Saturday, November 28, 2015
- Looking for an edge on when it might be profitable to rotate into small-caps, Nomura quants Joe Mezrich and Adam Gould watch three factors: 1) Their cheapness relative to large-caps; 2) economic uncertainty as measured by the dispersion of earnings estimates for the S&P 500; 3) expectations for economic growth as indicated by the yield curve.
- SInce 1980, the alignment of these factors pointed to small-cap outperformance over the subsequent three months worth an annualized average of 7.6%. Trying the strategy live for two years - long Russell 2000/short Russell 1000 when things look good for small-caps, and the opposite otherwise - has produced a 10% annualized return vs. a passive long position in small-caps which lost 5%.
- The team's signals suggested a good three months for small caps starting in November, and it's already working - the FTSE Russell 2000 is outperforming the Russell 1000 by nearly 300 basis points this month. There's still another two months to get small.
- Source: Bill Alpert in Barron's
- ETFs: IWM, TZA, TNA, UWM, VB, IJR, SLY, RWJ, URTY, SCHA, TWM, RWM, SRTY, VTWO, SAA, VIOO, SDD, SBB, JKJ, RSCO, TWOK, FYX, EWRS, ZSML, LLSC, SMLL, RYRSX
- A big find would send an energy company’s stock surging in normal times, but in an environment of excess supply, it is having the opposite effect of pushing down share prices.
- A WSJ report offers a case in point: EQT Corp. (NYSE:EQT) in July drilled what by some measures is the biggest natural gas gusher ever - a well in Pennsylvania's Utica Shale that spewed enough gas in its first 24 hours to power every home in Pittsburgh for nearly three days - but EQT shares have slumped 29% since news of the find.
- EQT believes the Utica, which has been only lightly explored so far since it lies more than three miles underground, has the potential to be so prolific that it could lower natural gas prices and make competing projects uneconomical.
- Shares of Range Resources (NYSE:RRC) and Consol Energy (NYSE:CNX) have tumbled a respective 44% and 54% since those companies disclosed their own prolific Utica wells in December and July.
- Southwestern Energy (NYSE:SWN) and Chesapeake Energy (NYSE:CHK), which have drilling land above the Utica but derive most of their production from other regions, have dropped a respective 53% and 40% since EQT disclosed the first details of its well.
- ETFs: UNG, UGAZ, DGAZ, BOIL, GAZ, KOLD, UNL, DCNG
Friday, November 27, 2015
- Thanksgiving Day box office was up 20% Y/Y as viewers flocked to The Hunger Games: Mockingjay Part 2 as well as a pair of strong offerings, in the latest Rocky franchise film and a new family offering from Pixar.
- Mockingjay Part 2 (LGF -0.5%) drew $10.4M Thursday to bring its domestic total to $146.7M ($388M worldwide total), and should prevail over the five-day holiday weekend -- though it will get a challenge as post-feast families show up for The Good Dinosaur (DIS -3%).
- That film grossed $6.56M, bringing it to $16.4M after a Wednesday opening. It took the second spot just ahead of Creed (TWX -0.7%), featuring Michael B. Jordan and the latest portrayal of Rocky Balboa by Sylvester Stallone. Creed grossed $6.45M, though in nearly 500 fewer theaters.
- Lions Gate's film is showing legs but still pacing behind Mockingjay Part 1's performance a year ago.
- The only other key opening was the much-delayed Victor Frankenstein (FOX -1.4%, FOXA -1.2%), which failed to draw interest, pulling just $470K on the holiday, and a two-day total of $1.1M.
- The media M&A world is full of hot rumors, but it's a little notable that Rupert Murdoch decided today to get into the gossip game (or at least the trolling game).
- The mogul tweeted today about "strong word" that Tribune Publishing (TPUB -1.6%) was going to be bought by a "big Wall Street firm," and that the Los Angeles Times would be bought by Eli Broad and a local group.
- As Jason Abbruzzese points out, Murdoch could just have sour grapes, as News Corp. (NWS -1.6%, NWSA -1.3%) was rumored to be preparing a bid for the company last year before Murdoch said ownership laws "from another age" prevented that.
- “I am not sure this amounts to ‘case closed,' ” Poynter’s Rick Edmonds said at that time. “My read is that Mr. Murdoch still wants the L.A. Times, still opposes the cross-ownership ban and might seek an exception or repeal.”
- News Corp. A shares moved up 1.1% in postmarket trading after the abbreviated session.
- The FDA today declined to approve an expanded use for Bristol-Myers Squibb's (NYSE:BMY) Opdivo to treat another type of advanced skin cancer.
- Earlier this week, the company won approval for the immuno-oncology drug to treat advanced kidney cancer, as well as single-agent treatment of patients with BRAF V600 wild-type melanoma.
- But with a "complete response letter," the agency declined to approve the drug for treating BRAF V600 mutation positive metastatic melanoma -- a skin cancer that is both the rarest and deadliest. It indicated a need for additional data from the patient population.
- Opdivo has received approval for five other indications since its first approval last December.
- Previously: FDA clears new indication for Bristol-Myers' Opdivo (Nov. 24 2015)
- Previously: Bristol-Myers wins FDA approval for Opdivo to treat advanced kidney cancer (Nov. 23 2015)
- Telus (TU +0.5%) says it intends to buy and cancel up to 3.75M common shares through private transactions.
- The purchases will be made with an arm's-length third party, and the shares will be counted toward the 16M common shares that the company is entitled to buy for cancellation under its 2016 normal course issuer bid.
- Purchases will come at a discount to share price on the Toronto Stock Exchange at the time of purchase.
- In setting its new repurchase program in September, the company says it's targeting an ongoing 10% annual dividend increase.
- Shares in the company are down 13% YTD.
- Brazilian officials say the government will file suit Monday against Vale (NYSE:VALE) and BHP Billiton (NYSE:BHP) and their joint venture Samarco for 20B reais ($5.3B) in response to this month's mining dam disaster.
- The Attorney General's office says the 20B reais is a preliminary figure and could be raised over the judicial process.
- The proceeds from the civil suit are intended to create a fund to help recovery efforts in the Rio Doce, the river that was contaminated with mud and mining waste in the wake of the Nov. 5 collapse of Samarco’s dam in Minas Gerais.
- The pending lawsuit would represent by far the biggest government response to the disaster.
- Earlier: BHP sinks after UN dam spill accusations
- Germany's Supreme Court handed a victory to Deutsche Telekom (OTCQX:DTEGY +0.8%) and Telefonica (TEF +0.7%) in a rights case, but left the door open for holding Internet service providers responsible for blocking sites offering illegal music downloads.
- The court dismissed a pair of cases -- one brought by musical-rights society GEMA against Deutsche Telekom, the other brought by music companies against Telefonica's German unit O2 Deutschland -- saying the plaintiffs hadn't done enough to halt copyright violations in the first place.
- But it went on to rule: "The company that offers Internet access will only be held responsible for blocking the site when the copyright holder has first made reasonable efforts to take action against those who have themselves infringed their rights, like the website operators, or those who have enabled the infringement, like the Web hosting providers."
- This summer, a German court had ruled that YouTube was only responsible for blocking infringing videos when they had been brought to its attention, and wasn't expected to scan every video.
- Sanofi (NYSE:SNY) is up 1% after hours on news it's working with investment bank Lazard to prepare a sale or listing of Merial, its animal health unit, which could value the division up to €12B (about $12.7B), Reuters is reporting.
- On an investor day Nov. 6, new chief Olivier Brandicourt discussed cost cuts and acquisitions, but hinted at strategic options for unloading Merial and its European generics business due to limited synergies.
- Lazard has a close relationship with Sanofi via the drugmaker's chairman, Serge Weinberg. Sanofi may favor an IPO for the unit to avoid antitrust challenges in selling to a rival, sources told Reuters.
- Merial has about 6,500 employees and expects to exceed €2.4B in sales this year.
- The generics business is worth up to €3B, but any divestment faces a longer path with heavy legal disentanglement ahead, and wouldn't start until the second half of next year.
- Anglo American (OTCPK:AAUKF, OTCPK:AAUKY) fell to its lowest level since its 1999 London listing, as the miner continues to buckle under slumping natural resource prices.
- HSBC on Wednesday downgraded its rating on the stock to Reduce and cut its price estimate to 410 pence, saying Anglo will continue to burn through cash even after cutting costs and potentially scrapping its payout to shareholders.
- HSBC anticipates "more near-term pain" and no "clarity on a long-term resolution to reverse potential cash burn," and adds to speculation that the company may follow rival Glencore (OTCPK:GLCNF, OTCPK:GLNCY) in cutting its dividend.
- HSBC also says that while Anglo’s niobium and phosphate business in Brazil and parts of its South African coal operations were viable candidates for sale, the company may struggle to raise significant funds in the current market.
- Separately, Anglo is denied permission by New South Wales planning authorities to expand its Drayton coal mine, ruling that an expansion would pose a risk to nearby horse stud farms; Anglo says it likely will close the mine, which would put 500 miners out of work.
- S&P +0.06%.
- 10-yr -0.05%.
- Euro -0.19% vs. dollar.
- Crude -2.95% to $41.77.
- Gold -1.32% to $1,055.90.
- Gold prices fell to their lowest level in more than five years today, heading towards $1,000/oz. as funds liquidate positions on rising expectations of Fed interest rate hikes next month.
- Gold fell as much as 2% to hit a low of $1,052/oz. before settling 1.3% lower at $1,056.20/oz. on Comex following six straight weeks of losses, while silver also slipped more than 1% to approach six year lows; conversely, the dollar hit an eight-month high.
- Gold and silver mutual funds and ETFs suffered $1B in outflows in the week ended Nov. 25, the most in 17 weeks, according to BofA Merrill chief investment strategist Micheal Harnett.
- With November’s jobs report coming next Friday, "next week is going to be pivotal" for the gold market, says Julius Baer analyst Carsten Menke, who also cautions that a reversal in sentiment was unlikely.
- ETFs: GLD, SLV, GDX, NUGT, IAU, AGQ, GGN, PSLV, DUST, SIL, PHYS, USLV, SIVR, SGOL, ZSL, UGL, GLDX, DGP, GTU, GLL, UGLD, DZZ, SLVO, GLDI, SGDM, DSLV, ASA, OUNZ, SLVP, DGL, DBS, DGZ, RING, DGLD, PSAU, USV, TGLDX, GEUR, UBG, GYEN
- NXP Semiconductors (NASDAQ:NXPI) jumped 4.6% in the short session today, and Freescale (NYSE:FSL) gained 4%, after the two won approval from China's Ministry of Commerce to finish their $40B merger -- a last major hurdle to the deal.
- The EU and U.S. FTC had signed off previously. The companies now expect to close Dec. 7, concurrent with the divestment of NXP's RF amplifier unit.
- The two have predicted $500M in eventual annual cost synergies, and have targeted $200M in cost savings in the first year after closing. NXP expects it to be accretive to EPS and free cash flow.
- Previously: NXP +6%, Freescale +5.5%; U.S. clears NXP's RF amplifier unit sale (Nov. 24 2015)
- Previously: NXP rallies following FBR Top Pick call, takes Freescale with it (Nov. 18 2015)
- S&P +0.06%.
- 10-yr -0.05%.
- Euro -0.15% vs. dollar.
- Crude -2.95% to $41.77.
- Gold -1.32% to $1,055.90.
- Gazprom's (OTCPK:OGZPY) deputy chief executive Alexander Medvedev is expected to meet the European Union's antitrust head next month in a meeting that could determine the outcome of the EU's case against the Russian company, Reuters reports.
- The company is accused of overcharging customers and blocking rivals in eastern Europe, a case which could end in a steep fine and changes to its business model; the two sides reportedly are far apart on the issue of pricing.
- Gazprom, which supplies around a third of the EU's gas, will defend its case at a closed-door hearing on Dec. 15, according to the report.
- Federal regulators rejected a claim by Delta Air Lines (DAL +0.6%) that American Airlines (AAL +0.9%) failed to start service quickly enough to Tokyo's Haneda airport -- meaning that American will keep the right to fly from Los Angeles to Haneda, a favored transit point for business travelers.
- American will have until March 27 to begin flights to Haneda; the carrier had said it would start daily service Feb. 11.
- Only four routes travel to Haneda (closer to Tokyo than Narita International Airport) from the U.S., and Delta surrendered one of them to American in June. But in an Oct. 1 filing it argued American should give up the route if it couldn't start service in 60 days.
- That followed an earlier dispute between the two over service to Haneda from Seattle -- where Delta ceded a route after being required to fly it daily.
- The increasingly bitter fight over Canadian Oil Sands' (OTCQX:COSWF) potential to attract bids to rival Suncor Energy’s (NYSE:SU) $4.3B hostile takeover offer led to tense exchanges at yesterday's Alberta Securities Commission hearing.
- A representative with J.P. Morgan, SU's advisor and supporting the company’s position that COSWF should not be allowed to change its shareholder rights plan in an attempt to fight off the takeover offer, said no one was likely to make a competing bid for COSWF.
- The rep said the possibility that Imperial Oil and its parent company Exxon Mobil, long rumored as suitors, was remote since neither had made an offer to date, even though either could do so quickly given IMO's ownership of 25% of Syncrude.
- The Canadian Oil Sands rep RBC, however, said 25 interested parties were reviewing the "opportunity," with four signing confidentiality agreements and "a good prospect" for at least one proposal.
- The Commission is expected to issue its decision on the COSWF shareholder rights plan before SU’s Dec. 4 deadline; if it rules in favor of COSWF, then shareholders would have until early April to make a decision if the SU bid is not withdrawn before then.
- In the holiday lull, Chinese game maker KongZhong (KZ -0.4%) said it's approved a sale of most of its stake in Ourgame International to Glassy Mind Holdings, for $30.9M.
- The deal involves selling 39.2M shares of Ourgame at a price of HK$6.1062 -- coming to about $30.9M with about 80% in immediate cash, and the remainder in cash on Sept. 30, 2016.
- KongZhong had held the shares since before Ourgame went public in Hong Kong in June 2014. It will retain a stake of about 2.6% (20.74M shares).
- Stocks ended the abbreviated session little changed, following relatively busy overnight trading that featured a 5.5% dive in China's Shanghai Composite.
- For the week, the S&P ended +0.1% while the Dow finished -0.1% and the Nasdaq was +0.4%.
- Weak showings today in the consumer discretionary (-0.4%) and energy (-0.7%) sectors were offset by gains in the remaining sectors; media names kept the discretionary sector under pressure as Disney fell 3%, while energy retreated as crude oil fell 2.5% to $41.97/bbl.
- Only 378M shares changed hands at the NYSE floor.
- Treasury prices also are little changed, with the 10-year yield at 2.23%.
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