From Briefing.com: Stocks bounced around most of the day, losing height with each successive bounce. By the close, the indices were pretty much out of air with the Dow down 5.33 at 9674.68 and the S&P down 0.67 at 1038.06. The Nasdaq managed to move higher by 3.41 to end the week at 1915.31, led by semiconductors which demonstrated strength throughout the session. Among the biggest gainers in tech, Sigma Designs (SIGM 10.24 +1.55), which drew buying interest after Rodman & Renshaw initiated coverage of the stock with a market outperform and a $16 price target, VA Software (LNUX 5.29 +0.79), and NetSolve (NTSL 8.32 +0.62), both up on technicals. The biggest losers included Metron Technology (MTCH 4.35 -0.65) after Q1 results failed to inspire and management guided Q2 lower than Reuters Research estimate, and Computer Associates (CA 23.50 -2.45) which continued to swoon from revelations of questionable accounting practices and forced management resignations. For traders, CA has a little bit of downside (5%-8%) left with this week's action having taken the shares way outside the volatility bands. Market valuation is high but we think shares are ready for a snap back.
We are likely to see the same side-ways action early next week, with a modest upward bias, as we enter the height of earnings reporting season on Tuesday. Listen to Adtran (ADTN 74.03 +0.75), which reports Tuesday before the open, to gain some perspective on the direction and pace of carrier spending, Cognex (CGNX 30.03 +0.07), which reports after the market close on Tuesday, for some insight into industrial activity, Intel (INTC 30.43 +0.66), which reports after the market close on Tuesday, for a sense of enterprise and communications spending, and Motorola (MOT 13.79 +0.06) and Powerwave Technologies(PWAV 7.20 +0.20), both reporting after the close on Tuesday, to guage the tempo within wireless. Have a wonderful weekend.--Ping Yu, Briefing.com
6:01PM Weekly Wrap :
Several things were made apparent this week. First, the market continues to feel good about earnings prospects. Second, the bullish bias continues to persist. Third, buying interest remains broad-based. Fourth, there is still plenty of vitality in the American consumer. Fifth, there has been modest improvement in employment conditions. And sixth, a weaker dollar is a positive for the market. We will now elaborate on these developments, beginning with the dollar's performance.
Remember a couple of weeks ago following the G-7 meeting when the media was up in arms about the dollar's weakness portending bad things for the stock market? Well, we said then don't believe the hype and reminded readers that a weak dollar is good for U.S. business as it helps exports, raises the cost of imports, and produces a favorable translation of overseas profits for multinational companies. It would appear that market participants understand the connection, and press reports notwithstanding, have handled the pace of the dollar's decline in textbook fashion. To wit, the major indices ended higher this week (and last week) despite the dollar losing ground against the yen and the euro. In fact, the S&P 500 hit a new 52-wk high this week along with the Dow and Nasdaq.
The breakout to new highs was fueled by encouraging earnings news/commentary from the likes of Alcoa (AA) and Yahoo! (YHOO), as well as a batch of encouraging same-store sales results from the retailers for the month of September and a better than expected initial claims report for the week of Oct. 4. In the wake of the economic data, it was clear that the consumer remains alive and well and that the job market is beginning to improve as the 4-wk moving average for initial claims dropped to its lowest level (i.e. 393.5K) since February 7, 2003. While there is still plenty of room for improvement in the job market, the claims data were an encouraging follow-up to the September jobs report that showed a 57K increase in non-farm payrolls.
One of the more notable disappointments during the week was the General Electric (GE) earnings report. Although the Dow component met expectations for Q3 (Sep) when it reported on Friday, it cut its earnings outlook for Q4 and FY03. The revision took some wind out of the market's sails, but GE's news didn't sink the market as management's acknowledgment that it is guardedly optimistic about the economy fit well with the market's bullish mindset about economic prospects.
That mindset was evident in the broad-based participation in the market's advance. Gold stocks comprised a standout group as they benefitted from the rise in gold prices that was tied to a weaker dollar. Other notable winners included the homebuilding, aluminum, semiconductor, airline, retail, and banking groups. On the flip side, the gaming, drug, utility, telecom, and railroad groups were among the weaker performers.
Separately, waves were made in the oil market this week as the price of crude oil topped $32/bbl amid supply concerns. Oil settled Friday at $31.97/bbl, which is 18.0% higher than where it was trading 3 weeks ago. The action in the oil market will bear close watching as rising oil prices are bad for the economy in that they create an added tax for the consumer and put a crimp in corporate profit margins.
Next week, the market will get a good sense of the corporate profit picture as more than 200 companies are scheduled to report their quarterly results. They represent a multitude of industry groups with technology, financial, and airline among the more prominent groups represented. Six Dow components - JNJ, INTC, GM, IBM, KO, and HON - highlight the earnings calendar.
Briefing.com expects the Q3 earnings reporting period to be a good one and we said as much in The Big Picture Stock Brief this week. Given how far the market has run ahead of the actual reporting, though, it is possible that a big earnings season rally may not happen. Nevertheless, we believe the earnings news, in aggregate, will continue to support our moderately bullish outlook and leave market participants inclined to view corrective activity as a buying opportunity.-- Patrick J. O'Hare, Briefing.com
YTD chart of major stock indexes
Index Started Week Ended Week Change % Change YTD
DJIA 9572.31 9674.68 102.37 1.1 % 16.0 %
Nasdaq 1880.57 1915.31 34.74 1.8 % 43.4 %
S&P 500 1029.85 1038.06 8.21 0.8 % 18.1 %
Rus2000 512.28 519.06 6.78 1.3 % 35.5 %
Close Dow -5.33 at 9674.68, S&P -0.67 at 1915.31, Nasdaq +3.41 at 1038.06: The market was stuck in low gear today as buyers took the day off in light of the indices' solid run this week and the sheer number of earnings reports next week... The major indices set new 52-week highs during the prior session, and with a number of market-moving companies such as IBM (IBM 92.66 +0.21), Intel (INTC 30.34 +0.57), and General Motors (GM 42.79 +0.39) scheduled to release their September quarter numbers next week, investors made few changes to their positions... This fact was reflected in the light volume levels and the mixed breadth figures at the NYSE and Nasdaq....
Industry participation was similarly split, with transportation, brokerage, cyclicals, retail, and drug trending lower, and oil service and semiconductor/semiconductor equipment moving higher... The latter benefited from a barrage of favorable analyst commentary, which included the addition of Applied Materials (AMAT 20.88 +0.33) to Merrill Lynch's Focus 1 List, and the upgrade of Intel (INTC 30.43 +0.66) by Deutsche Securities to Buy from Hold... As a result, Intel was one of the top performers on the Dow, whereas General Electric (GE 29.32 -0.81) was the largest laggard...
The latter reported in-line Q3 (Sept) earnings and tightened its FY03 (Dec) EPS outlook to the lower end of its prior range... Today's economic reports had little impact on trading as they confirmed that neither disinflation nor inflation remain concerns in the current market environment... The September PPI rose 0.3% (consensus of +0.1%), while the core PPI (which excludes food and energy) was unchanged (consensus of +0.1%)... Finally, the treasury market will be closed on Monday in observance of Columbus Day, although the stock market will be open...NYSE Adv/Dec 1763/1464, Nasdaq Adv/Dec 1475/1693
Altera (ALTR) 18.57 +0.37: JP Morgan lowered est as they remain concerned about sluggish end demand. Due to a strong beginning to the quarter, JP Morgan expects ALTR to meet firm's 3Q revenue and EPS estimates of $210.0 mln and $0.10, respectively. Despite a strong uptake of new products, firm remains concerned about sluggish end demand and is lowering its C03 revenue and EPS estimates from $830.3 mln and $0.38 to $820.3 mln and $0.37. Firm also lowering its C04 revenue and EPS estimates from $995.0 mln and $0.47 to $955.0 mln and $0.46, respectively.
FOCUS Enhancements (FCSE) 2.97 +0.16: Rodman & Renshaw initiated coverage with a Mkt Outperform rating and $5 target; co began shipping its FS454 video conversion chip to MSFT in Q3 for its Xbox game console, and firm expects FCSE to gain increasing share throughout 2003-04 and to be a prime beneficiary as MSFT ramps up for its strong seasonal holiday sales; also, FCSE's video conversion chips are strategically positioned in two separate INTC reference designs for the digital media center mkt, key players in the professional digital camera space such as Ikegami and JVC have also selected FCSE systems, and the co is a key contributor alongside TXN for the Ultra Wide band (UWB) standard.
Intel (INTC) 30.43 +0.66: Deutsche Securities upgraded to Buy from Hold and raises their target to $35 from $26; while the mkt is generally positive about INTC's Q3 results and Q4 guidance, they believe that the upside represented by their $0.30 Q4 est (vs $0.26 consensus) provides a positive near-term catalyst for the stock; firm raises their 2004-05 ests well above consensus, as they believe continued contribution of Centrino and HyperThreading will help CY04 gross margins, while INTC's 300mm ramp could add 600-700bps to the gross margins in 2005. While the stock's 2004 valuation (29x) is close to former pre-bubble peak levels of 30x, the mkt's sensitivity to valuation is low and the stock is cheap vs peers TXN (36x), XLNX (37x), and ALTR (39x).
Lattice Semi (LSCC) 7.51 -0.38: Cut to Underperform at SG Cowen. The downgrade from Mkt Perform is based on structural changes in the PLD industry that have impaired LSCC's ability to compete in its core CPLD business. Firm is also concerned by LSCC's lack of clear direction, an expense structure that is too high, and high exposure to the declining SPLD market. Firm's checks indicate that many OEMs are now focusing only on ALTR and XLNX for both FPGA and CPLDs, and that this competitive change appears to be accelerating.
Monolithic (MOSY) 8.40 +0.20: Before the open, reduced Q3 revenue forecast. Co. sees Q3 (Sep) revenues at $3.5 mln,, previous guidance was for $4.5-5.0 mln, Reuters Research estimate is $4.7 mln. Co. cites a shortfall in revenue recognized under licensing as the reason.
Rambus (RMBS) 26.33 +0.69: Reit Buy at American Technology Research. As closing arguments are being heard in the FTC case, American Technology Research provides a sensitivity analysis of RMBS earnings power going forward. Firm would also like to note that the FTC is fully capable of throwing a monkey-wrench in the process by which RMBS can garner royalties from the overall DRAM market. While this would potentially push out firm's FY05 earnings scenario by another year, firm nonetheless believes that RMBS can reasonably garner $2.00 in EPS power in the 2005/2006 time-frame. This would support a stock price in the $50 range in the next 18+ months. Firm reiterates its Buy rating from a multi-year investment thesis standpoint.
RF Micro Devices (RFMD) 11.24 +0.29: CIBC upgraded RFMD and TQNT from Sector Underperform to Sector Perform to play the handset trends. Firm says trends in the handset industry remain particularly robust and it expects total handset sell-in to exceed 500 mln units for the year. Firm continues to favor SWKS, CREE, NOK, and KOPN to play the positive handset trends.... Also, firm says trends in wireless infrastructure are improving slightly after more than two long years. (see related Piper commentary on InPlay 07:58 ET). CIBC suggests REMC, UTSI and ARXX as attractively valued vehicles to play the improving trends in this group... Finally, firm is downgrading to Sector Underperform: CLTK and SMDI; and VLNC to Sector Underperform - Speculative.
Texas Instruments (TXN) 25.48 +0.49: Deutsche Securities upgraded to Hold from Sell and raised their target to $22 from $16 based on the likelihood for continued bullishness towards semi stocks and upside potential for consensus EPS forecasts; while a positive reporting season suggests trading upside for the stock, firm thinks the current valuation of 36x their CY04 est remains stretched.
Applied Materials (AMAT) 20.75 +0.20: Merrill Lynch added AMAT to their Focus 1 List, saying the co is well-positioned at the start of the cycle for several reasons: 1) broad product portfolio provides extra leverage to technology and capacity buys, 2) leverage to an accelerating Taiwan, 3) co has used the downturn to reshape itself into a leaner co and should see strong margin leverage as orders increase, 4) firm's analysis shows an increased likelihood for industry growth in excess of 25% in 2004, with the potential for follow-on growth in 2005, and 5) Q4 is on track and orders are on the rise. Target is $27.50.
Cree (CREE) 20.77 +1.68: Co announced that the special committee of its Board of Directors has completed its previously announced investigation into allegations of corporate wrongdoing made by Eric and Jocelyn Hunter in court filings and otherwise. The report states that the "Committee did not discover any evidence to support any of the allegations contained in [the Hunters'] Complaint or pre-litigation correspondence. Based on the Investigation, the Committee concludes all of the allegations lack merit." Cree also noted that the Hunters stated in a court filing Thursday that they have decided to dismiss without prejudice their claims alleging federal securities fraud and unfair or deceptive trade practices.
8:59AM Ratings Briefing - INTC : Deutsche Securities upgraded Intel (INTC 29.77) to Buy from Hold and raised its target to $35 from $26. Said while the market is generally positive about INTC's Q3 results and Q4 guidance, it believes that the upside represented by its $0.30 Q4 est (vs $0.26 consensus) provides a positive near-term catalyst for the stock. Firm raised its 2004-05 ests well above consensus, as it believes continued contribution of Centrino and HyperThreading will help CY04 gross margins, while INTC's 300mm ramp could add 600-700bps to the gross margins in 2005. While the stock's 2004 valuation (29x) is close to former pre-bubble peak levels of 30x, the market's sensitivity to valuation is low and the stock is cheap vs peers TXN (36x), XLNX (37x), and ALTR (39x).
What It Means:
Will provide added support for Intel's stock, because (A) it highlights the prospect of Intel surpassing Q4 (Dec) expectations (B) Deutsche is backing up its view with aggressive EPS estimates tied to expanding margins and (c) it tackles valuation concerns with a focus on relative valuation among its peer group
With its Q4 and FY04-05 estimate above consensus, Deutsche is tacitly endorsing the argument that valuations aren't high, but rather, that estimates are too low
Overall impact should be limited, though, since Deutsche isn't the first firm to sing Intel's praises... There have been six upgrades of INTC since June 30, and multiple reiterations of bullish ratings in the interim... In fact, the last downgrade came on June 13 and it came from Deutsche, which lowered its rating to Hold from Buy (since then, INTC is up 36%). -- Patrick J. O'Hare, Briefing.com
8:37AM Page One - Ahead of the Open : Stock futures indicate a higher open. This reflects the continued underlying bullish sentiment, as the news this morning is mixed.
finance.yahoo.com
My Poll Question answers. INTC barely beats expectations. INTC raises guidance slightly but does not touch capex.
Good answers to my previous post Kirk but I'm not on anyone's bandwagon.
RtS |
