The seventh week of trading ended Friday with so-so momentum being the order of the day, although it did not appear that way early as the market first opened (for the most part) flat. Stocks ended slightly higher but one could see that investors were still unsure about being long through the weekend ahead of a holiday on Monday when concerns surrounding Greece remain unsettled. On Monday, eurozone finance ministers are scheduled to meet to approve a 130 billion euro rescue package for Greece - this will take place while the markets are closed in observance of Presidents Day.
I'm inclined to think that caution is indeed the right approach to take - particularly when gains have been so high, it doesn't make sense to risk unfavorable news and leave money on the table. As for the major indices, the S&P 500 continued its surge upward toward three-year record highs - the index has risen 8.2% so far this year. I have to admit, I have been waiting for a pullback for a couple of weeks that has yet to come. I thought Thursday's decline was the beginning, but it looks as if the market has other plans - as fearful as I remain, it is encouraging to see the resiliency.
On Friday, the Dow gained 45.56 points, or 0.35%, to close the week at 12,949.64. While the S&P and the Nasdaq added 3.17 points and dropped 8.07 points respectively. Data showed U.S. gasoline prices jumped 0.9% in January, pushing overall consumer prices up and offering a reminder of the risks energy costs pose to the economic recovery. This is an issue that I have been cautioning against for quite some time as gas prices have soared in my area to over $3.62 per gallon - even as recent as this week alone. There is evidence that some stocks have already been affected, but it seems overall that the concern has yet to impact the broader market.
This week however was indeed interesting for a variety of reasons as several of my favorite stocks made headlines for one reason or another. Some of which include the following:
For tech giant Apple if was quite an eventful week - on Monday, shares reached $500 for the first time and setting yet another high-water mark before peaking at $526 on Wednesday. Saying that Apple's stock has been soaring lately would be a gross understatement. Since it announced record sales of the iPhone and iPad nobody has been able to keep the shares down.
It's interesting that it was just six months ago when the stock first broke the $400 level for the first time, and it has been 16 months since it passed $300. Shares traded above $200 for the first time in October 2009. At this time three years ago, shares traded at just $78.20. How's that for a bit of perspective. The question that investors want to know is, where is it heading next? I think only the writers of Star Trek can answer that.
Sirius XM (SIRI)
With the news that Sirius XM CEO Mel Karmazin has adopted a trading plan for shares of the company's stock in accordance with Rule 10b5-1 of the Securities and Exchange Act of 1934. I've begun to receive email and tweets asking the question, what does it mean? According to the article, Mel's pre-planned sales are part of a strategy for financial planning in connection with his philanthropic efforts. The transactions are set to start this coming April where he will first exercise 60 million options which he will then sell to cover the price to exercise the options. At which point he will sell the remaining shares at market price for profit. To be fair, Mel will still own almost 70 million shares as well as options of the company. But at the end of the day, those were his shares and his right to earn a profit.
However, interestingly this announcement comes on the heels of several large money managers having recently sold the stock in the fourth quarter of last year. To me Sirius continues to be its own worst enemy by how it operates. And this is yet another example. Investors still have not fully digested the disappointment of its recent Q4 full year earnings announcement and now a few weeks later, we learn that the CEO plans to sell stock. The company continues to get in its own way and is unable to shed the underdog mentality.
Last October, database giant Oracle acquired RightNow, the cloud-based customer experience suite designed to help organizations deliver customer experiences across the web and social networks. Now, it has gone on shopping again and made headlines by acquiring another cloud company Taleo, the human resources software maker to add to its portfolio of cloud services for $1.9 billion. The deal is expected to close mid 2012. As noted in the article:
The deal suggests the industry's recent buying streak for Web-based software, commonly referred to as cloud computing, is continuing; however, the mild 18% premium over Wednesday's close raises questions about what tech giants are willing to pay for cloud-based software.
As the cloud continues to consolidate Oracle will remain one of the top players within the space as well as the enterprise. For parts of last year as the stock trended down, I think Wall Street overlooked the fact that Oracle had already anticipated weakness in certain segments of its business and has positioned itself for the technological shift within the cloud that will allow it to maintain its dominance in the corporate enterprise sector.
Recently, the company reported earnings that beat Wall Street estimates for the third consecutive quarter. It was precisely this anticipation that prompted me to suggest that the stock was on its way to $30. Cisco reported net income that climbed 44%. In the fiscal second quarter, which ended January 28, net income arrived at $2.2 billion, or 40 cents per share - this compares with earnings of $1.5 billion, or 27 cents per share year-over-year.
If you factor out that the costs associated with stock-based compensation as well as some acquisition-related amortization, the company actually earned 47 cents per share - 4 cents per share above analysts' expectations based on polls by FactSet. Revenue was $11.5 billion, up 11% from $10.4 billion a year ago and compares favorably to the $11.2 that was projected.
As great as these numbers were, the company is far from being done with strategic planning. CEO John Chambers announced that he expects revenue in the current quarter to jump 5% to 7% while also expecting earnings, excluding items, of 45 cents to 47 cents per share. Furthermore, the company said it will raise its quarterly dividend on the one year anniversary of its first pay. The company paid a dividend of 6 cents a share last April whereas the increase will be 2 cents, bringing the payout to 8 cents per share - or an increase in the annual yield of 1.6% at Friday's closing stock price.
Bank of America (BAC)
This week Bank of America broke the $8 level. I recently said that the stock is likely heading to $10. However, that prediction was trumped this week when in a recent article in which BofA bull Dick Bove suggested that the troubled bank should be able to hit $30 - in four years. This immediately forced me to rethink my now seemingly conservative $10 target. In the article citing an interview by Mr. Bove, he was quoted as saying the following:
I think there's $3 in earnings power there and this stock can easily sell at 10 times earnings, once you recognize that the company is two companies: its Countrywide and its Bank of America and once you get Countrywide taken out of Bank of America, which is the lawsuits are paid, the bad loans are paid the foreclosures are done, all of a sudden Bank of America is there and Bank of America can earn three bucks.
I have to agree with this assessment and it seems as evident by Bank of America's performance year to date, the market is in agreement as well. However, reaching $30 is a bit of a tall task. The question is, do the fundamentals support that valuation?