocks/ETFs to watch: Logitech International S.A. (LOGI). Competitors: Creative Technology Ltd. (OTCPK:CREAF), Plantronics Inc. (PLT), Microsoft Corp. (MSFT), Koninklijke Philips Electronics N.V. (PHG)
eBay Posts 52% Quarterly Profit Surge
Shares of online auction site eBay gained 2.8% to $35.40 in AH trading yesterday after the company reported a 52% rise in Q1 profit and a 27% rise in revenue on a higher average selling price of auctioned goods, higher fees, stronger international performance and solid growth at PayPal, the company's online payment service. Q1 net income rose to $377 million ($0.27/share) versus $248.3 million ($0.17) a year earlier. Excluding costs, profit rose 34% to $460 million ($0.33/share). On that basis, analysts had been expecting EPS of $0.30. Revenue rose to $1.77 billion from $1.39 billion against an average Street expectation of $1.72 billion. PayPal net revenue grew 31% to $439 million. Overseas revenue was up 38% versus a domestic gain of 18%. The company is not satisfied with results in Germany, where growth is being constrained by eBay's efforts to improve the quality of merchandise offered on the site. eBay raised full-year revenue guidance to $7.2-7.45 billion from $7.05-7.3 billion and its full-year EPS forecast to $1.30-1.34, at the high end of analyst forecasts of $1.27-1.34. In other news, eBay announced it is acquiring search engine StumbleUpon for about $40 million. Google, which also sought to purchase StumbleUpon, has introduced a dice icon on its toolbar that will offer similar functionality.
Sources: Conference call transcripts: Q1 2007, MarketWatch (I, II), SFGate, Bloomberg, Wall Street Journal, Reuters, TechCrunch
Commentary: eBay Finally Stumbles Upon Media Acquisitions • Heading Into Internet Sector Earnings: Buy Yahoo, Hold eBay, Sell Google? • Four Reasons To Buy eBay Now
Stocks/ETFs to watch: eBay Inc. (EBAY). Competitors: Amazon.com Inc. (AMZN), Google Inc. (GOOG), Yahoo! Inc. (YHOO). ETFs: Internet HOLDRs (HHH), First Trust Dow Jones Internet Index (FDN), PowerShares QQQ (QQQQ)
Clear Channel Accepts Sweetened Private Equity Bid, but Shares Trade Lower
Clear Channel Communications agreed to Bain Capital and Thomas H. Lee's new bid of $39 per share ($19.35 billion), up from $37.60 previously. However, media reports are citing sources familiar with the matter who say Fidelity and Highlands Capital Management, two of Clear Channel's largest shareholders with a combined 15% stake, will reject the deal and hold out for a higher bid. A shareholder vote scheduled for today has been postponed until May 8. Analysts say a bid greater than $40/share would appease dissident shareholders. A Stanford Financial Group analyst comments, "What's most interesting to me is that the equity partners upped the offer just enough to entice shareholders but not enough to lock in their support." The deal includes assumption of $7.7b in debt. Shares of Clear Channel fell 1.3% to $36.23 yesterday, trading as high as $37.99 intra-day, and trading up .33% in the after-hours to $36.35 on volume just short of 600,000.
Sources: Press release, Associated Press, Bloomberg
Commentary: Private Equity Pair Raises Clear Channel Bid to $39 a Share -- NYT • Clear Channel Communications: Get Up, Stand Up - Shareholders Fight Back • Google and Clear Channel Set to Announce Advertising Deal
Stocks/ETFs to watch: Clear Channel Communications Inc. (CCU). Competitors: XM Satellite Radio Holdings Inc. (XMSR), Sirius Satellite Radio Inc. (SIRI), Citadel Broadcasting Corp. (CDL), Cumulus Media Inc. (CMLS). ETFs: PowerShares Dynamic Media Portfolio ETF (PBS), PowerShares Dynamic Leisure & Entertainment (PEJ)
Conference call transcripts: Clear Channel Q3'06
Kraft Foods Reports 30% Drop in Profit; Edges Past Expectations
Kraft Foods, spun off in March by the Altria Group, reported a smaller-than-expected 30% drop in Q1 profit. Net income fell to $702 million ($0.43/share) from $1 billion ($0.61) a year earlier. Excluding items, earnings dropped to $716 million ($0.44), ahead of analyst expectations of $0.42. Revenue gained the most in five quarters, up 5.7% to $8.59 billion. Marketing, administration and research costs jumped 9.3% to $1.82 billion as the company began to implement a strategic plan it announced two months ago. Kraft, manufacturer of Maxwell House Coffee, Jell-O and Oreos, reiterated its 2007 EPS forecast of $1.50-1.55 on a 3-4% sales gain. EU revenue was up 19%, primarily on the back of Kraft's acquisition last year of several Spanish and Portuguese brands from British company United Biscuits. Demand in Latin America contributed to a 12% sales gain in emerging markets. Kraft CEO Irene Rosenfeld said the company is considering acquisitions, though she deflected questions about specific targets. "We look at everything and comment on nothing," she said.
Sources: Reuters, MarketWatch, TheStreet.com, Bloomberg
Commentary: Post-Spinoff Weakness In Kraft: Buying Opportunity? • Kraft Foods May Go On a Value-Creating Acquisition Spree • Kraft Foods Unveils New Growth Strategy, Buyback Plan
Stocks/ETFs to watch: Kraft Foods Inc. (KFT). Competitors: ConAgra Foods Inc. (CAG), Sara Lee Corp. (SLE). ETFs: PowerShares FTSE RAFI Consumer Goods (PRFG)
TRANSPORT AND AEROSPACE
Chrysler Roundup: Second Round of Bids Due; UAW Opposes Sale
The Wall Street Journal is reporting that bidders for Chrysler will be expected to submit a second round of offers within the next week or so. Currently three groups are considered to be in serious bidding contention: Cerberus Capital Management LP, a combo of Blackstone Group and Centerbridge Capital Partners LP and Canadian auto supplier Magna International, who is negotiating to bring Canadian investment group Onex on board to its bid. In other Chrysler news, United Auto Workers President Ron Gettelfinger, who also happens to be a member of DaimlerChrysler's board, said he would press parent-company DaimlerChrysler to keep its U.S.-based Chrysler Group unit, believing it will be better for his union. All three bid proposals include giving the UAW union a stake in Chrysler, as a way to address spiraling health-care costs. In yet other company news, Chrysler said it would build two more plants in Michigan: a $730-million engine plant in Trenton and a $700-million axle plant in Marysville. CEO Tom LaSorda said the plants were necessary to build a more fuel-efficient vehicle lineup, regardless of what happens to Chrysler.
Sources: Wall Street Journal, Reuters, AP, Detroit Free Press
Commentary: Kirk Kerkorian To Be Left Out of Chrysler Negotiations - WSJ • The Chrysler Saga Continues: Is Magna the Favorite? • Chrysler's N.Y. Auto Show Presentation: Thoughts and Concerns
Stocks/ETFs to watch: DaimlerChrysler (DCX), Magna International (MGA). Competitors: General Motors (GM), Ford (F), Toyota (TM), Honda (HMC), Nissan (OTCPK:NSANY)
Nissan to Launch Clean Diesel Maxima in U.S. in 2010
Nissan announced yesterday it plans to unveil a clean diesel engine Maxima in the U.S., China and its home market in 2010, with 30% better fuel economy. It already offers clean diesel vehicles in Europe. In a press release, Nissan said the clean diesel initiative is part of its "Nissan Green Program 2010" to reduce CO2 emissions. In a speech at the U.S. Council on Foreign Relations, CEO Carlos Ghosn said, "You can expect to see more diesel engines in our product lineup in Europe, Japan, North America and China by fiscal year 2010." Nissan has lagged rivals Toyota and Honda in offering eco-friendly autos, having introduced its first hybrid in January. Responding to reporters' questions about interest in an alliance with Chrylser, he said, "You don't want to engage in anything like this if any of your stakeholders are worried about your own company. You want to make sure your company is on track for growth and profitability before envisioning something else." Nissan's ordinary shares lost 0.7% to ¥1,204 ($20.43 ADR equiv. at ¥117.85/$1) today.
Sources: Press Release, The New York Times, The Wall Street Journal
Commentary: Nissan Likely to Miss Next FY Sales Target • Carlos Ghosn To Cease Heading Nissan's N. American Operations • Nissan's Earnings Disappoint Across the Board, Outlook Lowered
Stocks/ETFs to watch: Nissan (OTCPK:NSANY) [JP: 7201]. Competitors: Toyota (TM), Honda (HMC), General Motors (GM), Ford (F), DaimlerChrysler (DCX)
AMR Swings to Q1 Profit
American Airlines parent AMR Corp. posted a Q1 profit yesterday, reversing a year-ago loss, in part on higher demand for international routes. This is the first time since 2000 the company has shown a profit in traditionally weak Q1. Net income grew to $81 million ($0.30/share), in line with analyst expectations. The company posted a $92 million loss (-$0.49/share) in the same quarter last year. Revenue was up 1.6% in the quarter to $5.48 billion from $5.34 billion, ahead of Street expectations of $5.46 billion. The load factor -- or percentage of filled seats -- rose to a company record of 78.1% from 77.2%. The yield, or average fare per mile, was up 3.3%, its eighth straight quarterly y-o-y increase. AMR shares gained 3.7% to close at $31.96. In related news, members of American's flight attendants' union picketed across the country to protest a compensation plan that rewards managers for stock-price performance. The company will reportedly distribute $170 million to 900 managers. "It took 80,000 American employees to save our company from bankruptcy in 2003," said Tommie L. Hutto-Blake, president of the union. "[We] will not go quietly when injustice of this magnitude is done to loyal and hardworking employees."
Sources: Wall Street Journal, Forbes, Bloomberg, MarketWatch
Commentary: Positive Traffic Reports and Lower Oil Prices Boost Airline Stocks • Goldman Sachs, British Airways Eye AMR Corp. -- Business Week • Crude's Fall Boosted Airline Stocks
Stocks/ETFs to watch: AMR Corp. (AMR). Competitors: Delta Air Lines Inc. (DALRQ.PK), Northwest Airlines Corp. (NWACQ.PK), UAL Corp. (UAUA). ETFs: SPDR DJ Wilshire Mid Cap Value (EMV), SPDR DJ Wilshire Mid Cap (EMM)
Lockheed, Northrop Face Probe Over Coast Guard Program Cost Overruns
More bad news for Lockheed Martin: a week after it had its contract to build a prototype for the Navy canceled, it was revealed the company was being probed by the Justice Department, along with partner Northrop Gruman, over design flaws in 123 foot cutters (pictured) that are central to the Coast Guard's $24 billion Deepwater modernization project. The news was broken by James Oberstar, a Minnesota Democrat and Chairman of the House of Representatives Transportation Committee, who revealed only that the investigation concerns the program's constant cost overruns and delays. Oberstar did not elaborate further. The news comes on top of Tuesday's announcement by Coast Guard Commandant Adm. Thad Allen that his agency would take the role of "lead system integrator" on the project, replacing Lockheed and Northrop at the project's helm. The Justice Department told Lockheed and Northrop back in December when the investigation began not to destroy any documents related to the project.
Sources: AP, Reuters
Commentary: Navy Cancels Lockheed Ship Contract After Failure To Agree On Costs • DoD's FY-08 Budget: The Largest in US History • Cramer's Take on LMT • Cramer's Take on NOC
Stocks/ETFs to watch: Lockheed Martin Corporation (LMT), Northrop Grumman Corporation (NOC). Competitors: The Boeing Company (BA), Raytheon Company (RTN). ETFs: PowerShares Aerospace & Defense (PPA), iShares Dow Jones US Aerospace & Defense (ITA)
ENERGY AND MATERIALS
New ETF Will Track Natural Gas Price
Victoria Bay Asset Management announced Wednesday the launch of its much-awaited United States Natural Gas Fund (UNG), which began trading at about $50/share. Share value will reflect changes in the price of natural gas delivered at the Henry Hub, La., although the dollar value of shares will not reflect in dollar terms the price of spot natural gas nor its futures contracts. The fund will invest in natural gas futures contracts, generally the two months closest to expiration. UNG does not use leverage in its portfolio. The fund's expense ratio is 0.6%, not including brokerage costs on the futures contracts. Because the fund is a commodity pool and doesn't invest in registered securities, it is not covered by the Investment Company Act. The fund is Victoria Bay's second; its first fund, United States Oil Fund ETF (USO), tracks the price of crude oil, and currently has assets of about $800 million. UNG closed up 0.47% yesterday to $50.77 on volume of 41,800 shares.
Sources: Press release, AMEX, MarketWatch, TheStreet.com
Commentary: A Natural Gas Primer • David Fry's Market Outlook for Thursday
Stocks/ETFs to watch: United States Natural Gas ETF (UNG). Broad Energy ETFs: Energy Select Sector SPDR ETF (XLE), iShares Dow Jones US Energy Sector ETF (IYE), PowerShares Dynamic Energy & Exploration (PXE)
Related: Fund Prospectus, Wikipedia on Investment Company Act of 1940
Allstate's Profit Increases 5%; Frequency, Severity of Claims Rise
The Allstate Corporation reported a 5% increase in first quarter profit after yesterday's close, sending shares slightly higher (+0.38%) in after hours trading. Net income was $1.49 billion, good for $2.39 a share, versus $1.42 billion (EPS of $2.19 a share) in the year ago period. Revenue climbed 3% to $9.33 billion. The company's operating earnings were $1.93 a share; Thomson Financial consensus estimates called for EPS of $1.87 on revenue of $8.52 billion. There were also negatives in the quarter: Allstate reported net written premiums declined 1.7%, while the frequency and severity of claims in its homeowners and auto insurance businesses rose in the quarter. Competition within the industry has also started to push prices down; Progressive Corp. said earlier this month it would invest to win new business, even if it had to lower prices to do so. Looking forward, CEO Thomas Wilson said, "We continue to expect that the Property-Liability combined ratio, excluding the effect of catastrophes and assuming no prior year reserve reestimates, will be between 84.0 and 86.0 in 2007."
Sources: Press Release, AP, Reuters, MarketWatch
Commentary: Allstate: An Attractive Market Insurance Policy - Barron's • Allstate's Latest Trouble: Mississippi's Burning a Hole Through Its Pocket • Cramer's Take on ALL
Stocks/ETFs to watch: The Allstate Corporation (ALL). Competitors: The Progressive Corporation (PGR), The Travelers Companies (TRV), Berkshire Hathaway (BRK.A) (BRK.B), American International Group (AIG). ETFs: streetTRACKS KBW Insurance (KIE), PowerShares Dynamic Insurance Portfolio ETF (PIC), iShares Dow Jones U.S. Insurance (IAK)
Gilead Posts 55% Q1 Profit Rise
Gilead Sciences yesterday posted a 55% Q1 profit rise on higher sales of its HIV drugs, solidifying its position as market leader in HIV treatment. Net income came in at $407.4 million ($0.85/share) versus $262.7 million ($0.55/share) a year earlier, ahead of analyst expectations of $0.79. Excluding costs, the company earned $0.93/share in the quarter. Revenue was up 48% to $1.03 billion, again beating Street forecasts of $992.7 million. HIV drug sales were up 56% to $705.1 million, including $345.9 million for the combination HIV pill Truvada and $190.2 million for the once-daily pill Atripla, a drug approved by the FDA last July. Q1 royalty and contract revenue more than tripled to $188.2 million, of which $167.9 million were from Hoffmann-Roche for Q4 2006 sales of Tamiflu, an antiviral medication that is being stockpiled in the event of a bird flu epidemic. Gilead has applied for FDA approval for ambrisentan, a pulmonary arterial hypertension treatment that, if approved, could generate annual sales estimated at more than $1 billion. The company reiterated its full-year 2007 net product revenue forecast of $3.4-3.5 million.
Sources: Conference call transcripts: Q1 2007, Reuters, MarketWatch, MoneyCentral, Bloomberg
Commentary: Gilead Sciences: Rapid Growth Expected From New Products • Organic Growth Stocks That Should Lead the Pack • Eye on Gilead Sciences
Stocks/ETFs to watch: Gilead Sciences, Inc. (GILD). Competitors: Bristol-Myers Squibb Co. (BMY), Glaxosmithkline plc (GSK). ETFs: Biotech HOLDRs (BBH), iShares Nasdaq Biotechnology (IBB), First Trust AMEX Biotechnology Index (FBT)
China: Q1 GDP Stronger than Expected, Stocks Fall Across Asia
The Shanghai Composite was trading nearly 5% lower ahead of the release of China's Q1 GDP report, which at 11.1%, was higher than economists' average estimate of 10.4% (the same clip for Q4). The high growth comes despite efforts by the Chinese government to slow the economy's expansion and renews concerns of more monetary tightening. In a statement on the government's web site, PM Wen Jiabao commented: "Loan growth is too fast, there is pressure for fixed- asset investment to rebound and the trade surplus continues to increase. China will keep strengthening control on investment, loans and growth in the trade surplus and maintain stable prices." Over the past year, the People's Bank of China has raised rates three times to 6.39% and increased banks' reserve requirements six times. The yuan is trading near its strongest levels against the US$ since its peg ended in July '05, having appreciated approximately 7.2% during that time. After today's GDP report, Goldman Sachs says it expects the yuan to rise another 9% over the next year. The Shanghai Composite finished down 4.5%, Shenzhen dropped 4.9%, the Hang Seng fell 2.3%, Singapore's Straits Times lost 3.2%, the Nikkei 225 declined 1.7% and the Seoul Composite lost 1.4%.
Sources: Associated Press, Bloomberg
Commentary: The Irrationally Exuberant Chinese Stock Market Bubble • What's Behind China's Recent Currency Surge? • China Tip: Early Warning on the Property Sector
Stocks/ETFs to watch: iShares Trust FTSE-Xinhua China 25 Index Fund (FXI), PowerShares Golden Dragon Halter USX China Portfolio (PGJ). iShares Asia ETFs: Australia (EWA), Hong Kong (EWH), Japan (EWJ), Malaysia (EWM), Singapore (EWS), S. Korea (EWY), Taiwan (EWT). Bond ETFs: iShares Lehman 1-3 YR Treasury Bond (SHY), iShares Lehman 7-10 YR Treasury Bond (IEF), iShares Lehman 20+ YR Treasury Bond (TLT). Currency ETFs: PowerShares DB G10 Currency Harvest Fund (DBV), Euro Currency Trust (FXE), CurrencyShares Japanese Yen Trust (FXY)
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