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Wall Street Strategies has been providing independent stock market research since 1991 to individual, retail and institutional clients through a balanced approach to investing and trading. Charles Payne, our founder and chief analyst, is routinely sought after for his stock market, political,... More
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  • Message of the Markets By: Charles Payne 0 comments
    Jul 20, 2010 2:13 PM | about stocks: TGT, WMT, COST, WHR, IBM, TXN
    This is a tough market to read, but if I get the message right this is it:

    * Worry about uncertainty brought on by too much government and too much hostility
    * Greater demands on business; no free rides on bottom line beats and weak top lines
    * Need to see consumers come out of shells
    * Need to see businesses make investments beyond stock buybacks
    * Worry about uncertainty brought on by too much government and too much hostility

    The Dow could be off 200 points and nobody would think it was unusual. The session is still going on but early resolve underscores the other part of this dilemma...the value part. Stocks are cheap, but what does that mean in an economy moving in the wrong direction? Well, so far it has meant stocks get cheaper. The free market has been held at bay but money is going to have to be put to work at some point very soon. It is remarkable how little money there is actively in stocks right now. The shifting is even more amazing; one day tech stocks are up then they're down but agricultural stocks are higher after being lower the preceding session.

    By the way, everyone must have agricultural and mining stocks in their portfolio; they must be overweight, and if you're not sure speak to a representative.

    The market needs real inspiration. Hope is a wonderful thing but can only take you so far, and that's the difference between the stock market of 2009 and stock market of 2010. The nation needs leadership, and the stock market needs leadership. It's going to happen. I realize each day feels like an eternity when the market is getting hit, and the fact it goes down faster than it goes up is enough to discourage the masses. The expectations game is going to have to be rigged, with lower top and bottom line hurdles, before truly robust demand saves the day.

    I think earnings are relatively impressive, yet I wrote during the height of green shoots mania, a time would come when the kind of news that should send stocks higher would be greeted with a thud. That day is here, for the moment.

    Correction

    Asset management revenue at Goldman Sachs (NYSE:GS) increased 2.5% not 25% as we noted in the morning commentary.

    By: Brian Sozzi, Equity Research Analyst

    A Rarity this Earnings Season

    The theme this earnings season has already begun to show its ugly head; revenue is softer than market expectations but companies are still managing their businesses as if they are going under...hence leading to earnings upside. One company that solidly beat consensus earnings for the second quarter is Whirlpool (NYSE:WHR), which I touched upon in this morning's commentary. The global appliance maker trounced consensus revenue estimates by a slick $500 million on continued favorable currency translation and unit shipment growth. Amen, brother. The market's response, you ask? Shares of Whirlpool are getting put out to dry in today's session as the top line beat is simply not enough. Investors, apparently, do not believe the company's outlook is achievable or in other words, revenue gains in 2Q10 are unsustainable. Management all but called this out on the conference call, which led to swift sell-off in the stock as the comments came rolling off the tongue of CEO Jeff Fettig.

    Is it all doom and gloom for Whirlpool at this point in the global recovery? For that answer, I encourage you to visit our website www.wsteet.com to read a copy of my institutional report on the company's earnings.

    Area of Interest

    Target (NYSE:TGT) is preparing to open its first store in Harlem, New York this week. For mass merchants such as Target, Wal-Mart (NYSE:WMT), and Costco (NASDAQ:COST) expansion into urban markets is in fact the next growth frontier. Specifically to Target, management has signaled no intention to expand internationally, so for its sake, it best be seeking to penetrate urban markets. While I think the push away from rural areas is logical, it does not come without risk. Costco opened its first NYC store in Harlem last year, and in talking to some people in recent months I have reasoned the store is underperforming. Let's breakdown why this store is lagging as it may provide clues into the problems that are ahead for mass merchants as they go urban (though I do acknowledge Target is better suited for urban areas as its products are non-bulk):

    * Costco caters to upper middle class; lower income to middle income urban households may not have the upfront funds to buy in bulk.
    * How are people getting bulk goods home on a subway?
    * Not everyone in a city has a car.
    * Costco does not have bags at the checkout line (in the suburbs, people push their baskets to their cars or back the cars up to the door).
    * Product assortment is not necessarily localized.

    If you could think of any other reasons why mass merchants may have troubles going urban I would greatly appreciate the color. My email address is brian.sozzi@wstreet.com.

    Did Housing Restart?
    By: David Urani, Research Analyst

    June housing starts unsurprisingly showed yet another decrease, with a reading of 549,000 annualized, falling below the 580,000 consensus estimate. This represents the lowest level since October, and it was a 5.0% decline month to month following a 14.9% decline in May. It's just one more piece of evidence of the massive tax credit hangover that has left the housing market looking like a ghost town. Starts decreased in all regions, although single family starts did decrease in the West and the South. On the other hand, permits increased by 2.1% month to month which included rising single family permits in all regions except for the South.

    Housing stocks are actually one of the better performing industries today. Investors were likely prepped for the worst already, especially after yesterday's poor readings for homebuilder confidence for July. Additionally, the increase in permits does show a glimmer of optimism. Although homebuilders may not be building, there is at least some sign of preparation for sales in the months ahead. That being said, it is hard to decipher between home construction that is a buildup for rising demand and construction that is necessary sustenance for homebuilders that have already trimmed inventories to the bone.
     
     
    Techs in the RED
    By: Carlos Guillen, Research Analyst

    Overall tech shares are performing poorly in today's trading session. The chip sector, as measured by the Philadelphia Semiconductor Index (SOX), has decreased 8 points to 350, representing a 2% drop from Monday's closing price. Currently, all components of the SOX are in the red. This recent drop comes as investors do not appear to be impressed with the most recent earnings results and are once again getting flashbacks of Euro fears. Also, poorly received news from IBM (NYSE:IBM) and Texas Instruments (NASDAQ:TXN) are not really helping tech stocks today. From a technical perspective, the SOX is currently testing its 20-day moving average. A fall though there may take the index back down to test support at approximately 325.
     
     
    IBM's beat on the bottom line did not get the welcome that one might expect mainly because revenues did not grow as fast as many had hoped for, indicating that perhaps many other companies will likely experience a similar scenario of beating on the bottom line but missing on revenues. IBM delivered top line results that were below the Street's consensus estimate, coming in at $23.7 billion versus the Street's estimate of $24.2 billion. Non-GAAP earnings per share were $2.61, three cents above the Street's consensus estimate. Investors were not convinced by comments from IBM executives that the steady recovery was likely to pick up steam in the second half of this year. Texas Instruments also missed second quarter revenue estimates, caused by weaker than expected orders from one mobile phone customer.


    Disclosure: None
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