It looks like we should finish green for the week as both Asia and Europe are higher today. We have a handful of economic news due out today, and we do not expect any surprises today. There seems to be some confusion over these numbers we publish daily, so we want to remind readers that these numbers are what the consensus is, not what the actual reported numbers are. In other words these are the numbers to watch for when the numbers are reported. We are accumulating cash right now after having deployed some for buys over the past two weeks and we will continue to look for buys on pullbacks. For readers looking to add to market exposure who have not liked our last two buys due to the perceived high risk we have two retailers with a little less risk than our previous names which we think offer solid upside potential.
We have economic news out today, it is as follows (data set - consensus).
Personal Income - 0.2%
Personal Spending - 0.5%
PCE Prices - Core - 0.1%
Chicago PMI - 52.9
Michigan Sentiment - Final - 79.0
Looking at Asian markets we see markets are mostly higher:
All Ordinaries - up 0.08%
Shanghai Composite - up 1.45%
Nikkei 225 - down 0.89%
NZSE 50 - up 0.66%
Seoul Composite - up 0.38%
In Europe markets are higher:
CAC 40 - up 0.19%
DAX - up 0.43%
FTSE 100 - up 0.36%
OSE - up 0.30%
We went long OCZ Technology Group (OCZ) earlier this week. Yesterday we saw shares move sharply higher on news that Seagate broke off talks with the company after OCZ Tech's old CEO was unable to negotiate a board seat on Seagate while discussing a sale to the larger storage company. Shares rallied as investors figured that with the company getting rid of the CEO after the failed negotiations that the door was once again open, however Forbes released an article (see here) yesterday stating that Seagate no long had any interest in a purchase of OCZ anymore. Shares immediately fell and most of yesterday's gains were lost as those who were speculating on a buyout sold their shares and packed up shop. Regardless of this so-called setback we think that the story gets better here as fresh energy is brought on board and the company adds expertise in areas where they are lacking know-how.
This morning we want to revisit two names which we have covered in the past. The first name is Starbucks (SBUX) which finds itself off of its highs set earlier this year as investors cooled to the maker of premium coffees. After trading higher by $0.94 (1.87%) to close at $51.03/share on Thursday we think that it is time to go long again. We think that the company will set new highs over the next 6-12 months on the back of their new product offerings and on the back of an improved economy. The company has been a reliable growth engine for years, and their new chain geared towards the health conscious consumer paired with their growth plans for Germany and India should help to continue to push growth along. The low hanging fruit has already been had, however Howard Schultz has a proven ability to push the company into new areas of business and leverage his brand name for success and when investing in Starbucks that is really what you are buying.
Also in retail we like Ulta Salons (ULTA) which has seen its shares come off of their recent highs in sympathy with the general market. The company continues to post solid growth figures, and it shall continue to be a growth story for the next few years. In our market we are witnessing the company fill in the holes in their footprint and they certainly know what they are doing. They continue to target the high growth areas with the appropriate clientele and they have not chosen any bad locations yet. In our experience one does not need to worry about these growth retail stories until the companies begin opening stores in bad locations simply to have store openings and 'boost' sales, which in reality cannibalizes the sales from other locations over the long-term. We were bullish on shares at $15/share and all the way up to $100/share, we continue to see no reason why this cannot move higher and continue the trend of higher highs and solid quarterly results. We think with shares priced in the $95/share neighborhood offer a good entry point for those looking to play this great growth story.
Peregrine Pharmaceuticals (PPHM) saw shares fall $0.55 (33.13%) to close at $1.11/share as investors traded 43.6 million shares after it was revealed that the company had defaulted on its credit line. It is creating credit worries, however it must be noted that the company paid off the money they had drawn down on that line of credit along with the required interest and fees. The headlines read worse than the news actually was, but the big questions going forward are what the regulators are going to say and where the company is going to find funding in order to fund operations. We know the obvious answer is that they will issue new shares and that shall only lead to current investors getting further diluted. We would continue to advise readers to stay away and invest their biotech capital elsewhere.
We were happy to see that Tempur-Pedic (TPX) announced that they will be taking Sealy over in an all cash deal with Tempur-Pedic assuming all of the debt as well. The deal is worth about $229 million in cash, but is about $1.3 billion when the debt is factored in. The industry has had some awful results as of late and consolidation is precisely what the doctor ordered. Less competition and new channels to distribute their products should help the combined company improve upon their results and increase sales and margins moving forward. Based on the market's reaction, investors applauded the acquisition as they pushed up Tempur-Pedic shares on the news. It does in fact appear to be a good buy, but we would wait to enter a position until the housing numbers are a bit better and we can see consumers once again purchasing new mattresses for their homes.