From Briefing.com: Monday began a new week of trading, but there wasn't any change in the overall trend as the technology sector continued to rally, bolstered by yet another batch of favorable analyst commentary and reassuring news on the earnings front.
The key catalysts for Monday's rally, in which tech stocks assumed a leadership position and contributed to a 1.6% gain at the Nasdaq, were a CS First Boston upgrade of IBM (IBM 89.10 +2.15) to Outperform from Neutral, a Smith Barney upgrade of the chip equipment sector to Overweight from Market Weight, RF Micro Devices (RFMD 10.46 +1.45) raising its fiscal Q2 (Sep) revenue, gross margin, and earnings estimates, and Nextel (NXTL 19.33 +0.13) reaffirming its FY03 guidance with a proclamation that it is experiencing strong business trends.
Buying interest was broad-based in the technology arena and relatively heavy as evidenced by the wide gap between volume at the NYSE (1.31 bln shares) and the Nasdaq (2.04 bln shares). Chip, chip equipment, telecom equipment, and biotech were the core leadership groups of the technology sector's advance with gains of 3.0% or better in individual issues a common sight.
On Tuesday, mid-quarter updates from Nokia (before the open) and Texas Instruments (after the close) will be a focal point, and an upward revision to fiscal Q2 (Aug) guidance from Research In Motion (RIMM 28.24 +0.39) is sure to garner attention. As of this writing, RIMM was up $7.46 to $35.31 in extended action.
The reaction to RIMM's update is a palpable sign of the momentum crowd's giddiness right now. The tech sector, frankly, has a frothy feel to it, which Briefing.com highlighted in its Big Picture Stock Brief. Monday's rally notwithstanding, lightening tech positions at this juncture remains a prudent course of action.-- Patrick J. O'Hare, Briefing.com
4:37PM Cymer guides higher (00C0) 48.20 +1.91: Company issues upside preannouncement for Q3 (Sep), now sees revenues of $64 mln, up from previous guidance of $62 mln and better than the consensus of $63.2 mln. CYMI sees Q3 book-to-bill "close to one". Company says it expects "revenues for the third quarter of 2003 to be at the high end of, and other operating results to be generally in line with, the guidance provided in the company's July 22, 2003 press release and conference call".
2:37PM Floor Talk : No real market drivers being cited today for today's market move. CSFB upgrade of IBM and RFMD's bullish guidance helped to get the tech sector going, but judging from the names on the point gainers list, momentum buying and short-covering has been the primary catalyst for the extension of the move. Also, some market participants interpreting positive comments out of RFMD as an indication that NOK's mid-qtr update tomorrow should be positive. Several institutional floors suggesting that they aren't impressed by the move, with one describing the action as "weak buying on old chatter." Of course, some of the buying has been driven by incessant upgrades of technology stocks that have in many cases have already doubled or tripled off their lows. Many investors and traders have begun to question the rationale of such positive calls so deep into the market's move, and believe that a near-term top will have been called when these stocks begin to trade red on the heels of upgrades.
2:56PM RF Micro Devices (RFMD) 10.27 +1.26: Earlier today, RFMD issued a press release reminding investors that it had a big enough backlog to support a double-digit percentage increase in quarterly revenue from the prior quarter. That would translate into the mid-$140 mln range for fiscal Q2 (Sep) revenue, which is above prior guidance in the low-$130 mln range and the Reuters Research consensus estimate of $135.5 mln. As a result, RFMD now expects net income to be "at or slightly above breakeven," exceeding previous guidance for a loss of approx $0.04-0.05 (or loss of $0.03-0.04 excluding one-time, non-cash charges) and the R.R. consensus of ($0.03).
On the heels of the announcement, Think Equity Partners, which raised its price target on RFMD from $8.50 to $11.00 last Tuesday, reiterated its Equal Weight rating and revised its FY04 estimate from ($0.06) to ($0.02), compared to a consensus estimate of ($0.10). The firm also established an FY05 EPS estimate of $0.06. The Reuters Research consensus for FY05 is $0.08. Investment banks Adams, Harkness & Hill and Legg Mason also responded by reiterating Strong Buy and Buy ratings, respectively.
The last time RFMD began turning the corner to profitability was roughly two years ago. In Q201, the manufacturer of proprietary computer chips for use in cell phone handsets beat the Reuters Research consensus of breakeven by a penny after posting two consecutive quarters of losses and re-ignited regularity in a bottom line that more times than not has been positive. Based on comments from management this morning, though, RFMD could get back on track and in the black in Q203.
So, while RF Micro Devices continues to fine-tune the frequency with which it reports profits, there's a good chance long-term investors will find reason to remain dialed-in to the stock as management is sharpening its focus on an improved product mix and better margins via tighter cost controls.-- Brian Duhn, Briefing.com
10:19AM First Albany upgrades ALTR and XLNX : First Albany upgrades ALTR and XLNX to Buy from Neutral, as firm is seeing near-term strength in wireless base stations and, within the last week, some of their contacts have seen increased demand in the wireline communications mkt; although valuation metrics appear stretched at these levels, firm believes that the stocks will continue to trade higher in the coming months given improving end demand.
9:33AM SanDisk estimates, target raised at WR Hambrecht (SNDK) 64.36 +0.37: WR Hambrecht raises their 2004 rev/EPS ests well above consensus and raises their target to $74 from $62; firm says NAND flash is expanding rapidly from DSC to USB flash, cell phone, and other applications, and as demand outstrips supply, firm believes that SNDK is at the epicenter of this activity.
9:32AM Adams Harkness raises targets for RFMD, SWKS : Adams Harkness reiterates their Strong Buy ratings and raises their targets for RFMD and SWKS (both to $15 from $10), as they continue to believe that the upgrade cycle to new color and data-enabled devices in the wireless handset mkt is underway, and feels that many of the issues that hampered the industry during the early part of this year (SARS, Asia softness) are largely over; firm also says Buy-rated KOPN and SMDI should benefit from the increased positive newsflow as well.
8:46AM Cymer mid-qtr preview (CYMI) 46.29: Previewing co's Q3 mid-qtr update, Morgan Stanley believes CYMI may provide slight upside guidance, but thinks it is likely in the stock. Although firm does not expect the mid qtr update to be a major catalysts for the shares, firm is raising its price tgt to $55 from $42 on view stock can trade at 27x peak cycle earnings.
8:37AM GlobeSpan Virata upped to Peer Perform from Underperform at TWP (GSPN) 8.30: Thomas Weisel is incrementally more positive on GSPN given the potential revenue diversification and integration possibilities. After taking end market fundamentals into consideration, firm believes GSPN shares are now trading at a valuation that makes investment more attractive.
2:53PM Wilshire 5000 Approaches 10,000: One of the lessor watched indices is approaching a nice round figure. As of this writing, the Wilshire 5000 index has hit a high today of 9,999.99.
Changes in perceived wealth are considered a factor in individual spending habits. Most economists also assume that overall wealth affects aggregate consumer spending. This is undoubtedly a factor, but Briefing.com has never been a big believer that consumer spending is greatly impacted by short-term wealth changes. The consumer seems content to go right on spending without regard to such factors. Nevertheless, the wealth creation in the stock market is worth considering.
The best measure of the total value of the US stock market is the Wilshire 5000 index. It actually covers over 6,500 securities at present and, according to their web site "Measures the performance of all U.S. headquartered equity securities with readily available price data." Basically, it adds up the total value of the US stock markets.
Since early March, the index has risen from a little over 7,600 to almost exactly 10,000 as of this writing. That is a 31% increase. It also represents almost a $3 trillion increase in the market value of all US stocks. Not bad.
To put that in perspective, the total value of GDP right now is about $10 trillion. In other words, the market value of US stocks has increased by about 30% of a year's GDP over a period of six weeks.
Of course, the Wilshire 5000 index hit nearly 15,000 back in early 2000, so one could argue that the wealth impact of an increase in the past six months has to be kept in perspective. Still, a one-third increase in the total value of the stock market is hard to ignore. The implications of this are not easy to quantify, and may not be as significant as the impact from the perceived wealth effect of the value of homes. Nevertheless, we can say one thing about the wealth impact on consumer spending in the months ahead - it won't hurt. -- Dick Green, Briefing.com
2:27PM Beta Bets : The equity market has been on some kind of roll since March, but for all intents and purposes, the fun started last October - October 10 to be exact - when the Nasdaq and S&P 500 bottomed at 1108.49 and 768.63, respectively. At their current levels, they are up approximately 70% and 34% from those low points with broad-based sponsorship behind the move.
Some stocks, however, have trailed the rally in noticeable fashion. In some cases, the underperformance has been warranted as company-specific issues have sullied their fundamental appeal; in other cases, the underperformance is to be expected as the improved outlook for economic growth has prompted participants to shed their risk averse mindset and to favor higher beta names.
Whatever the cause, the laggards stick out like a sore thumb in this market environment. We've seen time and again, though, that there can be fortune in misfortune, and with concerns increasing about the market's overbought condition, there is a good chance that the underperformance gap may narrow in the weeks ahead. The question is, though, will the leaders simply correct while the laggards continue to languish or will the laggards benefit from a rotation of capital in the wake of a leadership correction?
The answer is probably somewhere in between. Companies like Schering-Plough (SGP), which have been weak due to fundamental issues, have a long way to go to restore investor confidence. Companies like Procter & Gamble (PG), meanwhile, which have good fundamentals, but have underperformed because of the renewed appeal of higher beta names, stand a good chance of benefitting from a rotation of capital precipitated by a correction in momentum plays.
Whatever the outcome, a few issues, we think, will stand in the way of a notable resurgence of year-to-date laggards. First, September is the final month of the third quarter, and barring a disastrous event, fund managers will want to be holding the best performing issues in their portfolios for marketing purposes. Secondly, as we move into the fourth quarter, tax-loss selling will come into play as investors look for ways to offset capital gains. In recent years, tax-loss selling hasn't been much of an overhang because there have been fewer gains to offset. However, with the Nasdaq and S&P up 41% and 17% on a year-to-date basis, and many stocks up much more than that, tax-loss selling could be more of an issue this year.
So, while there may be some opportunities in lower beta names over the near-term, we wouldn't expect them to get too far ahead of themselves, for as long as the market continues to roll, it will be the higher beta issues that continue to lead.-- Patrick J. O'Hare, Briefing.com
11:22AM Ratings Briefing - IBM : Naturally, IBM (IBM 89.15 +2.20) is a name that jumps out as an opportunistic play when it comes to the technology sector and a cyclical rebound in spending. For the better part of the past ten months, though, IBM's stock hasn't exactly been an oasis for buyers as it has been stuck between $80-90 per share. It should be pointed out, however, that its neutral disposition follows a remarkable two-and-a-half month period in which shares of Big Blue rallied close to 70% off their Oct. 10 low of 54.01.
With the latter in mind, it is fair to say that a period of consolidation was in order. CS First Boston certainly felt as much as it initiated coverage of IBM on Nov. 25, 2002, with a Neutral rating. That was a good call, and in part, it is why the market took kindly to the news today that CS First Boston upgraded IBM to Outperform from Neutral. The basis for the firm's upgrade, though, is what really struck a chord.
Specifically, CS First Boston considers IBM the ideal late-cycle tech spending recovery play due to the complexion of its installed base (large, slower moving IT commercial customers) and believes that tech spending is about to experience a meaningful recovery in large commercial accounts. In turn, CS First Boston raised its FY04 EPS estimate to $5.10 from $4.80, which is comfortably above the current Reuters Research consensus estimate of $4.88. The firm's FY03 EPS estimate was left unchanged at $4.30 (consensus $4.30), but it increased IBM's price target to $102 from $87.
This is an impact call to be sure. First, its favorable leaning perpetuates the bullish momentum in the tech sector and the broader market. Secondly, it has supportive characteristics in that it is apt to provoke a rotation of capital to areas that have been left behind while early cycle plays have rallied. Third, the upgrade carries a convincing connotation given the FY04 EPS estimate revision that is above the consensus number. And finally, it points to the likelihood of material price appreciation for a leadership stock.
As an aside, the $90 level has been a key area of resistance for IBM dating back to April 2002. Penetration of that ceiling on a closing basis, on heavier than average volume, would leave the stock poised to make a run to the 96-97 area, filling the gap created on Apr. 8, 2002 in the wake of a 1Q02 earnings warning.-- Patrick J. O'Hare, Briefing.com
9:23AM The Technical Take : The market came into Friday with the bulls on a hot streak but the recent string of gains was snapped with the Nasdaq Composite slide coming amid heavier volume (NYSE volume was lower). While it is disappointing to see the daily winning streak broken, the weekly run of gains was stretched out to at least four weeks for all the market averages.
From a sector standpoint the retail group (RLX), which had helped pace the way during the August upside extension, has been lagging over the last several days. Several downgrades in the group today (ANN, GPS, WMT, TGT) may keep the group on the defensive on a short term basis. Technology is expected to provide a lift in the early going thanks to positive comments on IBM, ORCL and the semi equipment group.
Nasdaq Composite: Despite the slide on Friday and the fact that it did result in a distribution day (higher volume during decline), we can see from the 15 minute chart of the index below that it was able to stage a bit of a recovery in late session trade. The initial area of interest on the upside is in the 1862/1863 area. This zone (congestion/recent highs/20 and 50 period averages) will be taken out in the early going but represents an important short term support that will need to be maintained in order to keep the early upside momentum intact. Next resistance is in the 1870 area with the recent high for the move at 1879 with a sustained breach targeting its 200 week exp mov avg at 1891.
To view the remainder of the Technical Take see the Stock Brief.
Send suggestions, comments or questions to -- Jim Schroeder, Briefing.com |
