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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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  • Spunk on Low Volume... Still Spunk By: Charles Payne 0 comments
    Aug 18, 2010 2:19 PM | about stocks: TGT, WMT, X, MT, DE, AAPL, DELL, IBM, HPQ, AMAT, NVLS, LRCX, ASML
    I'm Hosting "Varney & Co." on the Fox Business Network tomorrow at 9:20- 11:00AM EST.


    I know the market is trading on low volume, and these sessions don't mean much, but I'm very impressed with the action thus far and yesterday. Yes, the market rallied yesterday on the kind of mediocrity I worry about becoming new benchmarks, but at this stage of the game, I'll take up rather than down. On that note, it feels like investors are still apt to sell first and ask questions later.

    But, at least many are sifting through news for further clarification. With that in mind, I have to give a shout-out to Brian Sozzi, our retail analyst, who said on national TV this morning Target (TGT) was a winner even as the stock indicated a lower open (stock has made a solid intraday reversal...to the upside). I think this new wisdom could come in handy to fend off knee-jerk reactions so prevalent over the last couple of years.

    It's easier to fend off knee-jerk reactions when everyone is on vacation...but this is a start.
    All of a sudden there are tantalizing takeover rumors out there including U.S. Steel (X) receiving a bid from ArcelorMittel (MT), and retailer American Eagle Outfitters (AEO), too. I've said all along that big-time takeovers, including some bidding wars, are an essential component to spark a longer term rally. We also need to see consumers step up to the plate, and while retail earnings and guidance haven't been earth-shattering, the action in retail stocks is compelling. A close above 420 for the S&P Retail Index ($RLX) would be a buy signal, especially if it happens on increased volume. On the flip side, some would say the RLX is in a head and shoulders formation so it must breakout or will endure a big pullback.

    Consolidation in the space seems overdue to me so these American Eagle rumors have much credibility.

    Bet on the Winner

    By: Brian Sozzi, Equity Research Analyst

    "You know you lookin' at a winner, winner, winner."- "Winner", by Jamie Foxx featuring Justin Timberlake

    Investors trying to ascertain who are the winners and losers from the beaten down retail sector prior to the holidays should run through a comparison of Target (TGT) and Wal-Mart (WMT) following their latest earnings releases. As Jamie Fox sang "you know you lookin' at a winner", in this case being Target, and as Grandmaster B.S.S. (my initials...) would sing if he was able to "you know you lookin' at a big, fat loser", in this instance Wal-Mart. Yet, although the fundamental trends are strikingly different between the two companies, the market has the stocks trading on comparable P/E multiples. Say what? Essentially, the market is voicing the opinion that Wal-Mart's international exposure trumps horrendous sales trends at its U.S. store base and that Target's many initiatives designed to ignore sales and EBIT margins are lame. I obviously do not harness this perspective.

    Second Quarter Comparisons
    • Target: +1.7% same-store sales on increased traffic; Wal-Mart -1.8% same-store sales and poor traffic
    • Target: inventory kept below the pace of sales growth; Wal-Mart warned of an inventory issue
    • Target: issued attainable second half guidance that is not gloomy; Wal-Mart complained of tougher things ahead
    • Target: firing on all cylinders from a merchandising standpoint; Wal-Mart seeking a new chief merchant for U.S. stores and is stuck in its old ways (basics versus anything fashionable on the sales floor)
    • Target: new 5% reward program and fresh food rollout are strong EPS catalysts; Wal-Mart guidance for the fiscal year predicated on expense cuts and but a modest improvement in same-store sales
    With earnings from big box retailers mostly concluded, next on the docket will be specialty apparel retailers. I anticipate 3Q10 earnings warnings from some high profile names in the mall as a result of increased inventory positions and the pause in discretionary consumption, both of which are causing heightened competitive forces.

    Interesting Note

    Target pointed out in its conference call that new stores in rural markets are rearview mirror type stuff as builders are simply not undertaking new projects. I took this as a sign Target will be ramping up new store growth in urban markets, with an acceleration of such in 2012 and into 2013.

    If you haven't already done so, there are a few articles from me on our website www.wstreet.com that share insights into second quarter earnings releases from key retailers. Check them out!

    Clock Ticking on GM IPO
    By: David Silver, Research Analyst

    I have received calls from a few reporters each day since General Motors released its second quarter results last Friday asking for my take on what the General Motors IPO will mean for investors and the U.S. taxpayers. First, I'll answer the U.S. taxpayer question. The IPO, which is expected to be in October or November of this year, oddly enough right near midterm elections (coincidence? I think not), is rumored to be for almost $20 billion; I expect more in the $16 billion to $18 billion range. A $20 billion IPO would make it one of the largest IPO's ever; let's be honest, the new GM shouldn't demand that kind of cash. So as taxpayers, we own 61% of the company, and assuming a similar percentage will be sold, that means approximately $10 billion will be sold for the sake of the U.S. taxpayer. There is no doubt in my mind that we will see the Administration patting itself on the back, congratulating itself, telling the public that the investment into the automakers was a good idea. So on an investment of almost $70 billion, GM has paid back a little more than $9 billion, and with the potential to receive an additional $10 billion. So 12 months after our investment, we are still down 70%, but many people are already saying it is a success.

    There was an article on WSJ.com saying that preferred shares will also be offered with the IPO. We have thought this was a good idea, and another way to take in another $5 billion and attract some of the larger hedge funds. It is also interesting that many at GM seem to want to be distancing themselves from the government but even after the IPO, the government will be the largest shareholder (by a HUGE margin) and the new CEO is one of its "board appointees."

    The filing, which has been expected every day since last Friday, has yet to be filed, but it is expected to give a vague portrayal of what GM hopes to accomplish through the IPO, as well as outlining some of the future risks for the company. Also included will be detailed financial statements. The actual size and value of the offering will be determined at a later date, but the filing will give a glimpse in how GM will be playing it. If it goes for a $20 billion offering, the company is swinging for the fences; some of the risks are that it could be undersubscribed and cause serious pressure. On the other hand, if the company comes in too low, investors could be asking what they don't know that management does. A positive for going more conservative is that it allows it to be oversubscribed and pushes the value higher right out of the gate. Additionally, it opens the door for a secondary offering on the heels of the first. For my investment as a taxpayer, I hope the company goes for the latter.

    Color on Crude Oil
    By: Conley Turner, Research Analyst

    The price of crude oil is declining in afternoon trading after a report showed that U.S. crude inventories rose in the previous week. The report is raising concerns among market participants about the level of demand for the commodity. The report by the Energy Department showed that inventories of oil rose to the highest level in about two decades. The report indicated that oil inventories climbed by 5.34 million barrels to 1.13 billion in the previous week. The market expectation was for oil inventories to decline by 1 million barrels for the period.

    Oil very much followed the downward path of the broader equity market. The broader equity market declined for most of the morning session after revenue results from Target Corp. (TGT), and along with Deere & Co. (DE), trailed consensus expectations. As it stands, the persistent weakness being witnessed in the financial markets is beginning to erode confidence about an economic recovery.

    Tech Stock's Third Day in the Green
    By: Carlos Guillen, Research Analyst

    So far this week, tech stocks have been demonstrating signs of a bounce. In fact, during today's trading session, the Philadelphia Semiconductor Index (SOX) continues to be modestly up for the third consecutive trading session. While it is clear that tech stocks have been on a sort of a rollercoaster for the last three-months, at least it appears that we are back on the upswing. On a technical basis, the SOX bounced off long-term support on Monday, it has continued to make modest moves to the upside, and the room to the upside still looks very favorable.


    Today it is rather encouraging to see some important tech bellwethers making moves to the upside. In particular, computer integrators such as Apple (AAPL), Dell (DELL), IBM (IBM), and Hewlett Packard (HPQ) have made modest moves into the green. Semiconductor equipment maker Applied Materials (AMAT) is also gaining traction today, just hours before it reports its financial results for the second quarter. As the number one supplier of tech capital equipment, Applied Materials' results will certainly have an impact on the market tomorrow as it will demonstrate whether chipmakers are seeing strong enough demand to continue increasing manufacturing capacity. All the signs have been quite positive for some time now. The big question right now is whether inventories are getting out of hand. If this happens to be the case, demand for increased capacity from chipmakers will certainly slow, and this should be evident in Applied Materials' results, particularly within its order levels.

    So far all the main semiconductor equipment players have posted strong financial results. Taking a look at some top line results from some well known semiconductor equipment companies, we can observe a consistent pattern; that is, that they all delivered better than expected results. In fact, Novellus (NVLS) had forecasted revenue to be between $285 million and $315 million, but it had actual revenue of $321 million, which sequentially increased by 16.4%, beating the Street's consensus estimate of $312 million. In a similar manner, Lam Research (LRCX) had forecasted revenue to be between $640 million and $660 million, but it reported actual revenue of $695 million, which sequentially increased by 9.9% and beat the Street's estimate of $657 million. ASML was not left behind; the company had projected revenue of 1.0 billion Euros, but ended the June quarter with revenue of 1.07 billion Euros, growing sequentially by 44.2%, and landing in line with the Street's estimate.

    I believe Applied Materials' fiscal third quarter revenue should also reach a much better than expected level, mostly as a result of stronger than expected sequential growth in Silicon Segment Group sales and in Applied Global Services. However, if Applied Materials misses estimates today, tomorrow will not be a good day in tech land.


    Disclosure: None
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