Today it appears that U.S. markets shall open up lower, but not altogether a bad situation considering that China had a handful of weak economic data come out. The Chinese economic data has been a problem for some time, and to some it already appears that the stimulus they announced at the end of last week will not be enough to improve the economy's growth. We are of the opinion that the worst is behind us and that with Europe working to solve their fiscal woes in a proactive manner that China's exports to the eurozone shall increase and add a bit of a spark to China's economic growth.
The big news this week should be from Ben Bernanke and the U.S. Federal Reserve regarding QE3, which could provide further ammunition for investors to justify pushing up stocks in general and commodities in particular.
We have economic news out today, and it is as follows (data set - consensus):
- Consumer Credit - $10.0B
Looking at Asian markets we see markets are higher:
- All Ordinaries - up 0.21%
- Shanghai Composite - up 0.34%
- Nikkei 225 - down 0.03%
- NZSE 50 - up 0.13%
- Seoul Composite - down 0.25%
In Europe markets are sharply higher:
- CAC 40 - up 0.02%
- DAX - up 0.19%
- FTSE 100 - up 0.06%
- OSE - down 0.05%
The big news last week, Amazon's (AMZN) reveal of their new line of tablets, which had many in the investment community going gaga over the entire event. If anyone is going to make money off of Internet retailing it is going to be Amazon, however we find it quite troubling that the company continues to venture down this road of offering products with razor thin to no profit margin in the hopes of making up the difference via content sales. Content is a commoditized product, with consumers able to purchase a DVD or CD at any number of outlets but the product, which is original and not a commodity is being given away at no benefit to the company. Many companies have ventured down this path in the past, thinking that they could give away some type of hardware to make it up on software or other services. It does not work, and there are plenty of dot-bombs from the Internet bubble who could not make similar plans work. Jeff Bezos is a great speaker and salesman, however he is no Steve Jobs. The profits still have not materialized for the company after all of these years and the P/E, both on a trailing 12 month period and the forward basis, is astronomical for a company of this size. Going short at this time is not the correct move, but neither is going long. We shall see one of two things happen over the next few years, either the shares shall fall once investors catch on or the company begins to make money but shares stagnate due to compression of the P/E.
It looks as if Apple (AAPL) will be moving into Pandora's (P) market, and that cannot at all be good for Pandora's future. Shares in Pandora fell $2.10 (16.71%) to close at $10.47/share, as the market shared our concern moving forward. As of yet there are a lot of unconfirmed details, but one thing is certain - when Apple moves into your market they usually take it over in quick fashion. Worse yet, Apple is more interested in using it to promote sales via its iTunes store and the actual hardware where it makes sky-high profit margins. So it is easy for one to imagine a service with no ads and pure listening with a few more caveats to the experience. Pandora shareholders and bulls can sit and think this is not a game-changer, but it is and thinking that you can fall back onto the non-Apple market is a dangerous proposition as well. Best case, this just erodes margins at Pandora and worst case it is the beginning of the end for Pandora. Either way, we would stay away from a story like this, because although swimming against the tide can be richly rewarding, we doubt swimming against the onslaught that Apple can bring will be in anyway rewarding for one's portfolio.
We would like to set the record straight on something which we wrote on Friday, which was not very well written and one of those mistakes we would chalk up to writing at 5 AM or earlier in the morning. The issue is with OCZ Technology (OCZ), which we have been down on because many have been buying on bad news in hopes that it gets taken out by an old guard tech company. This company is at the forefront of the next wave in memory and on its own shows promise once the company can execute. What we were trying to convey in Friday's article was the silliness of purchasing a company with high growth prospects with the hope it were to be bought out by a company whose main business is manufacturing hard drives and the such. That is the technology which we were referring to as, "old technology, mature and much slower growth than the more exciting stuff." The exciting stuff would refer to that which OCZ Technology does, solid state drives or SSD. It came out wrong, appeared wrong and some perceptive readers caught that and called us out on it. So, hopefully this clears that up and better conveys the point which we were trying to make. Also, for those wondering we would be interested in purchasing shares once it becomes a story of the company being able to operate successfully rather than takeover speculation.
Peregrine Pharmaceutical's (PPHM) Phase II results on their drug bavituximab had investors cheering on Friday. Shares moved higher by $1.43 (46.58%) to close at $4.50/share. If results hold up in future studies this drug could very well turn out to be a blockbuster of epic proportions, and by that we mean a $5 billion+ drug. However results thus far have been mixed, with some studies showing great promise and others not so much. Biotechs are tricky to pick winners out of, but we shall remain on the sidelines regarding this one as we want to see the data from an ongoing study they still are performing here in the U.S. We will reserve judgment until then, but still an interesting story to follow either way.
Lululemon (LULU) is one of those battleground stocks which the bulls and bears love to fight about. Once again the bears got burned by the company's strong quarterly results as shares rose $8.54 (12.45%) to close at $77.14/share on volume of 17.1 million shares. The retailer continues to surprise us and outperform on many levels, and competition is indeed heating up as big retailers are beginning to move into the industry and big product manufacturers also move in but in the near-term this still appears to be the winner to ride. We have previously discussed other investment ideas which are moving into the area, and long-term those plays should pan out but in the short-term investors riding this momentum trade should fair quite well.