Currently U.S. futures are lower this morning, following both Asia and Europe lower. The kickoff to earnings season did not impress us much after the close yesterday but it was not as bad as some of the talking heads would have had you believe they were going to be. With all of the talk about how bad earnings are going to be this quarter, we just want to point out that if it is not this quarter and nothing changes in the economy then it will be a quarter in the near future where earnings disappoint. We have had companies drive earnings growth by cutting expenses which has grown the bottom line, but the top line has held steady or fallen slightly at many companies recently and it is but a matter of time before that catches up to us. You can only manufacture bottom line growth for so long until top line growth is needed to move the needle.
We have economic news out today, it is as follows (data set - consensus).
- MBA Mortgage Index - N/A
- Wholesale Inventories - 0.6%
- Treasury Budget - $75.0B
- Fed's Beige Book - N/A
Looking at Asian markets we see markets are mostly lower:
- All Ordinaries - down 0.32%
- Shanghai Composite - up 0.22%
- Nikkei 225 - down 1.98%
- NZSE 50 - down 0.51%
- Seoul Composite - down 1.56%
In Europe markets are lower:
- CAC 40 - down 0.26%
- DAX - down 0.22%
- FTSE 100 - down 0.43%
- OSE - down 0.57%
As we said yesterday, the action in Vringo, Inc. (VRNG) will be volatile moving forward and yesterday just highlighted that. After having a strong up day on Monday, shares traded lower by $0.98 (18.05%) to close at $4.45/share on volume of 36.1 million. If you are trying to trade this one you have to be able to sit around and watch it all day and buy on dips such as these to sell into strength on days like Monday. For our readers who are long-term investors that look for "special situations" to invest in, if you are buying here for those reasons please be prepared for a rollercoaster ride between your buy and sell points, with the ongoing litigation it will not be for the faint of heart.
We were looking through some of our old files in the office, some of which go back a decade or more and we came across some research we did on Lucent which merged with Alcatel to form Alcatel-Lucent (ALU). We looked up the price on the stock out of curiosity and the only word that came to mind was wow. The shares were down $0.06 (5.94%) yesterday and closed at $0.95/share which is pretty near a 52-week low. Both companies were damaged when they merged, and in this case two negatives did not make a positive. This is just another example of how the mighty have fallen due to an inability to change with the times and offer customers what they really want while also expanding upon the product offerings into new high growth segments. It is sad to see exactly how much shareholder value has been destroyed here.
We have not been fans of SUPERVALU (SVU) shares and have been on record as telling those who find themselves in the stock to quickly get out and move their money elsewhere. Shares are once again trending lower, with investors pushing the price lower by $0.25 (11.36%) to close at $1.95/share on volume of 9.4 million shares in yesterday's trading session. The news here is not good, with deteriorating results and management's inability to sell the company to any suitors. It is not that they do not want to sell the company, simply a lack of suitors. That is enough for us to question why retail investors should want to buy a stake in the company if the smartest in the retail and financial worlds cannot make the numbers work.
Eli Lilly (LLY) shares continued higher yesterday after the positive news on Monday. Although shares finished up $1.03 (2.03%) and closed at $51.81/share, investors did bid up the shares to $53.55/share which was another 52-week high for the stock. There was a lot of interest in the stock as well, with 29.8 million shares traded and that is one thing we like to see as stocks hit new highs (strong volume that is). For long-term investors this still offers a healthy 3.86% yield which pays you nicely to sit and wait for the company's current pipeline to supply some blockbuster drugs. This would be a nice one to add to one's retirement or college savings portfolio.
One name which we were wrong on from an early point is American International Group (AIG) which continues to trend higher and set new 52-week highs. Granted the reverse stock split makes it look worse than the call was, but we were dead wrong in our thinking that shares would be so diluted that moves higher would be muted. Shares were up early, which is where they set the intraday 52-week high, but ended up down $0.45 (1.25%) to close at $35.45/share on strong volume of 25.2 million shares. Looking forward the company has a few more assets it can sell to better focus the company while improving the balance sheet and getting rid of some leverage, thus making it an even better play for investors. The company is also on record as saying they want to be paying out a dividend in the near future (just as soon as the Feds will allow them to).