From Briefing.com: The markets forged ahead Friday on renewed optimism that the U.S. recovery will not be derailed by a weak job market. News that nonfarm payrolls increased by 57K, the first increase since January, was enough of a catalyst for buyers to step in, driving the Dow 84.51 points higher to close the week at 9572.31. The Nasdaq vaulted 44.35 points to 1880.57 while the S&P rose 9.61 to 1029.85. Technology shares also rallied in response to the jobs data. The only area of real weakness was fuel cell / alternative energy stocks, which given their early stage development status would not materially benefit from an improving economy / jobs picture.
Most of the job gains came in the areas of professional, administrative and temp services. This makes sense as corporations cautiously add personnel during the early stage of a recovery. With payrolls still 2.7MM below their February 2001 peak of 132.56MM, corporations will continue to seek ways to leverage resources. Two companies that help companies do more with less:
Corrillian Corp (CORI, 3.64 -0.21): Corrillian's software enable financial services firms to deliver services to clients across multiple product / business lines and delivery channels (e.g. private vs. commercial banking; and branch vs. internet banking). Trading at one-half multiples for software comps; at 2.9x Reuters Research consensus '03E sales of $46.5MM and 2.5x '04E sales of $52.5MM; 34x '03E EPS of $0.11 and 22x '04E EPS of $0.17.
Open Text Corp (OTEX, 37.87 +1.29): Open Text provides consulting and business process automation solutions to companies. Above average industry margins trading at less than half the multiples for software comps; at 3.5x Reuters Research consensus Fiscal '04E sales of $217.8MM and 3.0x '05E sales of $52.5MM; 34x '04E EPS of $0.11 and 22x '05E EPS of $0.17.
In Thursday's Tech Stocks page, we commented that we think stocks are likely to be volatile in October as investors and portfolio managers take profits off the table and begin end-of-year portfolio adjustments to minimize taxes. Assess valuations and take opportunities as they avail themselves to protect your gains.-- Ping Yu, Briefing.com
5:52PM Weekly Wrap :
If it is true that one of the signs of a bear market is that participants are inclined to use interim strength as a selling opportunity, then it can be said that we are in a bull market. That's because just the opposite has been happening for some time now, as participants are inclined to use interim weakness as a buying opportunity. The bull-bear distinction was on display this week, and it was clearly supportive of the bullish case as the Dow, Nasdaq, S&P and Russell 2000 wasted little time in making up the majority of the ground they lost in the prior week.
Encouraging economic data contributed to the bullish bias as a better than feared ISM Index and a better than expected September employment report provided a cue for fund managers and individual investors alike to put cash to work.
In the case of the ISM Index, it followed on the heels of the disappointing, and ultimately less influential Chicago PMI and Consumer Confidence reports on Tuesday, which raised concerns about the strength of the economic recovery and prompted some widespread selling interest. The ISM Index smoothed things over, though, when it checked in at 53.7. Although the reading was below the consensus estimate of 54.5, the market rallied in its wake armed with a sense that a number above 50 still denotes expansion and that the new orders component within the report, which was at 60.4, augurs well for the manufacturing sector.
That consideration fueled a broad-based rally on Wednesday that was exacerbated by short-covering activity and new fund inflows to coincide with the first day of the fourth quarter. The specter of the September employment report kept things in check on Thursday and overshadowed a weekly initial claims report that implied hiring activity remains anemic. Accordingly, expectations were on the low side going into the September employment report. Because they were, the market responded in spirited fashion when the data turned out to be better than expected.
Specifically, nonfarm payrolls were up 57K (consensus -25K), the unemployment rate was 6.1% (consensus 6.2%), hourly earnings were down 0.1% (consensus +0.2%), and the average workweek was 33.7 hours (consensus 33.7). While the payroll gain was "statistically insignificant" (the catchphrase of the day), it was duly significant from a sentiment standpoint as it snapped a 7-month string of declines and laid a foundation for repudiating the jobless recovery argument. Briefing.com, for its part, thinks nonfarm payrolls will probably be rising 150,000 a month by December or January.
The good economic news, as previously mentioned, spelled good things for stock prices. It didn't, however, have the same salutary effect on Treasury prices. The yield on the 10-yr note, which started the week at 4.00%, was 20 basis points higher by the end of the week. Convexity selling and asset re-allocation were factors cited for the Treasury market's weak performance. The dollar slipped against the yen and the euro, but the resurgence in the equity market in the latter part of the week helped pare its losses against those currencies.
Strikingly, at this time last week we were noting that there was but one S&P industry group that managed a gain of better than 1.0%. This week, there were but two S&P industry groups - gold and food distribution - that experienced losses of better than 1.0%. That point underscores the broad-based nature of the buying interest during the week. Technology, financial, retail, and basic materials - groups that one would expect to benefit from a belief that the economic activity is accelerating - were among the core leadership groups.
Gold prices, which had been rallying in response to the weakening dollar, experienced their largest one-day drop in six years on Friday (-$13.70 to $370/oz) as the rally in the stock market and the improvement in the dollar following the jobs report shook out some speculative accounts.
As for the stock market, we may see some added volatility in the weeks ahead, and following runs like the one we've witnessed since March, and since last October for the Nasdaq, it is a prudent move to take some profits. Overall, though, long-term fundamentals remain bullish for the stock market and continue to favor being invested in equities. That message we believe will come through loud and clear during the Q3 earnings reporting period, which kicks off next week with earnings reports from the likes of Alcoa (AA), Yahoo! (YHOO), and General Electric (GE).-- Patrick J. O'Hare, Briefing.com
YTD chart of major stock indexes
Index Started Week Ended Week Change % Change YTD
DJIA 9313.08 9572.31 259.23 2.8 % 14.8 %
Nasdaq 1792.07 1880.57 88.50 4.9 % 40.8 %
S&P 500 996.85 1029.85 33.00 3.3 % 17.2 %
Ru 2000 485.28 512.28 27.00 5.6 % 33.7 %
1:21PM Looking Ahead : Here is how Monday shapes up: there are no earnings releases of note; there are no economic reports, and there are no events scheduled. So, with that, this "Looking Ahead" column is now complete. Have a good weekend everyone!
Just kidding - on the column being complete part, that is. We wish, of course, that everyone has a good weekend (especially all you Cubs fans out there), but we also realize that there is always something going on in the market. It may not seem that way sometimes, but you don't see 1.0 bln+ shares traded without cause.
On Monday, there will undoubtedly be some piece of news that drives trading activity, but in case you were wondering, the lack of scheduled items can be attributed to Monday being Yom Kippur. The latter stands for "Day of Atonement" and it is regarded as one of the most important holy days in the Jewish year and mandates that no work be performed that day. Accordingly, participation on Monday will be on the lighter side of things.
Light trading conditions often open the door for increased volatility, so for participants going to work on Monday, there is potential for some interesting trading activity as the market adage of "sell Rosh Hashanah and buy Yom Kippur" is apt to pique some trading interest.
We'll check back in on Monday with a preview of Alcoa's (AA) earnings report, which is scheduled to be released after the close on Tuesday and which will mark the official start to the Q3 reporting period. Hopefully, we'll also check back in on Monday with the knowledge that the Cubs are still alive in the World Series race.-- Patrick J. O'Hare, Briefing.com
12:17PM Siebel Systems (SEBL) : 11.25 +0.70 Siebel Systems confirmed Q3 guidance yesterday. Management indicated sales are expected to come in between $320MM-$322MM with EPS of $0.03 vs. guidance of $0.02-$0.04. License revenues are expected to be between $109MM-$110MM, also at the mid-point of guidance for 100MM-$120MM and flat with Q2. The company continues to make progress in restructuring operations, lowering the company's cost structure to reflect current business conditions through headcount reductions, facilities consolidation and the movement of development resources offshore. As a result, management expects the company can operate as a 15% margin business at current revenue levels. On a multiples basis, SEBL may trade up to the $13 range, which is consistent with the high end of market leaders multiples. However, on a discounted cash flow basis, absent high single digits to double digits growth, the stock is ahead of itself despite the company's $2B net cash position.-- Ping Yu, Briefing.com
10:57AM ATI Technologies (ATYT) 15.75 -0.53: ATYT is extending its technology and product leadership with the latest additions to the RADEON family. The company's improving market position is reflected in Q4 results, reported before the open. Revenues came in at $380.7MM vs. $222.9MM last year. Gross margin of 35.6% vs. 30.1% came in at the high end of guidance and historical range, driven by the handheld business and improving margins for desktop systems. Encouraging is the improvement in desktop margins as desktops, 55% of sales, sit at the low end of the corporate range.
We see continued broadbased strength across segments as the company begins volume shipment this month of the 9600 XT and the 9800 XT, hailed as the fastest card on the market, and based on the company's extensive product portfolio from desktop to notebook, enthusiast to mainstream, handhelds to set-top boxes and digital TV. Going forward, management guided for Q1 revenues of $400-$430MM, gross margin of 32-35%, with operating expenses roughly equivalent to Q4 OpEx, putting adjusted EPS at around $0.12.
ATYT trades in-line with a broad group of computer systems comps. We think, given the above average growth rate for the space, emerging market opportunities and the company's improving competitive position and above average margins, ATYT can command and sustain an above average valuation.-- Ping Yu, Briefing.com
9:31AM Ratings Briefing - MMM Shares of 3M (MMM 71.28) are up over 11% since the middle of July versus a 5% advance by the Dow. The market is a forward looking entity, and little by little, analysts have been coming to a realization that the move higher is justifiable. To that effect, star analyst Mark Gulley of Banc of America upgraded MMM to Buy from Neutral on September 26 citing the company's major growth opportunity. Lehman Brothers, for its part, upgraded MMM this morning to Overweight from Equal-Weight.
Following MMM's analyst meeting this week, Robert Cornell of Lehman Brothers thinks the company could be poised to surprise to the upside as the pace of organic growth could be exceeding the market expectations. Accordingly, the analyst sees potential for upside in EPS surprises, and concomitantly, a higher stock valuation for MMM. Mr. Cornell notes that the acceleration of growth appears to be internally driven rather than economy-related and thinks the company could deliver 12-14% EPS growth in FY04, even with pension headwind. As a result, Mr. Cornell raised his FY04 estimate from $3.35 to $3.45 (consensus $3.37) and the price target to $85 from $70.
There are several reason why this upgrade is significant. First, Lehman Brothers is a bulge bracket firm and its calls often turn out to be impact calls. Second, the analyst is not simply raising his FY04 estimate, but he is raising it from below the consensus to well above the consensus, exemplifying the degree of his conviction to MMM's growth outlook. Finally, it's significant that the analyst is raising his rating on the heels of an event, such as an analyst meeting, rather than from re-tweaking his model. This shows that the ratings change has been incited by a potential change in the fundamentals of MMM, rather than from a "different way of looking" at the same story.
The stock is indicated to open 2.5% higher today and for a good reason. MMM is a quality blue-chip company with excellent management. Its recent stock split, which took effect on September 3, indicates a certain degree of confidence on the part of management. Given the current ratings distribution where 9 of the 17 analysts carry the equivalent of a Hold rating or lower on the stock, plenty of room remains for potential upgrades and therefore upside. With its dividend yield of 1.85%, Briefing.com maintains that MMM remains an attractive holding for the conservative portion of an investment portfolio. -- Victoria Glikin, Briefing.com
9:22AM The Technical Take : Another round of gains for the market averages on Thursday but is was far from a bull party as the push was limited and volume declined. Some of the fuel was used in in the previous day's strong run (also amid weaker volume) off of solid supports with traders taking a bit more cautious approach in front of this morning's jobs data.
We been concerned in the wake of the distribution days (losses on higher volume than previous day) early in the month and again last week which has been followed up with a lower volume recovery rally. However, the underlying sector action has remained constructive thus far in light of the recent retreat. A number of groups fell below their 50 day averages, a good indication of the intermediate term trend, but are back above. Two of the more important areas to watch are the semiconductor and financial sectors. The semi (SOX 429.79) index closed below its 50 day only one day but also of importance is the fact that it remained above its breakout point highs even on an intraday basis. The banking sector (BKX at 900.80) probed its 50 day but did not come close to a more important support at the lower end of its multi-month range during the slide with the upper end of this pattern now just ahead at 905.
Nasdaq Composite: As far as this morning is concerned, the market has benefitted significantly from the stronger than expected employment report. Based on the extent of the push in the pre-market readings, the index has potential to run to resistance in the 1860/1863 area in early action. This represents early month congestion as well as the 62% retrace of the recent slide. The next barriers are at 1866/1868 (initial pullback low/congest) and 1880/1882 and the 1892/1894 area. From this standpoint, it will take losses back below the 1845/1840 area to inflict any near term damage to this morning bullish bias.
To view the remainder of the Technical Take see the Stock Brief. Send suggestions, comments or questions to -- Jim Schroeder, Briefing.com |
