Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:50 AM EST
S&P 500: -0.60; 1,513.60
NASDAQ 100: -1.50; 1,907.00
Dow: +1.00; 13,320.00
NIKKEI 225: +1.58%; 17,669.83 (+274.91)
HANG SENG: +0.27%; 20,896.64 (+55.56)
S&P/ASX 200: +0.49%; 6,335.70 (+30.80)
BSE SENSEX 30: -0.39%; 13,879.25 (-55.02)
FTSE 100: 6,603.70 (05/04)
CAC 40: -0.04%; 6,066.51 (-2.32)
XETRA-DAX: +0.07%; 7,521.77 (+5.01)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -0.42%; $61.67 (-$0.26)
Gold: +0.48%; $693.00 (+$3.30)
Natural Gas: -1.74%; $7.80 (-$0.14)
Silver: +0.89%; $13.65 (+$0.12)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
Alcoa to Make Hostile Bid for Alcan
Dow component Alcoa says it will make a $27 billion hostile bid for Alcan after nearly two years of friendly discussions have failed to result in a deal. The $73.25 cash/stock bid ($58.60 in cash and 0.4108 of an Alcoa share) is a 32% premium to Alcan's average price over the last 30 days and 20% higher than Friday's close of $61.03. Alcoa says a merger would result in $1 billion savings per year. Alcoa CEO Alain J.P. Belda: "We believe firmly in the compelling strategic rationale behind the combination of Alcoa and Alcan and are convinced that this transaction creates substantial value for both sets of shareholders and for our customers around the world. We are therefore taking our offer directly to Alcan shareholders." He added he is frustrated that he was forced to go hostile with his bid. Alcoa is the world's #1 aluminum company by sales, and was the world's largest producer until March, when OAO Russian Aluminum merged with OAO Sual Group and the alumina assets of Glencore International; Rusal presently makes 4 million metric tons a year to Alcoa's 3.5 million. The deal will be subject to anti-trust scrutiny in countries including the U.S., Canada, the EU, Australia and Brazil, but Alcoa feels the obstacles can be overcome: "We believe that any antitrust issues raised by an Alcoa-Alcan combination can be solved through targeted divestitures and by proactively working with regulators to address competitive concerns." -- CEO Belda. Alcoa will begin its official offer on May 8, and hopes to complete the deal by the end of 2008. Alcoa shares are up 2.6% in pre-market trading; Alcan shares have jumped 25% to $76.30.
Sources: Press release, Reuters, Bloomberg, MarketWatch
Commentary: Alcan Shares Eclipse Alcoa's In Pre-Market Action On Takeover Bid • Tracking Money Flow in Materials Stocks • The Outlook for Alcoa and Aluminum • Take Alcoa Out of the DJIA
Stocks/ETFs to watch: Alcoa Inc. (NYSE:AA), Alcan Inc. (NYSE:AL). Competitors: Aluminum Corp. of China Ltd. (NYSE:ACH), Novelis Inc. (NVL), Kaiser Aluminum Corp. (NASDAQ:KALU), Quanex Corp. (NYSE:NX), Tredegar Corp. (NYSE:TG), Arcelor Mittal (NYSE:MT). ETFs: SPDR Metals & Mining (NYSEARCA:XME), PowerShares FTSE RAFI Basic Materials ETF (PRFM), Vanguard Materials VIPERs (NYSEARCA:VAW)
J&J Stent Fails Clinical Trial; BSX Shares Jump
Johnson & Johnson has announced the CoStar drug-coated stent made by its recently acquired Conor Medsystems, failed in a clinical trial against market leading Boston Scientific's Taxus Express. As a result, Conor will terminate current trials and end its application for FDA approval. In addition, it will discontinue sales in certain countries in Europe, Asia and Latin America where it is already approved. Conor said there were no safety issues and cited "issues related to potentially sub-optimal therapeutic dosing of paclitaxel." Boston Scientific is trading higher on the news, up 4% to $16.80 in the pre-market on volume of 173,000, after losing 0.8% to $16.16 on Friday. Shares of Johnson & Johnson are currently down 1.4% to $63.56 in pre-market trading on volume of less than 50,000. They gained 0.25% to $64.48 in normal trading on Friday. The Wall Street Journal reports the news of CoStar's failure could be positive for both Medtronic and Abbot Laboratories, "which are aiming to become the third and fourth companies to bring a drug-coated stent to the U.S. market."
Sources: Press release, Associated Press, The Wall Street Journal
Commentary: Goldman Bullish On Johnson & Johnson Following Earnings • Abbott's "Xience" Stent Achieves Goals in Clinical Trial • JNJ, Boston Scientific Heart Stents Are Safe, Says FDA
Stocks/ETFs to watch: Johnson & Johnson (NYSE:JNJ), Boston Scientific (NYSE:BSX), Abbot Laboratories (NYSE:ABT), Medtronic (NYSE:MDT). ETFs: DIAMONDS Trust, Series 1 (NYSEARCA:DIA), Pharmaceutical HOLDRs (NYSEARCA:PPH), Health Care Select Sector SPDR (NYSEARCA:XLV), iShares Dow Jones US Healthcare (NYSEARCA:IYH), iShares S&P Global Healthcare (NYSEARCA:IXJ)
Hansen Natural Misses Estimates; To Report Full Earnings 'As Soon As Practicable'
Hansen Natural reported it increased net sales in the first quarter by 38% to $165 million, below both Reuters and Thomson Financial consensus estimates of $168 million. Due to an ongoing SEC investigation into options backdating at the company, Hansen will report quarterly earnings "as soon as practicable." A Hansen-appointed committee found no backdating wrongdoing, but is still undecided as to whether the company will have to restate past results. In addition to missing sales estimates, the company reported gross margins dropped to 51.5% from 52.6% on increases in material and transport costs, as well as changes in its product mix. Hansen reported cash and cash equivalents, including short-term investments, of $178.7 million at quarter's end, up from $133.5 million at the end of the previous quarter. The company will hold a conference call with investors at 11:30 A.M. Pacific time.
Sources: Press Release, Reuters, AP, MarketWatch,
Commentary: More Downside in Store for Hansen Natural? • 5 Revenue Drivers To Push Hansen Natural Northward • Cramer's Take on HANS
Stocks/ETFs to watch: Hansen Natural Corp. (HANS). Competitors: The Coca-Cola Company (NYSE:KO), Pepsico, Inc. (NYSE:PEP)
Related: Hansen Investor Relations
Merck Disappointed with Brazil over Patent Breach; India Pharma to Benefit
Brazil's President broke the patent on Merck's Efavirenz AIDS drug after a 30% price cut to $1.10/pill came up well short of the government's desire to having pricing on par with Thailand's $0.65/pill. The President declared: "Our decision today involves this one drug, but we can take the same steps with any other that we consider necessary." The government however, said it is still open to a renewed proposal from Merck if it decides to make one. Merck argued Brazil, as the world's 12th largest economy, "has a greater capacity to pay for HIV medicines than countries that are poorer or harder hit by the disease." Merck also said, "This expropriation of intellectual property sends a chilling signal to research-based companies about the attractiveness of undertaking risky research on diseases that affect the developing world ...." Bloomberg mentions Merck does not report sales of the drug in Brazil because they are insignificant to its net revenues ($23b in 2006). Reuters reports the Mint (an Indian business daily) says Indian drug makers will benefit from Brazil's decision and that talks to supply generic versions are already underway.
Sources: Press release, Associated Press, Bloomberg, Reuters
Commentary: Merck's Profit Rises 12% On Strong Sales of New Drugs • FDA K.O.'s Merck's Arcoxia • Merck: Looking Out for Investors
Stocks/ETFs to watch: Merck & Co. (NYSE:MRK). Competitors: Pfizer Inc. (NYSE:PFE), GlaxoSmithKline plc (NYSE:GSK), Sanofi-Aventis (NYSE:SNY), Abbott Laboratories (ABT). ETFs: Pharmaceutical HOLDRs (PPH), iShares Dow Jones US Healthcare (IYH), Health Care Select Sector SPDR (XLV), iShares Dow Jones US Pharmaceuticals (NYSEARCA:IHE)
Conference call transcripts: Merck Q1 2007
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Today's Market (via Sam Collins, ChangeWave.com)
Recap of Last Week's Action
Humana, Emerson Electric (NYSE:EMR), Marathon Oil (NYSE:MRO), Time Warner (NYSE:TWX), Prudential (NYSE:PRU), Medco Health (NYSE:MHS), YUM! Brands (NYSE:YUM), Radio Shack (NYSE:RSH), Wrigley (WWY), Alberto-Culver (NYSE:ACV) and others all beat estimates. There were some disappointments from Ford (NYSE:F), General Motors (NYSE:GM), Eastman Kodak (EK) and Weyerhaeuser (NYSE:WY) but, generally speaking, these were companies that had been having problems and the shortfalls were taken in stride.
Economics on balance were positive, too, with the best news a flat core personal expenditures figure for March. This is an especially important number, since the Federal Reserve focuses on it as a primary inflation indicator.
The other big number was the payroll report issued on Friday, which came in short of expectations with an 88,000 increase for April rather than 100,000. That, along with a smaller-than-expected gain in hourly earnings, confirmed that inflation is still not a major problem.
Capping things off, Microsoft (NASDAQ:MSFT) and Yahoo! (YHOO) entered into talks, News Corp. (NASDAQ:NWS) is after Dow Jones (DJ), Cablevision (NYSE:CVC) said it may go private, and there was an anonymous offer for Reuters (London Stock Exchange: RTR) of $15 billion.
Overall, not bad for a week that was supposed to be a bummer. Instead, the Dow Industrials gained 2.3%, the S&P 500 was up 1.4% and the Nasdaq gained 1.8%.
Friday was a bit sluggish with some negative earnings hitting the tape, but the merger-and-acquisitions news and the jobs report offset them. The Dow closed out Friday with a gain of 23 points at 13,265, the S&P 500 added three at 1,506 and the Nasdaq gained seven to close at 2,572. Volume on the NYSE totaled 1.5 billion shares and the Nasdaq traded 2.1 billion; breadth was positive on the Big Board at 19-to-12 and positive on the Nasdaq at 17-to-12.
Lower oil prices contributed to the strength in stocks on Friday, as the June crude oil contract fell to $61.93 a barrel, down $1.26 and down 6.8% for the week. The Amex Energy SPDR (NYSEARCA:XLE) dropped 21 cents to $64.65 and flashed one of our internal Collins Bollinger Reversal [CBR] sell signals. The next support there is at the 20-day moving average at $63.31. The June gold contract gained $5.30 at $689.70 per troy ounce, up $7.90 for the week, and the Philly Gold and Silver Index [XAU] was up 28 cents to close at $141.86.
What the Markets Are Saying
Each weekend seems to provide bearish market mavens more reasons to expect the worst, and the past couple of days were no exception. But their negative comments seem to be losing some zest, as most now confine themselves to saying simply that "the major indexes are overbought."
The key to the coming week will not only be earnings from 35 S&P 500 stocks and Dow components American International Group (NYSE:AIG) and Disney (NYSE:DIS), but also the Federal Reserve's meeting on Wednesday. With low indications of inflation and waning growth, it is expected that the Fed will eventually lower interest rates -- but perhaps not until fall. So, don't expect Wednesday's meeting to change the course of the markets.
Instead, it is important to focus upon the amount of money that is represented by both a fearful public and skeptical traders. In other words, there is a big difference between what the markets are doing and what the uninformed are doing, which is nothing -- they are still on the sidelines. And that tells us that the uptrend will continue.
Last week's American Association of Individual Investors' numbers showed that just 29% of the public was bullish while 54% was bearish. And the higher the market goes, the more bearish they have become.
This is counter to most readings that usually show a dramatic increase in bullishness until the markets move higher and then finally "blow off" with a dramatic buying climax. That will probably reassert itself but not until the public becomes bullish and the shorts cover. And from the looks of things, that won't happen for some time to come.
Today's Trading Landscape
There are no significant economic reports due today, but watch for earnings from 8x8 (NASDAQ:EGHT), Eagle Bulk Shipping (NASDAQ:EGLE), McDermott (NYSE:MDR), McKesson (NYSE:MCK) and Sonus (SONS), among others.
European markets are flat today because of holidays in several countries, but news of revised upward growth numbers and a conservative win in France could have a positive impact on our markets.
Watch the price of crude oil and prices at the pump this week. So far, the economy is taking the increases in stride, but some economists are saying that $4 gasoline could impact growth.
Asian Headlines (via Bloomberg.com)
• Asian Stocks Advance to a Record; Japan Airlines Gains on Earnings Outlook Asian stocks climbed to a record on expectations earnings from Japan Airlines Corp. (OTC:JALSY) and Tokyo Electron Ltd. will beat forecasts.
• Macquarie Buyout Group May Make New Qantas Bid After Existing Offer Fails Macquarie Bank Ltd. and TPG Inc. said they may resubmit an A$11.1 billion ($9.1 billion) bid for Qantas Airways Ltd. to keep the world's biggest airline takeover alive.
• Macquarie Bids for Alinta, Rivaling $6.1 Billion Babcock & Brown Proposal Macquarie Bank Ltd., Australia's largest securities firm, made a new takeover offer for Alinta Ltd. to challenge an agreed A$7.4 billion ($6.1 billion) bid by Babcock & Brown Ltd. and Singapore Power Ltd.
• Astellas Says U.S. Patient Died After Taking Experimental Anemia Medicine Astellas Pharma Inc., Japan's third- largest drugmaker, and FibroGen Inc. said a U.S. patient died of liver failure after taking their experimental anemia medicine.
European Headlines (via Bloomberg.com)
• EU Raises 2007 Economic-Growth Forecast to 2.6 Percent, Inflation Outlook The European Commission raised its forecasts for economic growth and inflation this year as increasing corporate investment and consumer spending bolster the euro region's expansion.
• Germany Factory Orders Unexpectedly Increase, Adding 2.4 Percent in March German manufacturing orders unexpectedly increased in March, after rising the most in more than two years the month before, led by goods such as factory machinery.
• ECB Chief Trichet, at G-10 Meeting, Says Some Investors Underestimate Risk European Central Bank President Jean- Claude Trichet said some investors aren't taking full account of potential risks as markets surge.