From Briefing.com: General Commentary - On a relative basis, Nasdaq held up well falling only 1.3% v. declines of 2.9% and 2.7% for the DJIA and S&P 500. Even more encouraging was fact that support in the 1110-1100 area held throughout the session. Technically, Nasdaq clearly probing for a bottom.
The 1100 area might well hold over the short-term, given that after yesterday' s close a number of tech companies reported earnings that beat consensus estimates - even if the surprise was no more than one cent. With traders bracing for really negative earnings news, a series of better-than-expected reports could well triggered renewed short-covering.
This is still not a healthy market, what with the earnings woes and the deteriorating technicals, but near current levels it doesn't look all that frightening. As Briefing.com noted in a Story Stock on Siebel Systems on Wednesday, value is slowly but surely returning to the tech universe. At some point in the not to distant future, Briefing.com expects investors both big and small to recognize this value and very slowly start to (re)accumulate positions.
If the tech-heavy Nasdaq is preparing to launch a sustained move higher in the weeks to come, then look for the following types of stocks to pace the advance: 1) relative strength leaders - those stocks that have outperformed on the way down, 2) large-cap industry stalwarts, 3) those companies big or small that are expected to show a profit and sport reasonably strong balance sheets and 4) the semis - hard to imagine a tech rally without this industry leading the charge.
Robert Walberg
5:47PM After Hours Wednesday Price changes vs the 4 pm close: The list is far from extensive but we are beginning to ease our way into earnings season with today's results eliciting a mildly favorable reaction.
A volume/percentage leader is Yahoo! (YHOO +3%). The company beat for Q3 by $0.01 with revenue also above expectations ($248.8 mln vs the $239.3 mln). Now expects 2002 revenue to be $930-$955 mln (consensus $926.3) and 2003 to be $1.075-$1.175 bln (consensus $1.021 bln).
5:42PM Yahoo! upbeat about EBITDA (YHOO) 9.98 +0.47: -- Update -- On call, notes its 24% EBITDA margin in Q3 was the first time the margin has been above 20% in 7 quarters... expects to operate in a 20-30% EBITDA margin range in 2003... YHOO +0.29 at 10.27
5:15PM Yahoo! sees similar gains in Q4 Marketing Services revenue (YHOO) 9.98 +0.47: -- Update -- On call, says it expects Marketing Services revenue to show similar gains in Q4 to the 22% increase achieved in Q3... YHOO +0.31 at 10.29
4:34PM Yahoo! beats by a penny, issues 2002-03 outlook (YHOO) 9.98 +0.47: Reports Q3 (Sep) earnings of $0.05 per share, $0.01 better than the Multex consensus of $0.04; revenues rose 49.8% year/year to $248.8 mln vs the $239.3 mln consensus. Expects 2002 revs to be $930-$955 mln and 2003 to be $1.075-$1.175 bln, vs consensus of $926.3 mln and $1.021 bln, respectively.
4:12PM Rambus beats by a penny (RMBS) 4.00 -0.10: Reports Q4 (Sep) earnings of $0.06 per share, $0.01 better than the Multex consensus of $0.05; revenues fell 12.2% year/year to $24.5 mln vs the $24.0 mln consensus. In addition, co authorized the repurchase of up to an additional 5 mln shares.
Close Dow -215.22 at 7286.27, S&P -21.79 at 776.76, Nasdaq -15.10 at 1114.11: Broad based weakness at the start of the session with a number of big names, or 'generals' if you will, pacing the way on the downside. The Dow and S&P 500 stabilized at or slightly above the early lows through much of the session but stumbled to fresh session lows in late trade. The generals included: General Electric (GE -5.7%)-- estimate cuts by Morgan Stanley; General Motors (GM -7.7%)-- Lehman cuts its free cash flow estimate for 2003-2006 and its price target; General Mills (GIS -2.7%)-- downgraded to Neutral by CSFB. Other well known names in the news today in a negative light were MRK, JNJ (downgraded) and HPQ (executive said not counting on a tech recovery in 2003; customer spending plans remain flat). The Nasdaq indices diverged for much of the session as bargain hunting surfaced in the beleaguered semiconductor, software and networking sectors. Cisco Systems (CSCO +7.3%) powered the latter group with an upgrade by Needham helping to underpin. The tech sectors were unable to continue to buck the overall bearish posture with all the averages slipping in late trade. Although the S&P 500 has underperformed the Dow on a percentage basis year-to-date, it is holding above its July low (775.68) by an angstrom. As far as the temporary end to the West Coast lockout situation is concerned, the market did not benefit. While ships will be unloaded, the pace of the work (workers citing safety concerns for possible slowdown), the substantial backlog to work through and the loss from perishable goods could lead to significant product shortages. Volume was relatively active with market internals firmly negative (except for the Nasdaq up/down volume ratio) throughout the session. The Treasury market was confined but stronger in the wake of the equity pressure. DJTA -4.8%, DJUA -9.6%, DOT -0.2%, Nasdaq 100 -0.5%, SOX -0.8%, XOI -2.5%, NYSE Adv/Dec 480/2831, Nasdaq Adv/Dec 871/2551
3:55PM CSFB on Semiconductors : Firm lowers Y02 estimates for Texas Instruments (TXN 13.25 -0.75) and Intel (INTC 13.48 +0.26); expects both companies to trade in sync near-term, but suggests long-term investors focus on TXN over INTC based on: 1) end-market growth: TXN's focus on faster growing analog and DSP segments is superior to INTC's focus on slower growing products; 2) competitive positioning: INTC's market share opportunities are limited, while TXU has room to monopolize larger share; 3) margin expansion: y/y peak margin comparisons are favorable for TXU; 4) capital efficiency: TXN is expected to improve invested capital turns due to outsourcing, while INTC will likely have lower asset returns due to less contracted services; 5) valuation: TXN has more room for PEG and EV/sales expansion, higher upside potential than INTC. Historically, TXN and INTC have performed in sync, with INTC only slightly outperforming TXN YTD (-59% vs. -54%).
2:25PM CSFB prefers Texas Instruments over Intel : CSFB says in the long-term they favor TXN over INTC, saying the former's focus on analog and DSPs should enable it to have faster end-mkt growth, better competitive positioning, and higher margins relative to its past peak levels; in addition, firm also cites TXN's increasing capital efficiency due to outsourcing and lower relative valuation. Cuts FY02-03 ests for both co's and cuts TXN's price target to $20 from $25 and INTC's to $16 from $21.
2:21PM Siebel Systems (SEBL) 6.17 +0.52: Stock is enjoying a nice pop today amid rumors that Microsoft will make a bid for the company (see 12:37 In Play comment). Though Salomon Smith Barney dismissed the possibility of a takeover, noting that the rumors began circulating when SEBL invited Bill Gates to speak at its conference, Briefing.com suspects that we could begin hearing about, and eventually witnessing, a lot of takeovers in the technology sector.
There are several reasons why we think the sector is on the verge of a merger wave, beginning with value. After three years of brutal declines, value is returning to the tech sector. Take Siebel for instance. Stock trades at 1.5x trailing 12-month sales and about 20x estimated earnings, with a PEG (p/e to long-term growth rate) of 0.87. Values are even more attractive when you consider that SEBL is sitting on more than $4 per share in cash and short-term securities with very little debt. Company is also cash flow positive with some of the more attractive margins in its group. Business conditions may still be soft, but this is a company with obvious long-term value, that would, quite frankly, make an attractive acquisition candidate for the right firm.
Aside from restored value, tech sector a likely candidate for increased merger activity merely because of the maturation process. After the PC and telecom booms of the 80s and 90s, the sector is now more mature. Growth rates will be slower and driven increasingly by the replacement cycle. Consolidation is a natural by-product of the maturation phase of an industry/sector, as companies join together to sustain/bolster growth and reduce costs.
Finally, Briefing.com contends that the Nasdaq is very near a long-term bottom. There's been no reason to move aggressively on the takeover front as long as prices were coming down hard. Let's face it, who wants to pay $100 bucks today what they can buy for $50, $40 or even $20 tomorrow? But once prices stabilize, or begin to go up (yes it is possible), look for the CEOs to start doing some bargain hunting of their own. Given that the Nasdaq has lost nearly 80% of its value in just the last three years, Briefing.com not climbing out on a limb when it suggests that the worst is already over and that a meaningful rebound is probably closer than most investors think.
So whether you believe the Siebel rumor today or not, the real point is that value is returning to the tech sector. It may not be widespread yet, but it's there and pretty soon investors big and small are going to take notice and begin to do some buying. - Robert Walberg, Briefing.com
2:09PM JP Morgan Chase downgraded by Moody's (JPM) 15.80 -0.80: Moody's downgrades co's long-term ratings to A1 from Aa3. Moody's also downgraded the long-term senior ratings of all of J.P. Morgan Chase's bank subsidiaries by one notch from Aa2 to Aa3. The downgrade reflects concerns regarding the medium-term outlook for JPM Chase's business performance, in the context of longer-term concerns about the prospects for the successful execution of JPM Chase's investment banking and capital markets strategies. JPM Chase's financial performance has lagged behind similarly rated peers during this cycle.
2:00PM Motorola defended by Goldman Sachs (MOT) 8.55 -1.20: Goldman Sachs is out defending MOT after the stock has sold off on yesterday's announcement that the co will repatriate $3 bln in cash from overseas; firm says the $3 bln repatriation was meant to alleviate investor concerns about liquidity, and should not have raised fears about the subject (move brought co's cash level held in the U.S. to about $4.2 bln); thinks existing cost-saving measures and job cuts should be enough to offset any cash concerns.
1:58PM Agilent (A) 11.47 -0.76: Stock drops off over 6% on Morgan Stanley's est cuts; firm lowers 2002-04 EPS based on datapoints that indicate broad-based end-mkt weakness; also cuts Q4 to $1.5 bln (below guidance of $1.6-1.7 bln) on their belief business in Aug/Sept has been flattish to slightly down in nearly all of A's segments ... Wachovia also cut Q4 ests yesterday to $1.4 bln and a loss of $0.20 following a round of channel checks that signal inventory build-up, softening demand, and pricing pressures.
1:42PM Solly says it doesn't think MSFT is interested in SEBL : Salomon Smith Barney believes the takeover rumor began after Siebel (SEBL +8.3%) invited Bill Gates to speak at its conference.
12:52PM Volatility Index nears record levels : -- Technical -- Currently trading at 49.90, the volatility index (VIX) nears the important 50.00 level. As a frame of reference, the index has one close above 50.00 in the past decade -- that was earlier this year on July 23 at 50.48.
12:37PM Siebel Systems takeover rumor (SEBL) 6.02 +0.37: -- Update -- We are hearing that a rumor is making the rounds that MSFT may make a bid for SEBL; we have not heard any chatter as to the size of a potential deal and cannot vouch for the veracity of this rumor, and note that speculation on software acquisitions has been rampant in this mkt.
12:31PM Hewlett-Packard eyeing $10.75 one-yr low set July 24 (HPQ) 10.95 -0.59: -- Update --
12:22PM SOX holds towards session highs : -- Technical -- SOX continues to hold towards its session highs. Currently trading at 221, look for initial overhead at 228 followed by 235. The favorable intraday tone would be placed in question on a failure to hold initial support in the area of 216. Sector components contributing to the move include: BRCM, MU, LLTC, NVLS, KLAC.
11:58AM Broadcom: positive comments from UBS (BRCM) 10.35 +0.55: UBS Warburg is out with some positive comments on BRCM, citing the co's production ramp of its new cable modem chipsets to ALA (which is #1 in that particular mkt) as well as the CFO's "very positive" body language in a meeting this morning.
11:23AM Siebel Systems tests resistance at 6.00 (SEBL) 6.00 +0.35: -- Update -- -- Technical --
11:21AM KLA-Tencor exhibits relative strength (KLAC) 27.16 +0.45: -- Update -- -- Technical -- Stock edges over resistance at 27.15 -- look for subsequent overhead at 27.60 followed by 28.00. The favorable intraday tone would be placed in question on a failure to hold initial support at 26.90.
10:34AM Nasdaq edges into positive ground : -- Technical -- Index has edged just over the flatline on relatively strong volume. To the upside, watch for initial resistance now at 1138/1140 followed by additional overhead at 1145. To the downside, look for initial support at 1126 followed by an additional floor at 1120.
10:20AM SOX +1.8% continues advance : Top movers in the Semi/Semi Equip sector in early trade include AMAT +4.7%, LSI +4.5%, XLNX +4.4%, IRF +4.2%, IDTI +4.1%, CY +3.8%, LLTC +3.6%, KLAC +2.5%.
10:10AM SOX -0.1% moves to morning highs led by AMAT +3.1%, KLAC +2%, XLNX +1.9%, LSI +1.6% :
10:24AM Technical Levels : A look at the six-month chart on the Nasdaq illustrates its incredible weakness over that time frame. Nonetheless, the markets did manage a modest 'rally' yesterday.
The question this move begged for most traders was whether it might constitute anything of significance. The short answer as most of you already know is 'probably not'. Total volume traded was on the strong side relative to recent months -- the NYSE traded over 1.9 billion total shares while the Nasdaq surpassed the 1.6 billion level. Yet while volume was solid, the market internals left much to be desired. Market breadth was relatively narrow and on the Nasdaq, declining volume actually outpaced advancing volume for the session.
The index' 20-day exponential moving average now rests at 1,204 and will be worth keeping an eye on for the intermediate-term. Yet the more important resistance point for those with a short-term orientation is likely to be 1,145 -- this is where the intraday rallies of the prior two sessions have topped out. If the Nasdaq should clear 1,145 on the close, start looking towards congestion in the range of 1,165 to 1,175 as a likely candidate for subsequent overhead. To the downside, keep an eye on Nasdaq 1,109 as important support, followed by additional support at 1,100.
Outside of the strict technical levels, we've been harping on the notion that many traders are waiting to initiate positions in the general area of early November. This is seasonally a standard entry point for stocks, and with the markets hovering near five-year lows, many would contend the indices have room for a sizeable move. The point of all this being that the 'early November' entry point is only about three weeks off. So the intermediate-term competing interests will be: a) the current/near-term political uncertainty and earnings concerns on the one hand versus b) the upcoming prospects for a significant seasonal run on the other.
For the time being, note that a clean closing break of the 1,145 area -- which represents the intraday high on the two previous sessions -- would modestly improve the very near-term tone. -- Mike Ashbaugh, Briefing.com
9:03AM Stocks to Watch : GE. That's the one to watch this morning. As goes GE, so goes the market. At least for today.
The S&P futures were down just a bit very early this morning despite expectations of a sell-off after yesterday's shallow rally. Then, Morgan Stanley said they are reducing 2003 earnings estimates for General Electric (GE 23.25). The reduction wasn't all that much, really. They lowered their forecast from $1.79 a share to $1.70 a share. Yet, S&P futures headed lower.
This shows how sensitive the market is to earnings expectations for next year. GE is one of the world's largest, most diversified companies. Their revenue and profits reflect macro-economic trends as much as internal factors. Lowered expectations for GE profits might very well mean lowered expectations for profits for a lot of companies.
GE is indicated to open a point or so lower. Very soon, this makes GE a "value" stock as opposed to its long-term position as a "growth" stock. In Briefing.com's opinion, not only is GE worth a look as a long-term investment, but so are other similarly situated stocks.
The consensus estimate is for GE to earn $1.64 per share in 2002. If GE trades today at 22, that places the price/earnings ratio at just 13.4. That is a substantial discount to the 30 price/earnings multiple that the overall S&P 500 carries.
The price/earnings ratio on 2003 earnings of $1.70 (Morgan Stanley's estimate which is now at the low end of Wall Street estimates) is just 12.9. Granted, the forecasts imply that GE earnings will rise only 3.7% in 2003 from 2002. Not great, but there is no negative sign in front of that number. Furthermore, the dividend yield on GE is now 3.3%. That's almost as much as the yield on a 10-year government bond. GE has increased their dividend about 15% annually the past 5 years, and they have the $0.72 per year dividend easily covered compared to profits. GE is likely to raise the dividend at least some, and the stock does have some upside potential over a several year period.
Other stocks in the news include: Lehman Brothers lowered their cash flow estimate for General Motors (GM 33.60) and lowered their 12-month price target to $38 from $41. Yesterday, CSFB downgraded autos and GM fell $2.28. This Dow 30 stock could be down again today. Another Dow 30 stock that could take a hit is Johnson & Johnson (JNJ 58.49) which was downgraded by Piper Jaffray a day after it rose $1.79 on an upgrade by Lehman.
For those still following tech stocks, Bear Stearns suggests that Siebel Systems (SEBL 5.65) revenue trends may be weak due to uncertainty in that sector, and CIBC says that Microsoft (MSFT 44.93) may see reduced profits due to the cancellation of the Extraterritorial Income Exclusion Act, which could increase their effective tax rate. CIBC lowered their MSFT price target to $57 from $65.
9:53AM ADBE early weakness blamed on Ballmer : Adobe (ADBE 18.67 -1.30, -6.7%) shares experience notable decline in early trading. Talk on trading floors is that weakness is tied to comments made by Microsoft's Steve Ballmer about a product that could compete with Adobe. Comments said to have been made at the Gartner Symposium in Orlando. Briefing.com does not have a representative at the conference.
9:22AM Hewlett-Packard not counting on 2003 tech recovery - Reuters (HPQ) 11.54: Reuters reports that EVP Michael Winkler said that HPQ is not counting on a pickup in the technology industry in 2003, but said their target to save more than $3 bln annually in operating costs from the Compaq acquisition should provide a cushion others don't have.
9:10AM KLA-Tencor could be weak off ADE Corp layoffs - Fulcrum (KLAC) 26.71: Fulcrum believes that the announced headcount cut at competitor ADEX is a sign of a worsening business environment; given mkt perception that KLAC's stock is overvalued, there could be a selling pressure on KLAC as a reaction on the news at ADEX.
8:47AM Goldman Sachs cuts targets on S&P, Dow : Abby Cohen at Goldman Sachs cuts her S&P 500 target to 1150 from 1300 and Dow Jones Industrial target to 10,800 from 11,300; says the uneven pace of economic activity has raised concerns about a double dip back into recession and perhaps deflation, which is not likely, but worries are intensified by sluggish conditions outside the US and the possible consequences of a poor outcome with regard to Iraq; share prices are being held down mainly by intense risk aversion, yet corp profits have begun to recover and inflation remains at bay. Says valuations are "appealing."
8:25AM Microsoft: tax law change may reduce estimates - CIBC (MSFT) 44.93: CIBC says that the cancellation of the Extraterritorial Income Exclusion Act due to a World Trade Organization ruling is likely to reduce export subsidy income for several large U.S. co's, including MSFT, which reportedly benefited by $0.06 from ETI in FY02; when repeal occurs, firm could cut ests by $0.07 per year and cash flow by $400 mln going forward; cuts price target to $57 from $65 following transfer of coverage.
7:45AM General Electric estimates cut by Morgan Stanley (GE) 23.35: -- Update -- Morgan Stanley reduces 2003 estimate to $1.70 from $1.79 ( Multex consensus $1.75) and lowers growth rate to 9%. Firm cites short cycle weakness, deterioration in key long cycle markets (power, aerospace) and concerns over losses in the GE Capital portfolio. Firm reiterates its Equal-Weight rating, although it believes the risk of a "perfect storm" is rising.
Advanced Micro (AMD) 3.56 +0.01: The Financial Times reports that Fujitsu and AMD are in talks to integrate their flash-memory operations in a move that would create the world's largest flash-memory group; talks center on a plan for AMD to take control of a new joint-venture co with sales of about $3 bln that would design, manufacture, and package flash-memory chips.
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