Looking to Asia and Europe this morning there is little direction in worldwide markets to give us a hint as to where U.S. markets will open. We suspect the news today will center around the Greek fiscal situation and the Fiscal Cliff here in the U.S. - two news items which we feel the financial news media is drowning us in. Any other news would be greatly welcomed, simply as a break from this post-election news cycle that has emerged. Maybe we are in the minority, but we find this mind-numbing and wish we could give the politicians less press over their childish antics … it simply seems that this is positive reinforcement for unwanted behavior. Here's to hoping that this will resolve itself rather quickly.
We have no economic news due out today but will have a good deal out later this week.
Asian markets finished mixed:
- All Ordinaries - down 0.28%
- Shanghai Composite - up 0.49%
- Nikkei 225 - down 0.93%
- NZSE 50 - up 0.66%
- Seoul Composite - down 0.19%
In Europe markets are mixed this morning:
- CAC 40 - down 0.06%
- DAX - up 0.17%
- FTSE 100 - up 0.19%
- OSE - down 0.12%
Over the past few months we have seen a number of high profile IPOs really disappoint and in some cases fall off of the edge of a cliff. The latest victim of the fallout from the social media bubble is none other than Groupon (GRPN) which saw shares plummet $1.16 (29.59%) to close at $2.76/share on volume of 116.3 million shares after the company released their third quarter earnings. The stock hit a new 52-week low in Friday's session and based off of what we saw in the company's report and the commentary afterwards it appears as if the company is suffering growing pains. The easy, low hanging fruit has already been picked and new customers are less active than original ones and that is going to be a problem going forward for the company. Their issue is not in converting non-customers to customers, but converting casual customers to intensive customers. The company has some other business lines they are building up, but that will take time and the jury is still out on whether that will pay off in time to save the company and its investors' money. We still are not buyers for investment here, although we do recognize the opportunity here to trade in and out.
Just when it looked like investors in Facebook (FB) might have been out of the woods, it is almost as if there is a perfect storm to keep shares beaten down. It was not long ago that the company had a great conference call, but the lock-up expiration on the shares put an end to that party quickly and shares are now trading at $19.21/share after falling $0.78 (3.90%). Volume was strong at 42.3 million shares and the stock never broke above $20/share in Friday's trading. This will be an interesting story to watch as there are a lot of shares owned by employees and early investors and the story will center around exactly how much they want to cash in over the coming weeks and months.
We have been one of Ron Johnson's biggest critics with how he has dropped the ball numerous times at JC Penney (JCP) and how investors were wrong to push up the stock simply because the management team was talking up the future. The luster is now wearing off, and his reputation is tarnished at this point, but even though we do not like this as an investment here and continue to think there will be further stumbles ahead the company may be about to turn a corner in the future. The stores are getting newer and geared toward younger shoppers which will be key going forward. It also appears that the offerings are being aimed at an audience to deliver higher margins and over time this might just work - the only question is whether investors will be patient enough and give Johnson the time he needs. Still bearish here, but the situation is not as bad as it once was and we are beginning to see a path for the company to resume growth.
Arena Pharmaceuticals (ARNA) had a decent day on Friday as shares rose $0.79 (10.44%) to close at $8.36/share with decent volume at 14.8 million shares for the session. We are not owners of the stock, but have made clear our belief that the company will become the leader in the weight loss drug area. The company's drug is not the most effective, but it is the safest and with the history of weight loss supplements/medications we have to believe that patients and most importantly doctors will err on the side of caution as a new wave of weight loss drugs hits the market. We still think that Arena is a double digit stock, and if the fiscal cliff is avoided and the company is able to meet expectations for sales then this could be one of the real winners over the next 3-6 months.
In the real estate world it is all about location, location and location. If you have those three things then you have a great piece of property, or so the saying goes. In the media and content business the same can be said. Disney (DIS) has some great properties, from ESPN to the Pixar stable of movies to the namesake studio and recent acquisitions such as Marvel and now Star Wars. The company has done a great job monetizing the properties and cash flowing them in ways which do not dilute the brand but rather breathes fresh life into them. The company may have disappointed investors with their short-term guidance, but we believe long-term this is a fabulous way to play the content is king shift in the media world. The company is growing cash flow and shall increase the dividend moving forward, which is why we think for our conservative readers this should be a part of your retirement portfolio.