After the market close yesterday, S&P downgraded Spain's debt one notch to BBB+ from A. One cannot say that this is a surprise, as the news has been pretty bleak from Spain recently but maybe we are surprised because it did not happen sooner. The debt sales in Europe went well this morning, so this news did not affect business, but U.S. futures are mixed ahead of the economic news out today. This week the economic news has been mixed and not really given U.S. investors a good idea of where we stand in the economic recovery, it will be interesting to see what the numbers say today. We have GDP numbers (Consensus 2.5%), Chain Deflator (Consensus 2.2%), Employment Cost Index (Consensus 0.5%) and the Michigan Consumer Sentiment (Consensus 75.7).
Looking at Asian markets we see markets are mostly lower:
All Ordinaries - down 0.26%
Shanghai Composite - down 0.35%
Nikkei 225 - down 0.43%
NZSE 50 - up 0.31%
Seoul Composite - up 0.58%
In Europe markets are up slightly:
CAC 40 - up 0.20%
DAX - up 0.01%
FTSE 100 - up 0.16%
OSE - down 0.77%
Many continue to compare Apple (AAPL) to Cisco (CSCO) because both companies reached the $600 billion market capitalization threshold, and their trajectories were similar. We disagree with this analysis, and believe that it is simply a way to reinforce weak arguments for why Apple COULD fall. Cisco was a high-flyer on hope and projections, Apple has solid earnings with strong cash flow generation and most importantly a very low P/E multiple. Anything can happen, especially as the iPod shrinks and the company's growth rate slows, but these two situations are hardly similar except that they share a distinction of having had market caps above $600 billion, so take that argument from the talking heads with a grain of salt.
Sirius XM (SIRI) managed to come back and close at $2.20/share yesterday, which has been the level we have watched for some time now. Interesting that the shares have gravitated toward that level as the earnings date approached, which leads us to believe that the market is going to put some serious weight behind these numbers. We are in the group which believes that long-term the earnings and cash flow generation power of Sirius will be significant, but do not see tremendous value in the shares as we do in other players at this time. We like the deleveraging story moving forward, but because of the value concerns simply will use this as a trading vehicle. This will not be popular with Sirius longs, but we call them like we see them and trade accordingly.
Yesterday we talked about the possibility that chips might be entering a new phase in the business cycle where both the top and bottom lines grow strongly. It is a highly cyclical business and when you time it correctly you can make some serious money. Granted we are not coming out of the ashes in this cycle, but sales growth did stall out and we could see an expansion on new software and the need for companies to buy new IT equipment. LSI (LSI) might be an interesting way to play this rebound in spending, and over the past decade we have played it quite a few times and made double digit returns on those trades. We have not bought shares yet, as we want to see what everyone has to say about this quarter, but we are adding it to our watch lists today.
Las Vegas Sands (LVS) beat earnings in a solid fashion, but gave a conservative conference call. The shares had run up recently on the news out of Macau, so a lot of news from this quarter was already priced in by the market. The shares have backed off of their 52-week high now, and as they form some sort of support we would look to open positions long-term. Americans are beginning to travel more as the economy slowly recovers and Macau is growing tremendously.