From Briefing.com: If you needed any indication that market participants are back from vacation, simply look at the volume at the Nasdaq on Wednesday. It came in just shy of 2.3 bln shares. If you needed any indication that investor sentiment is greatly improved, simply consider that the major indices traded higher in the face of an announcement from New York Attorney General Eliot Spitzer that he is launching an investigation into alleged illegal trading on the part of several mutual fund families.
In a certain respect, Wednesday's session was reminiscent of Tuesday's action. To that end, the most obvious similarity is that the Nasdaq posted another gain; in fact, Wednesday marked the sixth consecutive gain for the Nasdaq. Additionally, the gain was achieved without the help of the semiconductor sector, which underperformed again (SOX -2.7%) as money rotated into other areas.
In particular, the software sector benefitted handsomely from sector rotation as it drew another round of positive commentary from analysts. Specifically, Oracle (ORCL 13.76 +0.37) was upgraded at Wachovia, Parametric Technology (PMTC 3.62 +0.17) was upgraded at USB Piper Jaffray, and Siebel Systems (SEBL 11.01 +0.50) was upgraded at CS First Boston, which also raised its view of the Enterprise Software space to Overweight from Market Weight. The latter followed in the wake of Tuesday's report that Goldman Sachs upgraded the U.S. Software sector to Attractive from Neutral. A better than expected earnings report from Take-Two Interactive (TTWO 36.38 +6.63) also helped the sector's fortunes.
Tech heavyweight Cisco (CSCO 20.24 +0.65) struck a chord with bulls, too, following reports that CEO John Chambers said August sales were better than expected at the SG Cowen Technology Conference. He did caution, however, that investors shouldn't get too excited by the update, yet in a momentum-driven market, that's like telling a little kid not to get excited about a visit to Disneyworld. The fact that 110.8 mln shares of CSCO were traded - twice its 3 month daily average - said it all about investors' excitement level.
On Thursday, Intel (INTC 28.22 -0.52) is scheduled to deliver its mid-quarter update after the close. Considering that it raised its revenue and gross margin guidance as recently as August 22, it should prove to be a rather anti-climactic event if all it does is reiterate those same expectations. Doing so could prompt a sell-the-news response, but overall, a reiteration of guidance in this market should be more than adequate to preserve the underlying bullish bias.-- Patrick J. O'Hare, Briefing.com
6:12PM Wednesday After Hours price levels vs. 4 pm ET levels: A positive bias prevails in the after hours session as the advance in the regular session has carried over into futures trading. Presently, the S&P futures, at 1027, are 1 point above fair value, and the Nasdaq 100 futures, at 1363, are 2 points above fair value. An impressive Q3 (July) report from Hovanian Enterprises (HOV 67.00 +1.75), combined with a number of strong August same store sales numbers, has lent support to the upbeat tone of trading.
To begin, homebuilder Hovanian Enterprises reported Q3 EPS of $2.11, that was a 76% increase over the prior year's figure and was $0.21 ahead of the Reuters Research consensus estimate. Revenues rose 20% to $848.8 mln, and contributed to a 330 basis point improvement in homebuilding gross margin. The company went on to raise its FY03 (Oct) EPS target for the third time this year, saying it would report more than $7.50 per fully diluted share. Hovanian also issued FY04 guidance that was above consensus estimates, pegging EPS above $8.25 (consensus of $7.67) and revenues above $3.8 bln (consensus of $3.35 bln).
In the technology space, Cypress Semiconductor (CY 18.29 +0.35) rewarded investors who have banked on a turnaround in end market demand by raising its Q3 (Sept) outlook. The company announced that revenues should be $214 mln and EPS should be $0.06, as compared to consensus estimates of $209.5 mln and $0.05, respectively. Cypress attributed its performance to stronger than seasonal growth in the consumer market -- including robust sales of its timing technology products.
Cigna (00 48.81 -0.20) also had encouraging earnings news for investors. The managed care provider guided Q3 (Sept) in line with the Reuters Research consensus EPS estimate of $1.17 - at $1.15-1.35 - and said it saw FY03 (Dec) EPS of $5.00-5.25, above the consensus of $4.95.
Finally, a number of retailers announced their August same store sales numbers - the bulk of which were ahead of management and Wall Street's expectations. Hot Topic (HOTT 24.74 -0.06) announced an 11.8% rise in comparable store sales on top of a 5.3% gain the year before, and also guided Q3 (Oct) EPS to $0.26 (consensus of $0.25). Aeropostale (ARO 27.15 +0.01) reported a comparable store sales gain of 1.6%, which was slightly below the consensus estimate, but said that it remained comfortable with the Q3 (Oct) consensus estimate of $0.51. One teen retailer, though, had disappointing news: American Eagle (AEOS 17.00 -0.51) reported a 10.3% decrease, which was below the consensus calling for a decline of 7-9%.
For more detail on these, and other after hours developments, be sure to visit Briefing.com's In Play, Earnings Calendar, and Guidance pages. -- Heather Smith, Briefing.com
Close Dow +45.19 at 9568.46, S&P +4.28 at 1025.27, Nasdaq +11.42 at 1852.90: Traders returned from their extended vacations with an appetite for buying, and sent the three major indices higher for a fourth consecutive session... Fearful of missing out on the market's recent winning streak, institutional investors concentrated the bulk of their buying efforts in momentum names, which translated into substantially heavier volume totals at the Nasdaq in particular, and solidly bullish breadth figures...
Yesterday's close at new 52-week highs for the Dow, Nasdaq, and S&P 500 - the latter being of noteworthy significance as it was the last major index to surpass its June/July recovery highs - laid the groundwork for the morning rally... Areas of technology such as software, storage, disk drive, internet, and communication equipment paced the advance, and were responsible for the Nasdaq's outperformance of the blue chip averages... The latter group soared on account of Cisco (CSCO 20.31 +0.72) CEO John Chambers' admission that August orders were ahead of expectations... The semiconductor group, however, failed to participate in the market's advance, and its downturn took the steam out of the market's upswing late in the day...
The Nasdaq, specifically, gave away nearly half of its gains as traders booked profits in high-flying groups... Nonetheless, the positive bias of trading still held due, in part, to the resilience of a number of blue-chip groups such as health care, financial, transportation, and homebuilding... The latter turned in a solid performance on the back of the July Construction Spending report... Although the +0.2% reading missed the +0.5% consensus estimate, the June figure was revised up to +0.7% from +0.3% and suggested that the housing market remains robust despite the increase in mortgage rates...
Tomorrow, the market will contend with several economic reports that carry considerable weight... The final revision to Q2 GDP, the August ISM Services Index, and July Factory Orders are among the reports slated to be released in the morning...SOX -2.7%, NYSE Adv/Dec 2049/1206, Nasdaq Adv/Dec 1832/1374
5:02PM The Semiconductor Cycle: Don't Call It A Comeback…Yet : In a recent ratings briefing on semiconductors, we stated traders are chasing semiconductor stocks in a manner reminiscent of the bubble era. For the month of August, the SOX increased at a prodigious rate of 18%. In that same note, Briefing.com also suggested the appropriate valuations of semiconductor shares become increasingly difficult to answer given the momentum fueling the appreciation. The same concerns regarding valuations apply to the semiconductor capital equipment sector as well.
Banc of America Securities semi cap equipment analyst Mark Fitzgerald published a research brief on September 2, 2003 essentially stating that chip momentum (total integrated circuits less memory) appears to have bottomed. The analyst also pointed to a precedence of SEMI equipment stocks increasing as momentum accelerates and suggested stock valuations are "well ahead" of prior inflections in the cycle. Momentum, as described by the analyst, consists of a measure of the rate of change in the growth of chip industry revenues. The salient piece of the puzzle now is on the "quality of the recovery" as it pertains to its slope, duration and future earnings power, according to the analyst. In addition, the firm's view of modest growth and a difficult pricing environment in IT hardware suggests the recent rally is "discounting" much of the good news ahead.
Briefing.com believes such contentions contribute to the validity of our concerns with respect to both the semiconductor and semiconductor capital equipment sectors. As these stocks continue to be bid up in conjunction with the myriad of positive news intraday, the focus on important industry metrics becomes increasingly obfuscated. Momentum as it applies to a trading market continues to consume institutional managers who do not want to be on the wrong side of the market rally. The Banc of America Securities note provided some positive data given the appearance of the industry "re-accelerating" in light of several months of data. However, the re-acceleration has occurred ahead of fundamentals, which would suggest semi and semi cap equipment stocks will continue to be under close scrutiny by the street for any weakness in expectations of growth.-- John Meza, Briefing.com
2:33PM Kulicke & Soffa upgraded at Wells Fargo; target $24 (KLIC) 12.16 +0.52: Wells Fargo upgrades to Buy from Hold; utilization rates of assembly equipment are tight, and firm is beginning to see large orders for the Christmas build season and thinks the co should be able to break even by the Dec qtr; firm also notes that the stock is trading at just 1.2x trailing sales. Target is $24.
9:45AM Needham recommends heavy over weighting in the Semi Equipment sector : Firm believes that stocks are still undervalued based on belief that we are heading into an upturn. In a downturn investors collectively use value methods to price equipment stocks, however, in an upturn investors switch to a price earnings method, which should allow significant upside to current price levels that in Needham's view are still reflecting downturn type valuations. Even if the cycle-to-cycle growth is negative 20%, which firm believes could be a worst-case scenario, the stocks are still undervalued. With cycle-to-cycle growth, semiconductor equipment stocks could reasonably be expected to yield returns of 50%to 100% or more over the next 18 to 24 months.
9:30AM Amkor biz running ahead of plan - Lehman (AMKR) 17.44 +0.11: Lehman reiterates their Overweight rating on AMKR, as checks indicate that the co's business is now running at least 1 week ahead of plan, and higher than mgmt's 8-10% guidance; firm says AMKR's profit recovery in Q3 is now a done deal in their minds, and with Q4 biz forecasts showing positive momentum, they continue to be aggressive buyers. Target is $21.
ST Assembly (STTS) 12.65 +0.04: Announced that Semiconductor Manufacturing International Corporation has selected company to provide high-end test solutions for its growing mixed signal business.
2:23PM Sector Briefing - Managed Care Providers The managed care providers, which should really be thought of as financial companies and not as healthcare companies, have done well in the past six months. Quite frankly, they proved that they did not deserve the two star rating we gave them back in January. At that time, things did look bleak for these stocks, but by March, the picture had turned around significantly. Nearly every one of these stocks beat earnings estimates significantly in Q1 and again in Q2. Today, the stocks continue to draw a mixed reaction from Wall Street, despite their strong performance over the past six months. We think the "mixed" rating is appropriate as the industry has two major forces driving it, but they are opposing forces. The positive force is demographics, the negative force is what we call "the squeezed pocketbook."
The healthcare industry, overall, has one great driver working for it: demographics. The baby boomer bulge is aging and they will demand healthcare services at a level never seen before in the industry. The best play on this force, in our opinion, is not the insurance companies, but rather, the major drug companies. (See Pharmaceutical sector.) Nevertheless, this force should be a revenue driver for all of these companies, simply by virtue of the growth of the overall market. That driver has only just begun and should continue for at least 10 years. It also appears that Wall Street has underestimated just how large this market is, or will be. Whenever you have an industry where all of the participants beat estimates, the real conclusion is that Wall Street misunderstood the overall market.
Opposing this drive is the growing realization that the current "wide-open pocketbook" approach to healthcare cannot last forever. Part of the reason for the bleak outlook early in the year was this issue. Rising premiums to employers and arguments with healthcare providers always seem to be most prominent as topics at year end, when the companies are renegotiating employer and provider contracts. During the year, the issue seems to fade. The real problem is that government insurance programs provide no real incentive for the end-user to curb costs (a Medicare recipient can visit as many doctors as they want for the same ailment, for example, with no disincentive to overuse the system.) Employers and managed care providers have tried to create disincentives in a number of ways, but with little success. As long as the overall social policy is unlimited health care for everyone, paid by insurance or social programs, the "open pocketbook" mentality will continue. Managed care providers carry the risk that services consumed will exceed the premiums collected and this fear is why Wall Street values the companies so meagerly.
In general, however, we think the "pay-the-piper" day when the healthcare consumer is forced to make a "resource decision" because of costs is still fairly far off. Most positive analysis of managed care providers boils down to the idea that everyone else has overestimated the squeeze on premiums and that the providers will continue, for a while, to simply pass on the increased costs. Most negative analysis of managed care providers boils down to the idea that the days of easily passing on the cost have ended and the days of increased demand for higher cost new services is only starting, which will ultimately squeeze the margins of these companies painfully. In our view, both of these viewpoints are essentially right, which makes for a mediocre investment premise for the overall sector, but since the two opposing forces appear to be "in stalemate" for now, we rate the whole sector three stars, or Market Performer, which is right in the middle. - Robert V. Green, Briefing.com
10:57AM Ratings Briefing - ORCL : On June 12, Oracle (ORCL 13.70 +0.31) reported its fiscal Q4 results and provided guidance for fiscal Q1 (Aug). On June 13, no fewer than six firms issued research notes on Oracle, and for the most part, they were unequivocally positive. Banc of America, Prudential, USB Piper Jaffray, and A.G. Edwards all upgraded the stock. In each instance, the respective firm moved its rating to the equivalent of a Buy recommendation from the equivalent of a Hold. Separately, Wells Fargo Securities reiterated its Buy rating; meanwhile, Fulcrum Partners felt compelled to do no more than reiterate its Neutral rating.
Since then, it has been all roses for Oracle in terms of published research. In July, Janney Montgomery Scott upgraded the stock to Buy from Hold, Prudential reiterated its Buy rating, and JMP Securities reiterated its Market Outperform recommendation. In August, Merrill Lynch upgraded Oracle to Buy from Neutral, and J.P. Morgan started coverage at Overweight. Yesterday, Thomas Weisel upgraded the stock to Outperform from Peer Perform, and today, Wachovia is upgrading Oracle to Outperform from Market Perform.
Buy-siders, though, weren't necessarily sold on what this battalion of analysts was trying to sell. To wit, ORCL closed at 13.33 on June 12, and yesterday, it closed at 13.39. In between, it hit an intra-day low of $11.17 on August 8, which represented a 16.0% decline from when the bulls started pounding the table in June.
ORCL, admittedly, has acted much better in the past month, and increasing chatter about the improving prospects for the enterprise software industry seems to be helping. We can't help but worry, though, that there is an underlying message in the fact that shares of ORCL have essentially stood still while being pushed by a litany of analysts. Accordingly, before rushing off to jump on the Oracle bandwagon, we'd suggest prospective investors wait for the company to confirm the analysts' bullish thesis with its fiscal Q1 report before the open on Sept. 12.-- Patrick J. O'Hare, Briefing.com
9:27AM The Technical Take : The market started out the new week/month in impressive fashion with the gains broad based in nature. The question of whether the recent winning streak amid weaker volume would be confirmed when the market was back to near full staff was answered as the solid price performance was accompanied by not only improved but above average volume. The S&P 500, which has failed to confirm the recent move in the other major averages, was an important story as it finally staged a break out of its three month trading range.
As far as the sectors were concerned, new highs were seen in a number of the groups. No surprise here but the more interesting aspect of late has been the performance of the banking and the semiconductor sectors. As we highlighted last week the bank index (BKX), which is often viewed as an indicator of futures economic performance, was underperforming. However, the ability of this index to hold near its recent trading range floor and recover was an indication of underlying strength. As for the key semiconductor index (SOX), which often provides intraday leadership, it posted only a minor new intraday and closing high. Given the outstanding performance this month alone for the group (+25% low to high), it was time for the rally to broaden which can be construed as a favorable development.
S&P 500: Given the breakout, thought we should focus on this index. The failure to confirm the move to new highs accompanied by the very low volatility readings (VIX) was the recipe for the failure back in March 2002. And, while we were of the concern about this situation as well as top heavy technical indicators, high levels of bullish sentiment and what some on the Street are suggesting are high valuation levels, we have always put more weight on the price action and the accompanying volume. On this front, it has been hard to find fault with the pattern among the market and sector indices despite the non-confirmation.
finance.yahoo.com
My charts show Don's data is correct. Yahoo may not be taking stock splits into account.
RtS |
