From Briefing.com: 6:28PM Weekly Wrap: The "sell in May and go away" adage came to fruition this week as a notable spike in market rates continued to weigh on the indices. That spike was the end result of an FOMC directive on Tuesday that hinted at the likelihood of a rate increase no later than August and a stronger than expected April employment report on Friday that suggested a rate increase would come as early as June.
Any way you slice it, concerns about rising interes rates were once again the debilitating factor for the market. For good measure, crude futures topping $40.00/bbl, the lack of concerted industry leadership, continued talk of China looking to curb its growth, and a strengthening dollar acting as a retardant for earnings growth, can also be thrown into the mix as reasons why investors were more inclined to sell stocks than to buy them.
Their acrimony with respect to interest rate trends hit its peak for the week on Friday afternoon when the stock market sold off as the yield on the 10-yr note, which began the week at 4.51%, approached 4.80%. The Treasury market's troubles followed on the heels of the April employment report. As was the case in March, the report surprised to the upside with a gain in nonfarm payrolls of 288K (consensus 165K); moreover, the increase in March nonfarm payrolls was revised to 337K from 308K.
When those headlines crossed the wires the Treasury market headed due south, however, the stock market held its own for most of the day as it was cognizant that the meaningful pickup in hiring activity was good news for the economy and earnings prospects. Those thoughts were tabled, though, when bears made another run on the Treasury market in the afternoon session and forced rates, as well as concerns about equity valuations, higher.
Strikingly, Friday's stock market sell-off didn't occur on very heavy volume; and the depressed semiconductor sector was a notable standout with a gain of 1.0% for the day. Going into Friday, the SOX Index was down 19.3% from its January high. Its divergence from the broader trend, and the relatively light volume behind the broader sell-off, could very well be early signs that the recent corrective phase in the stock market is nearing an end. The trading action early next week will offer some better insight in that regard, but it is something worth watching when returning from the weekend.
The semiconductor stocks, it so happens, comprised one of the best-performing industry groups for the week with a gain of 3.26%. The only group it trailed was Internet software & services, which jumped 3.95%. Other winners included health care distributors (+2.99%), communications equipment (+2.69%), employment services (+2.60%), semiconductor equipment (+2.54%), drug retail (+1.95%) and pharmaceutical (+1.63).
Not surprisingly, the jump in interest rates, and the residual concern about the impact on the economy, had a number of economically-sensitive groups at, or near, the bottom of the performance heap. Those groups included autos (-6.11%), construction materials (-5.49%), home improvement retail (-5.38%), aluminum (-5.24%), homebuilding (-5.03%), department stores (-3.51%), and airlines (-2.69%). The dollar's strength took its toll on gold stocks (-5.33%) and the underlying commodity, as the price of gold slipped 2.2% to $379.10. The list of weak groups goes on much further, which simply connotes the general lack of buying interest.
The week ahead shouldn't be as angst-ridden as the week just concluded, but nonetheless, there will be some happenings that necessitate the market's undivided attention. In particular, there is Cisco's (CSCO) fiscal Q3 (Apr) report after the close on Tuesday, Wal-Mart's (WMT) Q1 report before the open on Thursday, Dell's (DELL) Q1 report after the close on Thursday, and a batch of economic data that revolves around employment and inflation, namely PPI, Initial Claims, CPI, and Capacity Utilization.
Once again, look for the stock market to play follow-the-leader with the Treasury market. Arguably both are oversold and due for a bounce, but with volatility being what it is, the sidelines continues to look like a safe place to be for investment-minded individuals.-- Patrick J. O'Hare, Briefing.com
Index Started Week Ended Week Change % Change YTD
DJIA 10225.57 10117.34 -108.23 -1.1 % -3.2 %
Nasdaq 1920.15 1917.96 -2.19 -0.1 % -4.3 %
S&P 500 1107.26 1098.69 -8.57 -0.8 % -1.2 %
Russell 2000 559.80 548.56 -11.24 -2.0 % -1.5 %
9:19AM NVIDIA (NVDA) 22.40 +0.49: NVIDIA reported Q1 results after the close on Thursday. The provider of graphics and communications processors posted EPS of $0.12 on revenue of $471.905MM (+16.5% Y/Y) vs. Reuters Research consensus at $0.10 on $461.61MM.
Gross margin increased 29 bps Y/Y to 31.5%. Operating margin decreased 145 bps Y/Y to 5.1% due to increased spending on new products.
Guided for Q2 revenue of approximately $500MM (+8.7% Y/Y). Gross margin is expected to improve by 100-120 bps in Q2 and to increase throughout the year as new products contribute an increasing percent of sales. Operating expenses are expected to increase by 5-10% on higher R&D and marketing to support new products. Reuters Research prints Q2 consensus EPS at $0.15 on $496.97MM.
The following table shows price multiples and Y/Y growth rates for NVDA compared against direct comps within the semiconductor group. Company *P/SG **P/OPG P/S Y/Y Revenue Growth
TTM 2004E 2005E TTM 2004E 2005E
NVIDIA (NVDA) 1.5 43.7 1.9 1.8 1.7 8.9% 10.2% 7.0%
ATI Technologies (ATYT) 1.6 19.9 2.2 2.0 1.7 0.3% 36.4% 13.2%
Creative Technology (CREAF) 0.8 18.4 1.1 n/a 3.8% n/a
Intel (INTC) 2.9 12.9 5.4 4.9 4.4 17.8% 13.9% 11.2%
Trident Microsystems (TRID) 5.9 (79.6) 5.5 5.5 3.8 (31.6%) 2.6% 47.3%
Semiconductors 2.5 31.8 4.1 n/a 17.1% n/a
*P/SG Ratio: Normalized Trailing 12 month (Price / Sales) / Growth ratio as of April 30, 2004.
**P/OPG Ratio: Normalized Trailing 12 month (Price / Operating Income) / Growth ratio as of April 30, 2004.
NVDA shares have pulled back over 8% since the Q4 review, Story Stocks, February 12, 2004, when we said that concerns over eroding market share are likely to weigh on shares. We suggested investors hold off until a 8-13% pull-back or until total sales accelerate into the low teens before initiating a new position. Sales momentum is building and shares have pulled back. NVDA shares are, based on our inverted EVA/DCF model, priced for sustained upper teens revenue growth from F07 assuming 20% operating margin.
Management is stabilizing the company's competitive position. The company remains fully engaged in battle with ATI Technologies (ATYT 15.02) for market leadership. Near-term goals include extending company's GPU and MCP leadership, continue developing wireless media processor business, and driving gross margin improvement. Sales momentum is expected to continue building on new product introductions and recent design wins.
Shares are approaching attractive levels but lack of near-term sales / operating visibility suggest downside risk still outweighs upside. We would wait for an additional 8-13% decline or until sustainable sales growth accelerates into the low teens.--Ping Yu, Briefing.com
biz.yahoo.com
Thanks for the tables!
RtS |
