One Page Annotated WSJ Summary, Wednesday June 21st

by: David Jackson
David Jackson
Seeking Alpha's flagship daily business news summary, gives you a rapid overview of the day's key financial news. It is published before 7:00 AM ET every market day and delivered to over 900,000 email subscribers.

Summary of selected articles from this morning's Wall Street Journal with comments on related stocks. Links are to the original WSJ article, which requires a paid subscription. Use this summary as a starting point for research; check the summary against the original before trading:

MySpace Draws Ads by Offering 'Safe' Content

  • Summary: News Corp is increasingly successfully monetizing My Space. It offers home page slots and corporate pages to advertisers who don't want their ads to appear on users' personal profiles, and will ink a deal with Google, Microsoft or Yahoo for search in the next six months. Disney attracted over 70,000 "friends" for its Pirates of the Caribbean trailer. Pali Research estimates that My Space generated ad revenue of $15.5 million in May, up from $2.5 million last July when News Corp acquired the site. "...overall traffic to MySpace hit 51.4 million a month in May, according to comScore Media Metrix, up from 15.6 million a year ago."
  • Comment on related stocks/ETFs: More positive sentiment for News Corp (NASDAQ:NWS). But note that annualizing the May revenue number of $15.5 million produces revenues that are miniscule in comparison to Google and Yahoo's, even assuming continued dramatic growth. A more interesting question for investors is who loses from advertisers switching their teen-targeted ads to My Space. Probably the TV stations.

GM's Unsecured-Debt Ratings Get Fresh Cut

  • Summary: GM revealed plans to restructure a bank loan facility. "It is proposing to amend the facility by reducing it from $5.6 billion to $4.5 billion, extending its maturity by three years to 2011 and backing the loans with assets." Because the collateral makes the loan facility senior to GM's bonds, Moody's and S&P cut their ratings on GM's debt. GM's stock and debt were both down on the news.
  • Comment on related stocks/ETFs: The sell-off in GM's stock (NYSE:GM) was irrational, a knee-jerk reaction to news of a debt downgrade. All forms of debt were senior to the stock in any event, and the restructuring of the bank facility gives GM three more years breathing space.

Anheuser Ponders Liquor Market As Beer Fizzles

  • Summary: Responding to flat sales and industry consolidation, Budweiser beer producer Anhouser Busch said that it would consider entering the liquor business. Beer has lost 5 percentage points of market share to liquor since 1995. Per capita liquor sales fell from 1.1 gallons in 1974 to 0.62 gallons in 1998, but have since risen to 0.67 gallons due to succesful marketing. It's not clear how exactly Anhouser Busch will enter the liquor market.
  • Comment on related stocks/ETFs: Incrementally negative for Anhouser Busch (NYSE:BUD), as the article emphasises its stagnant sales growth and declining leverage over its distributors.

Early Univision Bids Near $11 Billion

  • Summary: Univision, the largest US Spanish-language broadcaster, is entertaining acquisition offers from two groups, one consisting of Mexican broadcaster Televisa SA, Venezuela's Venevision Investments LLC and private-equity shops Bain Capital, Blackstone Group, Cascade Investments, and Kohlberg Kravis Roberts & Co., and the other consisting of Texas Pacific Group Inc., Thomas H. Lee Partners, Madison Dearborn Partners LLC, Providence Equity Partners Inc. and media mogul Haim Saban. Both are making initial offers around Univision's current share price because debt markets are "skittish" and banks have reined in lending in recent weeks. Final offers could be significantly above the opening bids, though.
  • Comment on related stocks/ETFs: Disappointing for Univision (UVN), incrementally positive for Televisa SA (ADR: TV). Poorly valued media deals may make investors reconsider rosy estimates of the breakup value of other media stocks, such as Tribune (TRB).

Vodafone, Ericsson Get Hung Up In Greece's Phone-Tap Scandal

  • Summary: Discovery of Illegal eavesdropping of top officials' cellphone calls on Vodaphone's network has generated a scandal in Greece. Some calls were accessed from Laurel, Md. in the US, where the NSA is based. Vodaphone faces government fines and damage to its reputation. Ericsson provides the network equipment, and some allege that the spy software couldn't have been tested and installed without Ericsson's knowlege.
  • Comment on related stocks/ETFs: Ericsson looks clean, so no damage to its stock (ERICY). The fines and reputational loss in the Greek market probably aren't enough to significantly impact Vodaphone's (NASDAQ:VOD) revenues or profits.

At the Internet Cafe, Day Traders in India Live Mumbai Dreams

  • Summary: Online trading in India has doubleed in the last 18 months and now accounts for about 15% of all trades. 1.5 million Indians day trade, mainly from Internet cafes, risking on average less than $150 per day. But wages average $2 per day, so profits can make a meaningful impact to traders' incomes.
  • Comment on related stocks/ETFs: Play this trend with the company with the greatest exposure to Internet cafes in India, Sify, which trades in the US via an ADR (NASDAQ:SIFY). Discussion of Internet cafes in India here. A secondary play could be Indian telco VSNL (NYSEARCA:VSL), but according to Himanshu Pandya its losing market share.

Amid Competition, India Cools To Expansion by Chinese Firms

  • Summary: Chinese companies are finding that they are being barred from contracts in India by government agencies and bureacrats nervous about China's growing clout.
  • Comment on related stocks/ETFs: Difficulties entering the Indian market faced by telecom equipment vendors Huawei and ZTE are incrementally positive for Cisco (NASDAQ:CSCO), Alcatel (ALA), and Ericsson (ERICY). But the Indian market isn't yet large or lucrative enough to meaningfully impact those stocks.

Softer Housing Sector Is Seen, But Data Don't Point to Collapse

  • Summary: Housing starts rose 5% in May from April, but were still down 3.8% year over year. Building permits fell 2.1% last month and 8.5% year over year. The data confirm Bernanke's claim that the housing market is undergoing an "orderly and moderate" correction. "Toll Brothers last month reported that orders for new homes fell 32% in the latest quarter. On Monday, KB Home, the big Los Angeles builder, said it had laid off some 7% of its workers."
  • Comment on related stocks/ETFs: One month's data doesn't change anything. As before, either steer clear of the housing stocks like KB Home (NYSE:KBH) and Toll Brothers (NYSE:TOL) because their businesses are in cyclical decline, or buy them because you think the stocks have become cheap on excessively negative sentiment.

DuPont-BP Venture Will Make Competing Product to Ethanol

  • Summary: Dupont and BP formed a JV to produce sugar-beet-derived butanol through a fermentation process, but production will be modest and will only be available in the US in 2010. Butanol, unlike ethanol, can be transported easily in pipelines, and also generates more miles per gallon. "DuPont scientists are working on a second generation micro-organism capable of producing biobutanol economically even if oil prices fall into the $30-a-barrel range."
  • Comment on related stocks/ETFs: Although the projected volume is small and the timing late, this is clearly negative news for the ethanol stocks, particularly market leader Archer Daniels Midland (NYSE:ADM), because BP and DuPont dwarf the ethanol producers in terms of resources. Probably greater positive impact on DuPont's stock (DD) than BP's (ADR: BP).

Telecom-Gear Shakeout Pressures Small Players

  • Summary: After the announcement of Nokia's partnership with Siemens, the telecom equipment market will be dominated by the big three: Alcatel, Ericsson and the Nokia-Siemens JV. Carriers will be loathe to give business to smaller players. Uncertainty now clouds Nortel and Motorola, and niche players Tellabs, Avaya and Ciena.
  • Comment on related stocks/ETFs: Motorola (MOT) certainly faces increasing competition for its infrastructure business. Nortel (NT) faces increasing competition for almost all its products. Tellabs (NASDAQ:TLAB), however, derives most of its profits from a few niche product lines; it's more threatened by its inability to transition to next-generation technology than by competition for its current generation products. Ciena (NASDAQ:CIEN) specializes in optical transport, and its competitive position is certainly threatened by the emergence of three large players. In the short run, however, its stock is benefitting from improved sentiment derived from Internet video and broadband services.

Getting an 'A' in Part D

  • Summary: While Part D of the Medicare prescription-drug program has led to lower dispensing fees, Walgreen Co. has benefitted because it is the pharmacy-benefits manager for at least 3.2 million of UnitedHealth's Part D customers. UnitedHealthCare is the largest Part D provider "thanks in large measure to a plan endorsed by AARP, the powerful seniors lobbying group". Walgreen derived 64% of its 2005 revenue from prescriptions, and expects its prescription business with seniors to increase by 30% over the next few years. That could add $70 million to Walgreen's annual profits. Drug prices under Part D are fixed, so Walgreen is no longer undercut by Wal-Mart or Costco. It's also issuing co-branded cards with the benefit managers, leading some customers to believe they can only get prescriptions filled at Walgreen. The company has 15% of the US prescription market.
  • Comment on related stocks/ETFs: Positive for Walgreen (NYSE:WAL). Most negative for the independent pharmacies, less so -- though still negative -- for Wal-Mart (NYSE:WMT) and Costco (NASDAQ:COST).

Tiffany Joins Luxury Wave In Lower Manhattan

  • Summary: Tiffany is opening a store in lower Manhattan. "The population in Lower Manhattan, the area south of Chambers Street, jumped to more than 36,000 last year from about 20,000 before...Sept. 11, 2001... Residents have an average household income of $152,000 a year, one of the highest of any neighborhood in the city... The 224,000 private-sector office workers downtown earn an average $139,000..."
  • Comment on related stocks/ETFs: Smart move for Tiffany (NYSE:TIF), but it won't impact its stock as much as how its stores perform in Japan.

Microsoft's Taylor, Top Aide To CEO Ballmer, Leaves Firm

  • Summary: Martin Taylor, a "high-profile lieutenant" to CEO Steve Balmer, has left Microsoft. He was in charge of marketing for Windows Live, a set of online services designed to increase advertising revenue for the company. Microsoft didn't explain his departure, and he couldn't be contacted for comment.
  • Comment on related stocks/ETFs: More negative news; sentiment on Microsoft's stock (NASDAQ:MSFT) still hasn't bottomed.

HEARD ON THE STREET: Big Board Sees a Bond Bonanza

  • Summary: NYSE Group is still waiting for SEC approval to increase the number of corporate bonds that trade on its electronic system, and thinks that its merger with Euronext will accelerate that through its stake in bond trading platform MTS. Euronext and Borsa Italiana, the Milan stock exchange, together own 60% of MTS. At the same time, NYSE CEO John Thain has been promoting his bid for Euronext over the competing bid from Deutche Bourse, arguing that only an NYSE acquisition will give Euronext genuinely global access.
  • Comment on related stocks/ETFs: Incrementally positive for NYSE Group (NYSE:NYX).

AHEAD OF THE TAPE: Time to Deliver

  • Summary: FedEx Corp. announces its quarterly results today. FedEx has benefitted from global expansion and a push into ground delivery at the expense of UPS. Risks to the stock: the company is only immune to higher fuel costs if customer surcharges (FedEx Freight rised prices up 5.95% May 16th) stick, and integratation of recent acquisitions of a JV partner in China and trucking line Watkins Motor Lines may not be straightforward.
  • Comment on related stocks/ETFs: Article places variance on FedEx's (NYSE:FDX) performace on the downside.

LONG & SHORT: Allied Capital Finds Hole in Options Ceiling

  • Summary: Allied Capital, a publicly traded private-equity firm with a $4.1 billion market cap, is barred by the SEC from issuing options equivalent to more than 20% of its outstanding float. But the company is trying to circumvent that cap by repurchasing in the money options, and the repurchase plan will reduce employee alignment with shareholders and partially cash them out.
  • Comment on related stocks/ETFs: Value-oriented fund manager Whitney Tilson is short Allied Capital (NYSEARCA:ALD) for at least one of his funds.

INSIDE TRACK: E*Trade Executives Buy Shares During Stock Slump

  • Summary: E*Trade CEO Mitchell Caplan purchased 50,000 shares of his company's stock on June 14 at about $19.13 each , equal to $956,480. He then later purchased another 25,000 shares at $21.03, worth $525,805. He now owns 1.49 million E*Trade shares. President and COO R. Jarrett Lilien and Chief Administrative Officer Arlen W. Gelbard also bought stock in the open market.
  • Comment on related stocks/ETFs: See Barry Gitarts' analysis of E*Trade's (NYSE:ET) most recent acquisition.

Other notable articles on Seeking Alpha: Today's earnings calendar, Jim Cramer's Mad Money choice of stocks to buy in this sell-off, Yehuda Fruchter's small and micro-cap stock picks, Roger Nusbaum on why you shouldn't pick stocks in a down market, Eddy Elfenbeim on the homebuilders stocks, the failure of diversifying into foreign stocks, and the most recent conference call transcripts on Seeking Alpha -- from Apollo Group and The Kroger Co..

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