The news out of Europe yesterday was exactly as we had been expecting, although a little toned down and on the conservative side on what would cause the buying, which was most likely an olive branch to Germany, who it must be noted, has a vote on the legality of the whole issue coming up in the next few days. The ECB and the rest of Europe has effectively called Germany's bluff and the world now expects that it is just a political move on Germany's part. They will probably rule it legal, but the politicians at least have to appear to be against it. These are the sacrifices one makes in the name of unity and a common currency. There will be jobs figures out today and based on what President Obama said last night we have to believe that the numbers will be at least in-line.
We have economic news out today, and it is as follows (data set - consensus):
- Nonfarm Payrolls - 130k
- Nonfarm Private Payrolls - 144k
- Unemployment Rate - 8.3%
- Hourly Earnings - 0.2%
- Average Workweek - 34.5
Looking at Asian markets we see markets are higher:
- All Ordinaries - up 0.40%
- Shanghai Composite - up 3.70%
- Nikkei 225 - up 2.20%
- NZSE 50 - up 0.78%
- Seoul Composite - up 2.57%
In Europe markets are sharply higher:
- CAC 40 - up 1.28%
- DAX - up 0.98%
- FTSE 100 - up 0.33%
- OSE - up 0.47%
Today we want to talk about two technology names we took some heat for when we said we were bearish a few months back, because as it turns out we were absolutely correct. Verifone (PAY) closed at $30.55 after trading lower by $4.83 (13.65%) yesterday. They beat on the bottom line, but missed on their top line numbers - a trend which has become all too familiar for investors these last couple of quarters. This is a problem moving forward as you can only enact so many cost cuts before lagging top line growth begins to cause bottom line stagnation or worse deflation. We remain skeptical going forward about the company's prospects as we believe that the market is going to be getting more and more crowded and margins are going to be compressing, always a deadly mix.
OCZ Technology Group (OCZ) is another stock we were skeptical on. Shares have fallen precipitously since we made our comments and yesterday fell another $1.09 (18.84%) to close at $4.35/share. The company cut its revenue forecast yesterday and just like we stated with Verifone in the above paragraph that is not sustainable. We view this as old technology, mature and much slower growth than the more exciting stuff. This also serves as just another example of why we dislike investors trying to play the takeover rumors, as it has severely hurt those who established positions based upon that thinking.
Orexigen Therapeutics (OREX) saw share rise again yesterday after being up the previous day as well. Shares closed at $5.73/share after having risen $0.82 (16.70%) during the trading session. Volume was strong as well with 10 million shares changing hands. Credit Suisse gave the shares a price target of $13/share and believes that shares will outperform - even though their drug will be about a year behind two competitors' drugs which are already approved and that is in a best case scenario. We would rather be involved with the competitors' shares as there is less risk involved, but Credit Suisse thinks it is a good story and Wall Street liked the analysis yesterday.
We have been bullish on Regions Financial (RF) for some time now, and shares have faced some upwards resistance at the $7/share level after a nice run-up from where we initially went bullish on the company. Yesterday's ECB news helped all financial, including Regions, rise and in trading the shares rose $0.23 (3.29%) to close at $7.22/share. Volume was back up to 19 million and it was an overall bullish day, however with the half position we still have recommended we want to watch and see if there is a better place elsewhere to put that capital to work. So with that said we are watching to make sure that these recent gains hold, and if not we will be inclined to move elsewhere for financial exposure.
We had an email from a reader yesterday asking us about Synovus Financial (SNV). It is a sick bank with a TARP issue and investors could see further dilution moving forward as that comes due, although there are now rumors and some experts are predicting that the company may be able to get a reprieve on paying any time soon. Whatever the case, these rumors coupled with the ECB news has pushed the shares up towards 52-week highs as investors speculate on one of the weaker players down south. We suspect that this franchise will need to be bought out as the business model leaves a lot to be desired. The company needs to consolidate under one name to realize economies of scale and drive costs down, not to mention the confusion caused consumers with their myriad brand names - especially in Georgia. It may all turn out well, but we would rather buy higher quality names at this point - the type of companies which might very well buy these assets on the cheap and take the time to maximize the revenue and profit streams.