Coffee behemoth Starbucks (SBUX) will replace conventional lights with light emitting diode (LED) bulbs in 8,000 stores by March of next year.

Stocks are trading modestly higher on another slow news day Wednesday. The bond market and most government offices are closed for Veterans Day. The stock market averages moved higher early following gains across the Asia/Pacific and Europe. However, after the initial run higher, the market action has been mostly sideways and the Dow Jones Industrial Average is up 33 points heading into the final hour.

The CBOE Volatility Index (.VIX) added 13 to 22.97 and trying to snap a 7-day losing streak. Trading in the options market is active. 4.9 million puts and 6.35 million calls have traded so far (a ratio of .77, compared to a 22-day average of .81).

Coffee is an incredibly large market, domestically and globally. According to coffee-statistics.com, in the United States 400 million cups of coffee are consumed daily, or 146 billion cups per year, making the United States the leading consumer of coffee in the world. According to the Buck County Coffee Company, there are 1.4 billion cups of coffee sipped per day, making it one of the most consumed beverages in the world. You may prefer McDonald’s (MCD), Dunkin Donuts, Peet’s Coffee & Tea (PEET), Panera Bread (PNRA), or an independent house’s coffee, but I believe the coffee market is so large that there is more than a reasonable chance that Starbucks will be able to continue to grow its revenues and profits in the coffee segment.

Bullish Calls:

Caterpillar (CAT): "This is the ideal recovery stock. I can't tell you not to buy it right here."

After what was a yawnfest Friday morning, the afternoon session started with the key Non Farm Payrolls which were weaker than expected across the board. Payrolls fell -190k vs. the -175 the market expected. The Household survey showed a dramatic decline of -589k and the U.S. unemployment rate shot up to 10.2% (a 26-year high). Manufacturing, construction and retail trade all showed bigger losses in jobs than expected. In fact, the only reason payrolls did not fall further was the increase in government employment. Hours worked failed to increase, which is a major negative as it means that employers are nowhere near the hiring phase. The length of unemployment is at an all time high of 26.9 weeks.

There was also a big jump in temp jobs (i.e. skilled workers serving burgers and fries at McDonalds (MCD)). Average hourly earnings were up 0.3, which will trigger some concerns about inflation pressures building, but Washington will be concerned about this payrolls number and I would not be surprised to see some kind of job tax credit being discussed to incentivise employers into hiring. In my view, this completely takes off the table any hint of higher rates or reduced liquidity provisions until late 2010 or even into 2011, as the Fed specifically told us Wednesday that they were looking at slack in resource utilisation (employment) as one of their key triggers. And if you thought that was gloomy, the doomiest among us are obsessed with U-6, also known as The Real Unemployment Rate, because it measures discouraged workers who aren’t actually looking for work. Anyway, that number soared to 17.5% from 17% last month. That’s a huge month-over-month jump.

• House dissects the bailout. The government's guarantee of $300B in corporate bonds saved a handful of giant companies up to $25B in borrowing costs, and put taxpayers at great risk, the Congressional panel charged with overseeing TARP says. In one of the first systematic efforts to analyze TARP, the panel, headed by Elizabeth Warren, found seven companies (GE, GS, C, BAC, JPM, MS, WFC) received 82% of the benefits of lower borrowing costs. The good news for taxpayers is that the bet has worked out: feds so far have collected a total of $17B in fees for all their emergency guarantees, while losing a paltry $2M. (read the COP's latest TARP report)
Attention Wall Street Breakfast readers: We're looking for a freelance financial journalist to produce WSB and help with our Market Currents blog in Rachael's absence. More details here.
• Insider probe grows tentacles. Authorities filed criminal charges against 14 people, including lawyers and an ex-Moody's (MCO) analyst, widening their crackdown on insider trading. At the center of yesterday's arrests, Zvi Goffer, a trader nicknamed "Octopussy" because his tentacles gripped so many confidential sources. Unlike the Galleon scheme, which was built on corporate insiders passing on early earnings estimates to fund operators, the newer ploy involves investors obtaining advanced information about pending deals - including Bain Capital's 2007 attempt to buy 3Com (COMS) - from people involved in them. Dow Jones has details of the 14 people arrested so far.
• Fannie wants another $15B. Fannie Mae (FNM) plans to tap emergency funds for a fourth time this year, bringing its draws of taxpayer money to $60B. According to an SEC filing late yesterday, Fannie Mae will seek $15B in Treasury financing after posting an $18.9B Q3 net loss. Analysts say the government-sponsored lender will likely tap its entire $200B lifeline, and may still need more.
• FHFA approves tax credit sale. Also buried in Fannie Mae's (FNM) SEC filing yesterday was that it agreed to sell $2.6B in unused tax credits to unnamed buyers, and received approval for the deal from its regulator, the FHFA. But the Treasury is thought to be leery of signing off on the sale, reportedly to Goldman Sachs (GS) and Berkshire Hathaway (BRK.A). In a statement (.pdf) Thursday, the FHFA said the sale "is consistent with FHFA's ongoing efforts to conserve Enterprise assets and with the Enterprise's multifamily housing mission."
• Bursting the next bubble. U.K. Chancellor of the Exchequer Alistair Darling set the agenda ahead of the G20 meetings in St. Andrews today, saying leaders needed to develop a technique to deflate asset bubbles before they explode: "We have got to make sure we don't get ourselves into a situation where some pressure starts to rise and then it becomes bigger and bigger and when the whole thing comes to an end it has catastrophic consequences," he said in an interview. Russian Finance Minister Alexei Kudrin noted Darling's concerns weren't out in the ether: "We need to be very careful with this huge amount of injected liquidity." A recent survey of investment managers by Goldman Sachs found 75% think low rates are already triggering "too-strong" climbs in assets.
• OECD registers global uptick. Signs of improvement have emerged in most major economies, with a marked recovery in the U.S. and Japan, and strong indications of growth in several European economies and China, the OECD said Friday. However the OECD warned that signals of expansion should be interpreted with caution, because it's still unclear how much of the measured increase of economic activity is due to a true improvement, and how much is due to a drop in long-term expectations, against which current activity is measured.
• Moynihan to address Congress on Merrill merger. Sources say Brian Moynihan, head of Bank of America's (BAC) consumer banking unit and a contender to succeed CEO Ken Lewis, has agreed to testify before Congress about his role in the Merrill Lynch takeover. He’ll be joined by Timothy Mayopoulos, whom Moynihan replaced as general counsel in December as the Merrill deal almost unraveled. Mayopoulos, who is now is general counsel at Fannie Mae (see above), has said he was given no reason for his dismissal. Moynihan's testimony could center on why Mayopoulos was given the boot, and what legal advice Moynihan gave to Ken Lewis prior to his meeting with the board.
• Retail sales climb for second month. U.S. retailers had their best month in more than a year, with major chains reporting a combined 1.8% year-on-year gain. In a promising note, upscale chains Nordstrom (JWN) and Saks (SKS) beat expectations, the first signs of recovery in among high-end shoppers. The big question is whether shoppers - many who are in the throes of joblessness - will turn out in force for the holidays.
• New rule cripples injured banks. A new rule that will cap the interest rates paid to depositors by banks deemed "not well capitalized" will likely accelerate the rate of bank failures. The cap - 0.75% above the U.S. average - is meant to prevent weaker banks from driving up costs for the rest of the industry.

Earnings: Fri. Before Open

• AIG (AIG): Q3 EPS of $2.85 beats by $0.87. Total equity $76.5B, up $14.4B from Q2. "Our results reflect continued stabilization in performance and market trends." Shares -4.8% premarket. (PR)
• Fortress Investment Group LLC (FIG): Q3 EPS of $0.11 beats by $0.02. Revenue of $144M (-22.4%) vs. $123M. (PR)
• Mirant (MIR): Q3 EPS of $0.38 misses by $0.78. Revenue of $454M (-79.1%) vs. $734M. (PR)
• Scripps Networks (SNI): Q3 EPS of $0.39 beats by $0.03. Revenue of $364.5M (+0.1%) in line. (PR)
• Suncor Energy (SU): Q3 EPS of C$0.23 misses by C$0.06. (PR)

Earnings: Thur. After Close

• Activision Blizzard (ATVI): Q3 EPS of $0.04 in-line. Revenue of $755M vs. $724M. Sees Q4 EPS of $0.43 vs. $0.44, on revenues of $2.22B vs. $2.3B. Sees full-year EPS of $0.63 vs. $0.64. Shares +2.8% AH. (PR)
• Atmel (ATML): Q3 EPS of -$0.01 beats by $0.01. Revenue of $318M (-21%) vs. $304M. Sees Q4 revenue up 3-7%. Shares -0.3% AH. (PR)
• CBS (CBS): Q3 EPS of $0.39 beats by $0.17. Revenue of $3.35B (flat) vs. $3.19B. Operating income before depreciation and amortization of $566M compared with year-ago loss of $13.48B. Sees full-year OIBDA of $1.725B-1.925B. Shares -1.4% AH. (PR)
• Crocs (CROX): Q3 EPS of $0.01 beats by $0.09. Revenue of $177M (+2%) vs. $156M. Shares -6.3% AH. (PR)
• EOG Resources (EOG): Q3 EPS of $0.81 beats by $0.15. Revenue of $1B (-69%) vs. $1.1B. Raises full-year production growth targets to 6% from 5.5%. Shares +0.1% AH. (PR)
• Hansen Natural (HANS): Q3 EPS of $0.60 misses by $0.03. Revenue of $308M (+8%) vs. $309M. Shares -8.2% AH. (PR)
• International Game Technology (IGT): FQ4 EPS of -$0.07 may not be comparable to estimate of $0.17. Revenue of $231M (-23%) vs. $498M. Unfavorable items affecting comparability reduce income by $0.30/share. Shares -0.3% AH. (PR)
• Intrepid Potash (IPI): Q3 EPS of $0.13 misses by $0.01. Revenue of $66M (-55%) vs. $64M. Shares -1.3% AH. (PR)
• JDS Uniphase (JDSU): FQ1 EPS of $0.04 beats by $0.02. Revenue of $298M (-21%) vs. $292M. Sees Q2 sales of $320M-345M vs. $306M. Shares +4.9% AH. (PR)
• Leap Wireless International (LEAP): Q3 EPS of -$0.85 misses by $0.33. Revenue of $600M (+21%) vs. $620M. Shares +0.5% AH. (PR)
• Nvidia (NVDA): Q3 EPS of $0.19 beats by $0.09. Revenue of $903M (+1%) vs. $838M. Sees Q4 sales up 2%. Shares +5.9% AH. (PR)
• Public Storage (PSA): Q3 FFO of $1.44 beats by $0.19. Revenue of $352M (-5%) vs. $405M. Shares -0.9% AH.(PR)
• SandRidge Energy (SD): Q3 EPS of $0.16 in-line. Operating cash flow of $85.6M (-38%). Shares -5.8% AH. (PR)
• Skyworks Solutions (SWKS): FQ4 EPS of $0.24 beats by $0.02. Revenue of $228M (-2%) vs. $222M. Shares +3.5% AH. (PR)
• Sotheby's (BID): Q3 EPS of -$0.89 misses by $0.58. Revenue of $45M (-41%) vs. $60M. Shares -3.8% AH. (PR)
• Starbucks (SBUX): FQ4 EPS of $0.24 beats by $0.03. Revenue of $2.4B (-4%) in-line. Expects full-year EPS growth of 15-20% from $0.80, and sees little net impact from commodities, with favorable coffee prices offsetting higher dairy prices. Expected capex of $500M-$550M. Shares +3.9% AH. (PR)
• Sunoco (SUN): Q3 EPS of -$0.29 misses by $0.19. Revenue of $8.7B (-43%) vs. $7.8B. Shares -0.6% AH. (PR)
• Tenaris (TS): Q3 EPS of $0.19 misses by $0.18. Revenue of $1.8B (-42%) vs. $1.9B. Shares -1.1% AH. (PR)
• VeriSign (VRSN): Q3 EPS of $0.33 beats by $0.01. Revenue of $258M (+5%) vs. $259M. Shares -4.8% AH. (PR)

Today's Markets

Asia markets headed higher Friday. Europe stocks are flat at midday, and futures are flat heading into the nonfarm payroll data on deck at 8:30.

F4Q09 (Qtr. End 09/27/09) Earnings Call

November 5, 2009 17:00 p.m. ET

Stocks opened higher on positive earnings from Cisco (CSCO) and a bigger-than-expected decline in weekly jobless claims. Before the opening bell, the Labor Department reported that jobless claims fell by 20,000 to 512,000 last week. Economists were looking for a smaller 8,000 decline. The report takes on added importance this week, as it comes ahead of the Labor Department's monthly jobs data Friday. Economists expect tomorrow's numbers to show the economy losing 175,000 jobs in October. The unemployment rate is expected to improve to 6.5 percent, from 6.6 percent.

Meanwhile, Cisco Systems is helping both the Dow and the NASDAQ. Shares are up 68 cents to $23.97 after the tech bellwether reported earnings that beat Street estimates and the company's CEO also noted that a recovery in the industry is "well underway." CSCO and the other 29 components of the Dow are up and the industrial average has added 200 points heading into the final forty-five minutes of trading. The NASDAQ gained 47.

Starbucks Corp.

Guidance

Analysts are looking for a profit of 21c on revenue of $2.39B. The consensus range is 19c-22c for EPS, and revenue of $2.32B-$2.51B, according to First Call. In July, Starbucks guided FY09 EPS 74c-75c versus First Call consensus of 76c, and forecast 1H10 EPS growth of 13%-18%. In August, Starbucks announced plans to lower prices on some drinks and increase others. The company said it would cut the prices of small coffees and lattes by 5c-10c in every market, but prices for larger drinks would increase up to 25c in some markets. Despite responding to the recession by closing hundreds of cafes, streamlining and negotiating lower rents, the Wall Street Journal has said that it will be difficult for Starbucks to remain at the top when the economy stabilizes. Also, the New York Post reported that its first instant coffee, two to three times more expensive than Maxwell House or Folgers, is not a hit.

After four months of little to no change, two recent ChangeWave consumer surveys show clear signs of improvement for the restaurant industry – with Olive Garden (DRI), Red Lobster (DRI), Chipotle (CMG), Maggiano’s (EAT) and Starbucks (SBUX) showing the most momentum.

Total US teen spending on fashion-related items increased by 2% on a year-over-year basis and 6% sequentially, according to the fall 2009 “Taking Stock With Teens” survey from Piper Jaffray, which was conducted both in American schools and online. This increase represents a notable improvement from the 14% decline reported this spring.

Results from the 18^th semi-annual study, which provides insight into the purchasing behavior and brand preferences among teens, indicate that young women’s spending in the junior apparel category has increased 7%, though it has decreased 1% for footwear and 10% for accessories.

CEO Interview: Marc Benioff, Salesforce.com (CRM)

Ralph Lauren (RL), VFC Corp (VFC), Walgreens (WAG), CVS Caremark (CVS), Starbucks (SBUX)

At the 4pm ET close in New York, the markets ended on a bearish note. The S&P 500 (1,060.87 -10.79 -1.01%), DJIA (9,748.55 -81.32 -0.83%), and NASDAQ Composite (2,131.42 -14.88 -0.69%) all closed sharply lower than at 2:39pm ET with the S&P 500 (9,906.73 +76.86 +0.78%), DJIA (9,906.73 +76.86 +0.78%), and NASDAQ Composite (2,166.02 +19.72 +0.92%) showing the usual green.

• DJIA up 35.37 (0.36%) to 9,819.29.
• S&P 500 up 2.78 (0.26%) to 1,068.20.
• Nasdaq up 6.11 (0.29%) to 2,132.86.

GLOBAL SENTIMENT

Below we provide a list of S&P 500 stocks that are up more than 100% year to date along with their estimated P/E ratios. As shown, there is a pretty wide variation in valuations of the best performing stocks year to date, with some having low P/Es and some having high or negative P/Es. Micron (MU), Advanced Micro (AMD), Sun Micro (JAVA), Sprint (S), and Office Depot (ODP) are the five stocks up more than 100% in 2009 with negative estimated P/Es. Other strong performing stocks with high valuations include THC, F, SNDK, MOT, and MWV. XL Capital has the lowest P/E estimate of the stocks listed below at 7.40. It is up 370% year to date. Genworth (GNW) is up 325% with a P/E estimate of 11.06, and WDC is up 218% with a P/E estimate of 9.76. Other stocks on the list with a ratio below 20 include FCX, GT, EXPE, WYN, MEE, JWN, GS, CTSH, and LIFE.