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MACRO AND HOUSING

ISM Nonmanufacturing Index Falls, But Still Shows Expansion

Service sector activity increased at a slower pace than September, the Institute for Supply Management reported Wednesday. The ISM's nonmanufacturing index came in at 54.8, lower than the 55.8 it returned in both August and July. Economists' were right on target, expecting the number to be 54.8. Though the number decreased, it still, like any reading above 50, represented at expansion in the sector. Anthony Nieves, chairman of the ISM nonmanufacturing survey panel, said the latest data shows a leveling off in the services sector and the trend points to the number going slightly lower in the future. Also, inflation pressures did increase, as the prices-paid index jumped to 66.1% from 58.6%.
Sources: MarketWatch, WSJ
Commentary: July Correction Now Officially OverISM Index Drops, But Still Records Manufacturing Growth
Stocks/ETFs to watch: SPY, DIA

TECHNOLOGY

Microsoft Releases Next Generation of Zunes

Microsoft unveiled the second generation of its Zune media player, as the company continues to attempt to grab market share from Apple. One new model will feature an 80- gigabyte hard drive and a 3.2 inch screen. Smaller, flash based Zunes were also introduced, with similar size and shape to the original iPod Nano. The smaller models will come in different colors and buyers will have the option of 4 GB or 8 GB of memory. All the second generation Zunes will have shiny glass screens and new touch pad navigation. They will allow users to connect their Zunes using a wireless connection, like the older models, but will also now allow users to sync music, movies, and other media wirelessly using their PCs. Despite the upgrades, analysts were not that impressed. "There's nothing earth-shattering there />," said Van Baker, an analyst at the research group Gartner. Baker does not expect the new model to dramatically change Microsoft's market share. "Maybe next year they can make an aggressive push against Apple," he said. Microsoft will begin selling the new Zunes in mid-November and they will be priced in line with comparable iPod versions. Microsoft traded down 0.67% to $29.50 in midday trading on Wednesday.
Sources: Forbes, SmartMoney
Commentary: Microsoft to Compete With AppleTVMicrosoft and Vista: Trying To Turn Around A Supertanker
Stocks/ETFs to watch: MSFT, AAPL. ETFs: IXN, PRFQ
Earnings call transcript: Microsoft F4Q07 (Qtr End 6/30/07)

WSB Sponsor

INTERNET

Yahoo Unveils New Search Engine

Yahoo launched a revamped search engine on Tuesday, targeted to gain some ground on Google. The new Yahoo Search will feature a "universal search," giving users results that include an extensive array of sources like videos, online books, and data produced by the search engine itself. Yahoo was late to the universal search game; Google, Ask, and Microsoft have already adopted it in some form on their search engines. Google has recently dominated the search engine market; in August, the number of times Google's search engine was used jumped by a third from last year, making it responsible for 53.6% of all web searches. Yahoo was a distant second, with a 20% share on 9% search growth. "Obviously, we have our eye on being No. 1 in search," said Vish Makhijani, Yahoo senior vice president. "We'll chip away. This was the first step. We'll take shots, take chances." Yahoo shares were down 0.34% to $26.95 at the end of trading on Tuesday.
Sources: WSJ
Commentary: Microsoft May Go Public With Yahoo Bid - NY PostOnline Ad Revenues: Display vs. Search Going Forward
Stocks/ETFs to watch: YHOO, GOOG, MSFT, IACI. ETFs: HHH, FDN
Earnings call transcript: Yahoo! Q2 2007

RETAIL

Casinos Fall on Disappointing Macau Numbers

Top casino operators watched their stocks tumble on Wednesday, as growth numbers from casinos in Macau failed to meet expectations. Wynn (-9.9%), Sands (-11.8%), and MGM Mirage (-3.4%) all ended significantly down, as according to local press reports, gambling revenue was up only 55%, putting it in a year-to-date pace of 47%. "We view the 55% gaming revenue growth in Macau as disappointing in relation to recently elevated expectations [of 75% or more] and certainly some of the momentum (justifiably so) is coming out of the Macau-centric stocks," said Joe Greff of Bears Stearns. Macau, which is the only place in China gambling is legal, has already passed Las Vegas as the world's largest casino market. Wynn and Sands are expected to get a larger part of their revenue from Macau than MGM, who dominates the Vegas strip, owns the Borgata in Atlantic City, and built some casinos in the south. Though the news was disappointing, one money manager who invests heavily in the casino space called today's action"a much-needed breather. Expectations got way up there too fast." October will be a key month for Macau as well, China has its "National Golden Week," which should give plenty of gamblers time to vacation in the region and try their luck.
Sources: MarketWatch, TheStreet.com
Commentary: The Big Macau Gamble, Vegas StyleWynn Resorts Shows Impressive Numbers and Growth Potential
Stocks/ETFs to watch: WYNN, LVS, MGM.

NutriSystem Drops 21% in AH on Lower Guidance

Shares of NutriSystem tanked 20.75% to $37.70 in after-hours trading, following the company's lowering of Q3 EPS guidance to $0.62 to $0.66, compared to its previous outlook of $0.77 to $0.82. Analysts were expecting EPS of $0.82, on average. NutriSystem cited a 7% decline in business from new customers and higher customer acquisition costs, although it still sees revenues growing 21% to $188M, which is down from its earlier projection of $200M to $208M. Analysts had forecast sales of $207M. Separately, NutriSystem said it may repurchase up to an additional $100M of its shares creating a combined buyback program totaling $207M. NutriSystem also entered into a five year $200M unsecured revolving credit facility. "We believe the new credit facility along with our current cash balances and the cash generating capability of our core business gives us the financial flexibility to make accretive share repurchases and enhance our growth by pursuing acquisitions to offer consumers a wider variety of complementary health and wellness products," commented CEO Michael Hagan. NutriSystem is scheduled to report Q3 earnings on Oct. 23. NutriSystem lost 1.4% to $47.57 during the regular session.
Sources: Press release, Reuters, MarketWatch
Commentary: Stocks With Highest, Lowest Short InterestSeven Weight Loss Stocks To Beef Up Your PortfolioNutriSystem Losing Weight Against a Slowing Economy
Stocks/ETFs to watch: NTRI. Competitors: WTW, HLF, OTC:DIET

Panera Trades Higher, P.F. Chang Lower, on Q3 Guidance

Panera Bread traded to the upside Wednesday following news it narrowed its Q3 EPS guidance to $0.35 to $0.37, compared to $0.32 to $0.38 previously, ahead of analyst estimates of $0.34. P.F. Chang's China Bistro, meanwhile, traded lower after saying it now expects Q3 EPS of $0.05 to $0.07, versus its earlier forecast of $0.25. Analysts had also been expecting EPS of $0.25. P.F. Chang attributed its reduced outlook to unanticipated higher costs related to labor, restaurant maintenance and supplies and a fire in the Nashville Bistro. Same store sales during Q3 (ended Sept.) fell 1.6% at the Bistro and declined by 1.0% to 1.9% sequentially. Panera Bread said revenues increased 35% to $276 million. Bakery-cafe comparable sales rose 0.8% in Sept. and 2.6% during the quarter. Panera is scheduled to report Q3 earnings on Oct. 23 and P.F. Chang on Oct. 24. Shares of Panera Bread climbed 8.0% to $46.57 on Wednesday, while P.F. Chang's China Bistro lost 2.8% to $29.41.
Sources: Press release I, II, MarketWatch, Reuters
Commentary: Panera Bread Is Tasty At Current PricesExpecting Panera Bread To Rebound SoonP.F. Chang’s: Same-Store Trends Decline in Q2, But Diners May Get Cravings
Stocks/ETFs to watch: PNRA, PFCB

ENERGY AND MATERIALS

Conoco's Q3 Refining Margins Hit

ConocoPhillips warned its Q3 worldwide refining margins were "significantly lower" and said its production declined by 180,000 barrels per day (compared to production of 1.9M BPD last year) primarily as a result of withdrawing from Venezuela. The Wall Street Journal notes the combination of high oil prices and stable gasoline prices is expected to negatively impact refiners' profits, however, integrated companies such as Conoco are less vulnerable. Banc of America Securities analyst Daniel Barcelo said Conoco's Q3 update was inline with Street expectations. Barcelo comments that "the update contained no material new information, and we expect the current consensus earnings-per-share estimate of $2.36 to come down to meet our $2.26-per-share forecast." Conoco is scheduled to report Q3 earnings on Oct. 24. Shares of ConocoPhillips lost 1.65% to $84.06 during normal trading Wednesday and fell another 0.2% to $83.86 in extended activity.
Sources: Press release, Bloomberg, MarketWatch, Wall Street Journal
Commentary: ConocoPhillips Needs No Favors From Hugo ChavezBerkshire Hathaway Releases Latest 13F: Summary of HoldingsConocoPhillips Net Drops 94% On Venezuela Charge; Beats Estimates
Stocks/ETFs to watch: COP. Competitors: XOM, CVX, BP. ETFs: XLE, XOP
Earnings call transcript: ConocoPhillips Q2 2007

FINANCIAL

Initial Estimates of Summer Hedge Fund Outflows Incorrect

MarketWatch reports data from TrimTabs Investment Research and the Barclay Group released in July estimating a $32 billion outflow of funds from the hedge fund industry was incorrect, according to an update and apology from the firms Wednesday. TrimTabs and Barclay now say there were $39.1B of inflows. For August, the companies estimate $8.9B of inflows into the $1.9 trillion hedge fund industry. TrimTabs and Barclay said the July estimate was calculated incorrectly, since adjustments were not made for funds of hedge funds, and funds were included in the estimate that reported performance updates but not of their assets under management. "The monthly hedge fund flow data is a new service and the changes we made to our methodology will ensure that our current and future estimates are as accurate as possible," commented TrimTabs CEO Charles Biderman. Concerns over hedge funds suffering huge redemptions over the summer were seemingly exaggerated. However, TrimTabs' and Barclay's latest estimates show August hedge fund inflows totaling $8.9B were the lowest since $7B in January.
Sources: MarketWatch
Commentary: A Paradigm Shift for Hedge Funds?Hedge Fund Replication Critiques And ResponsesA Quant August to Remember
Stocks/ETFs to watch: FIG, BX

MUST-READS ON SEEKING ALPHA TODAY

U.S. Market: Fed Easing Flowing Through To High Yield Spreads
Housing: Mortgage Equity Withdrawal Only Modest Drag on Consumer Spending
Long Idea: Akamai: Buy Opportunity Given Online Video Growth
Short Idea: China Natural Resources' 70% Leap Just Another Bubble
Networking: Ciena Shares Rally On Analyst Day Remarks
Chips: Deutsche Out Positive on Zoran
Software: SAP's Peter Zencke on Business ByDesign
Gadgets: iPhone Update: Good Description of Apple's Challenges
Media: Sirius Files New Form S-4A: What It Means
Healthcare: Expecting Buy Interest in Intuitive Surgical on Oppenheimer Note
Biotech: PDL BioPharma Yields To Activists, Stock Jumps
Retail: Answers To Common Questions Surrounding Altria's Phillip Morris International Spinoff
Energy: Now There's An Ethanol Glut?! I Thought We Couldn't Make Enough
Financial: Citi's Chuck Prince: On With His Head
Asia: Japan Stagnates - Again
ETFs: International ETFs Are Extremely Overbought
Jim Cramer: Latest stock picks

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