• The S&P Since 2004
    Posted by on September 13th, 2005 at 5:21 pm

    This has not been an equal-opportunity market. Since the beginning of 2004, the S&P 500 is up 10.73%. However, it’s been largely led by two sectors–the Energy Sector is up 72.8% and the Utilities Sector is up 41.06%. The rest of the market has been pretty much flat.
    Energy 72.80%
    Utilities 41.06%
    Industrials 11.75%
    Telecom 7.28%
    Staples 6.35%
    Discretionary 6.07%
    Healthcare 5.58%
    Financials 4.79%
    Materials 2.91%
    Tech 2.59%

  • Reuters: Northwest shares plunge as bankruptcy looms
    Posted by on September 13th, 2005 at 4:02 pm

    The end may be near for Northwest.

    Shares of Northwest Airlines plunged 58 percent on Tuesday following a press report that the No. 4 U.S. carrier could file for Chapter 11 bankruptcy protection as early as Wednesday.
    The New York Times, citing anonymous sources, said both Northwest and No. 3 carrier Delta Air Lines were very close to filing.
    “The shares are down obviously on the New York Times article. That’s the only news that came out before the stock before the stock began to fall,” said Helane Becker, an analyst at Benchmark Cos.
    “I think that they will file before October 17 for sure. With oil prices where they are and big pension contributions due, and without higher airfares, Northwest had no choice,” Becker said.
    Shares of Northwest were down 57.7 percent, or $1.91, to $1.40 in afternoon trade on Nasdaq.

  • Replay of 10 Years Ago?
    Posted by on September 13th, 2005 at 3:48 pm

    I normally don’t pay attention to these kinds of historical parallels, but there’s a strong similarity between today’s market and the market of 10 years ago. Both markets are stuck in trading ranges and both have very low volatilities.

    Here’s the S&P 500 from November 1992 to February 1995:
    S&P 500 92-95.bmp
    And here’s the S&P 500 since December 2003:
    S&P 500 current.bmp

    I keep thinking that the market will break out of its trading range, but it never seems to. Each time we get close to a new high, the market backs off. What turned the market around in 1995 was a rally in the bond market. I don’t think we’ll get that again, but stranger things have happened.

  • Get into Google before Wednesday, Ski Daddy!
    Posted by on September 13th, 2005 at 3:11 pm

    Jim Cramer is telling you to “get into Google before Wednesday.”

    What happens when the best story on earth goes on the road to tell itself to dozens of the largest accounts in the world?
    I think it goes higher, especially when it dawns on people that there may not be enough Google to go around.
    All last week I watched in amazement as Google acted terrifically in the face of a mountain of supply. I know, from my sources, that much of this massive secondary offering deal is already taken.
    But now the company is going on the road to tell its story, including a boffo Wednesday lunch in New York. Can you imagine? It’s like spraying lighter fluid on general alarm fire! I mean, this thing might be priced at a premium to where it is right now.

    Google lacks in many things, but outstanding shares is certainly not one. This is the same company that forgot to register nearly 30 million shares and options it had issued before it went public. There are now nearly 280 million shares of Google. If you want one, just buy it. You don’t have to be on the “in” of its next offering. Boffo lunches don’t drive the market, earning do.

    We’re now a little more than a month away from Google’s next earnings announcement. Wall Street’s current estimate is for $1.35 a share, however there’s a pretty wide spread among the forecasts. Current projections range from $1.14 to $1.44 a share.

    The best thing about a Google income statement is that if you don’t like one result, you can simply choose another number. There are several to chose from. When, say, GE reports its bottom line number, investors are basically stuck with it. Not so for Google. Take last quarter. Google earned $476 million. Easy, right? But that includes the “non-cash, stock-based compensation charge” of $47 million. You don’t want that, do you? And don’t forget traffic acquisition costs (or TAC if you’re cool) of $494 million. So Google’s bottom line was $1.19 a share. Or if you go by diluted shares, it’s $1.27. Or you can include the “non-cash, stock-based compensation charge” and get $1.36. Take your pick, it’s all good.

    For next year, Wall Street expects at least one earnings result of $7.33 a share. This means that Google is worth about 43 times next year’s earnings. A bargain, right? Not exactly. A better estimate was recently done by Professor Aswath Damodaran of NYU. His research shows a valuation for Google at $110.13 a share. Click here for details. (Warning: link contains math).

    However, I’m assuming Dr. Damodaran wasn’t invited to the boffo lunch.

  • Today’s Market
    Posted by on September 13th, 2005 at 10:37 am

    For a very brief period last week, traders weren’t sure if the Federal Reserve was going to raise rates at its next meeting. The futures market was split 50/50, but now the market is pretty much convinced that the Fed will raise the Fed Funds rate for an 11th straight time.

    Today, the government reported that producer prices rose 0.6% in August, which is slightly less than what economists were expecting. The core rate, which excludes volatile food and energy prices, was unchanged, however this data does not include the effects of Hurricane Katrina. We’ll have to wait until next month to see how broad an impact the hurricane had on prices.

    The Commerce Department reported that the trade deficit narrowed to $57.9 billion in July. I doubt that trend will last very long. The reason is oil. As oil heads higher, Americans send more money overseas. For the year, the trade deficit will probably be close to $700 billion, which is a big increase over last year’s record of $617 billion.

    This is also the time when companies guide their earnings higher or lower in time for earnings season which kicks off next month. Nokia, the world’s largest cell phone company, raised its earnings estimate today. Nokia is a great company, but I’m a little suspicious of this earnings guidance. Not that Nokia won’t make it, but because Nokia was so gloomy beforehand. In July, Nokia shocked Wall Street when it missed its earnings then it said that third-quarter earnings will be no higher than 21 cents a share. Now it sees profits coming in at 22 or 23 cents a share. Still, Nokia is an excellent company and I expect it will rally over the next few months.

    Shares of Best Buy are taking a big hit today on the company’s lower guidance for next quarter. Best Buy reported earnings of 37 cents a share, which is one penny below estimates. However, the electronics chain sees earnings of just 28 to 32 cents a share for next quarter, where Wall Street was expecting earnings of 34 cents a share. I would never count Best Buy out. The company is still very strong and it had an amazing May quarter when it topped Wall Street’s estimates by 70%. For this quarter, sales were up 10% and profits were up 25%. The stock is trading for about 20 times this year’s earnings.

  • Electronic Arts Upgraded
    Posted by on September 13th, 2005 at 6:53 am

    Electronic Arts jumped nearly $3 yesterday on an analyst upgrade. Wedbrush Morgan raised ERTS to a “buy” from a “hold,” and analyst Michael Pachter set a price target of $66 which seems pretty conservative. Earlier this year, the stock got as high as $71 (pre-split), but it plunged 17% in March after it warned of lower earnings growth.

    Looking ahead, Pachter said video game publishers should see expansion during the next three months as excitement builds toward the release of the new Xbox from Microsoft Corp. Electronic Arts has also invested heavily in research and development — which now stands at about 22 percent of annual sales — to meet demand for next generation games.
    Electronic Arts also is expected to benefit from games it makes for the Sony Corp.’s new PlayStation Portable. In addition, the company is seen benefiting from a potential price cut in the PlayStation 2 console.
    Another key selling point for the stock is that rival Take-Two Interactive Software Inc. has been having problems. Earlier this month, Take-Two said its loss doubled in the fiscal third quarter, hurt mostly by reserves set aside for returned copies of “Grand Theft Auto: San Andreas,” the hit game that came under intense scrutiny for a downloadable hack that unlocked sexually explicit material.

    The stock is pretty pricey. The company has forecast earnings of $1.45 to $1.60 a share, which comes to a p/e ratio of 37 to 41. Electronic Arts is a great company, but I don’t see it growing its earnings that fast to justify the current price.

  • SEC Block’s Cisco Options-Expensing Plan
    Posted by on September 12th, 2005 at 2:30 pm

    Good news for investors. Companies will soon be required to expense stock options in their income statements. This will take a huge bite out of earnings, especially at a lot of tech stocks. It’s no wonder that Silicon Valley fought the new regulation very hard. The loudest voice came from Cisco Systems. If it had expensed stock options, Cisco’s earnings would be 18% lower for the first nine months of this fiscal year.

    Cisco had a plan to circumvent the new regulation by creating financial contracts that would value employee stock options. The SEC just said that the plan was insufficient. It could have cut the cost of expensing options by 90%.

  • Hewlett-Packard Is Cutting 6,000 Jobs in Europe
    Posted by on September 12th, 2005 at 1:53 pm

    HP is going to cut 6,000 jobs in Europe. In July, the company said it was cutting 14,500 jobs and it was going to restructure its retirement plan. About 20% of the job losses will be in France. The French Deputy Labor Minister Gerard Larcher has asked for a meeting with HP to discuss the layoffs

  • Does Wall Street Have Zero Intelligence?
    Posted by on September 12th, 2005 at 1:45 pm

    According to an article from New Scientist magazine:

    A model that assumes stock market traders have zero intelligence has been found to mimic the behaviour of the London Stock Exchange very closely.

    You can read the research paper here.

  • Oracle Buys Siebel
    Posted by on September 12th, 2005 at 9:54 am

    Oracle said it will buy Siebel Systems for $10.66 a share in a deal that values Siebel at $5.85 billion. Thomas Siebel is a former Oracle executive who built Siebel into a software giant. This is a pretty good deal for Oracle–it’s just a 16% premium over Friday’s closing price. Five years ago, shares of Siebel were worth $120. Oracle has been aggressively buying other firms recently. The company recently completed its acquisition of PeopleSoft which was worth of $10 billion. The Siebel deal still needs to be approved by shareholders.