From Briefing.com: 4:20 pm : For the fifth consecutive session, the equity market's major averages closed higher and extended the momentum with which they rang in 2006. While they had maintained positive footing since the morning, the Dow's clearance of a key technical level at which it had not closed since 2001, 11,000, helped increase afternoon buying efforts.
The market lacked much trading catalyst today, as both the corporate and economic fronts were deficient of much market-moving news. Nonetheless, a bullish bias dominated and sent seven of the ten economic sectors higher. On account of a surging auto manufacturing industry, soaring homebuilders, several pockets of relative strength across the retail board, and a sharp pullback in the price of crude futures, the Consumer Discretionary sector (+0.9%) assumed the driver's seat. With respect to auto makers - the commencement of the Detroit Auto Show put the industry in the spotlight as investors attempt to gauge the prospects for returns to profitability. Optimistic comments from GM's (GM 22.40 +1.60) CEO Rick Wagoner and Goldman Sachs' upgrade of GM shares to In-Line from Underweight sent the Dow component and its peers (F and DCX) to the top of the market. Pulling back from recently-hit three-month highs, crude futures dropped 1.3% to $63.40 per barrel and served as another measure of support. As a separate result, the Energy sector's leadership was stunted; the sector demonstrated resilience, however, and closed at the unchanged mark.
A 0.4% advance in the weighty Financial sector lent the most substantial muscle to today's market. A pair of bellwether upgrades - Prudential raised its rating on both J.P. Morgan (JPM 40.67 +0.65) and Merrill Lynch (MER 69.68 +0.98) - helped lengthen the advance that last week's FOMC minutes initiated. Although the Fed's tightening cycle may be nearing its end, the recognition that interest rates will still go higher may have capped the sector's rise; continued attention to the flat yield curve also remains a bearish overhang. Technology wavered somewhat, but still-soaring semiconductors and relative strength in hardware, despite IBM's (IBM 83.73 -1.22) downgrade, helped the sector maintain the spotlight and extend the 5.6% gain it's registered this year. Positive comments on the semi equipment industry out of Piper Jaffray, along with a handful of upgrades and target increases across the sector (including CSCO, KLAC, QCOM), underpinned the bullish bias that has pervaded Technology.
Broad-based buying took Healthcare +0.5% north; following Boston Scientific's (BSX 25.88 -0.36) assertion that it will divest over $4 billion in assets to Abbott Labs (ABT 42.41 +1.52) as part of its acquisition of Guidant (GDT 69.00 +1.65), ABT emerged as a particular bright spot. With respect to the BSX and GDT deal, the former formalized its $25 billion offer, which represents a 12% premium to the revised Johnson & Johnson (JNJ 62.99 +0.39) bid, over the weekend. Further to the M&A front, Tyco (TYC 31.04 +1.06) is reportedly considering a plan to further break up the conglomerate, and Texas Instruments finalized the sale of its sensors and control business to private equity firm Bain Capital for $3 billion. Meanwhile, Duke Energy (DUK 27.05 +0.06) will purchase Duke Energy North America's entire fleet of power generation assets outside the Midwest for about $1.54 billion. The action is reflective of the M&A wave that is expected to persist during 2006.
Today's single piece of economic data was the November consumer credit report - which unexpectedly showed a $0.6 billion decline (consensus +$5 billion). The data did not have much affect on trading within the either the stock or bond markets, though. Two rounds of Fed speak similarly went largely unnoticed, as comments from Atlanta Fed president Guynn and Kansas City Fed president Hoenig delivered little surprise.DJ30 +52.59 NASDAQ +13.07 SP500 +4.70 NASDAQ Dec/Adv/Vol 1193/1872/2.00 bln NYSE Dec/Adv/Vol 1090/2208/1.67 bln
11:41 am RF Micro Device: Oppenheimer upgrades Neutral to Buy. Firm upgrades, as Motorola sees increasing traction from its newly introduced phones. They believe RFMD supplies its Polaris II solutions to the Motorola RAZR, ROKR, SLVR L6 and the PEBL, which are all seeing stronger-than-anticipated growth.
11:40 am SanDisk: Oppenheimer upgrades Neutral to Buy. Target $85. Firm believes from talking to multiple NAND flash consumers, and flash controller manufacturers that the IM Flash venture will not affect supply and pricing until early 2007. Also, they think Apple (AAP) is expected to dramatically increase consumption of higher density flash in 2H06 with the addition of 4GB/8GB iPod Nano and with a new laptop to be launched in the next few months featuring rapid start off NAND memory.
11:39 am Covance: Lehman Brothers reiterates Overweight. Target $54 to $54. Target change comes in conjunction with firm's Lehman C.R.O. outlook. They expect the co to benefit from capacity expansions to its preclinical facilities in Harrogate, UK, and Madison, WI, which should help sustain the revenue growth acceleration seen in 2005.
11:38 am Symantec: WR Hambrecht upgrades Hold to Buy. Target $23. Firm is saying at current valuations, the firm believes that the co's stock is already incorporation many of the issues that were noted by investors, such as a deceleratiiung growth in consumer security business, intergration of Veritas' storage business, and increased competition from vendors like MSFT, EMC, and MFE. That said, the combination of an attractive valuation, solid balance sheet, and easier compares in the consumer business lead them to believe that the worst may now be behind.
11:38 am Isle of Capri: Morgan Joseph initiates Buy. The firm says the co has a strong pipeline of growth opportunities, including its Waterloo, IA riverboat and additions to its properties in Bettendorf, IA, Boonville, MO and Black Hawk, CO. The firm also notes that the co is also redeveloping its casino in Biloxi, MS, an applicant for a Category 2 license in Pennsylvania, has applied for a regional casino license in the UK, and is also a part of a group competing to develop an integrated casino resort on Sentosa Island in Singapore.
11:37 am Riviera Holdings: Morgan Joseph initiates Buy. The firm says that the co's Riviera Las Vegas property is located on the north end of the Las Vegas Strip, near the Las Vegas Convention Center and Stardust. They believe this site is an attractive location for casino companies seeking to enter or expand their presence on the Las Vegas Strip, thus making RIV a likely takeover candidate.
11:37 am Trump Entertainment: Morgan Joseph initiates Buy. The firm says that the co appears to be turning the corner. The firm notes that in 3Q05, the co reported its first Y/Y gains in revenue and EBITDA since the opening of Borgata. While they project modest rev growth in 2006 and 2007, EBITDA is expected to grow at a faster rate based on a more rational expense management.
11:36 am Boston Scientific: JMP Securities upgrades Mkt Outperform to Strong Buy. Target $34. Upgrade is following the announcement of a $72 bid for GDT, which the firm says raises the level of certainty of the deal high enough that they find the purchase of BSX shares urgent. They believe the stock can rapidly discount the longterm opportunity; and risk/reward is best at these lower prices.
11:35 am Lithia Motors: Calyon Securities initiates Add. Target $35. The firm says that LAD's strategy is unique and prudent -- focus on domestic brands in smaller, rural mkts with limited competition. They believe this contrarian strategy is appropriate given the demographics of Lithia's target mkts.
11:35 am Vertex Pharm: CSFB reiterates Outperform. Target $33 to $33. Price target change is based on positive data on HCV treatment with VX-950 in combination with pegylated interferon. They have increased their estimated probability of program success to 65% (was 60%) in their probability-weighted DCF valuation of the VX-950 program, which increases their VX-950 value to $23 per share.
11:34 am Autonation: Calyon Securities initiates Add. Target $26. The firm says they expect AN to remain a cash machine. Of all of the publicly traded auto retailers, the firm says AN returns the largest portion of its excess cash to shareholders. They estimate the co will generate C.F.O of more than $500 mln annually in 2006 and 2007. They also believe continued strong F.C.F will drive further return of capital to shareholders, almost entirely in the form of share repurchases in the near-term.
3:54 pm Mike Tarsala's StockWatch -- Looking ahead to 2006
Our goal since we began publishing Mike Tarsala's StockWatch exclusively on BriefingTrader about half-way through 2005 was to provide both special situation position trades and aggressive investment ideas that will make subscribers money over weeks and months, rather than a period of hours or days.
In a year in which the Russell 2000 gained about 4% and the Dow Jones Industrials barely budged, we were able to point out high-volume stocks, such as I2 Technologies (ITWO), Home Solutions (HOM) and American Oriental Bioengineering (AOB) -- names that more than doubled in 3 months or less. A good many of our other picks moved a good 30% or more within a matter of weeks after we wrote about them, including long picks Relm Wireless (RWC), Origin Agritech (SEED), SuperTex (SUPX), OptionsXpress (OXPS), The Knot (KNOT), On2 Technologies (ONT), as well as BioCryst (BCRX) on the short side.
Most of our StockWatch picks made money. And for the few that did not, we were able to pinpoint stops that 1) described a specific level of risk we'd be willing to accept and 2) told people the point at which we would give up on the idea.
Already, we are researching several potential names for early 2006. One we are working on right now is a speculative China play that we think offers good risk/reward. We still like some e-commerce names, especially one in particular that has llittle to no analyst research. In the early part of the year, we will be watching stocks in industries ranging to enterprise software to railroads and insurance brokers. We are looking for opportunities to enter some underappreciated oil and gas names. And we are sure to find some utterly absurd stories that are sure to be shorted.
And to be sure, we will be revisiting some of the names we have recently profiled, such as Metretek (MEK) and Relm Wireless (RWC), two companies that we feel are still in the early innings of their development.
As always, our goal is to 1) Pinpoint specific, timely ideas that are not heavily researched and 2) when possible, provide the extra information that we believe is not known to the market at all, providing an edge to our loyal subscribers.
To receive Mike Tarsala's StockWatch, contact Briefing.com or go to www.briefing.com and click on "Learn About BriefingTrader." -- Mike Tarsala, mtarsala@briefing.com
For reference, following are recent Tarsala picks, as well as a brief summary of the research on each name:
Dec. 12 05 Metretek Technologies (MEK) $7.84 Tarsala noted that while BriefingTrader had covered Metretek and the stock had rallied more than 75% since Sept., a case could be made that MEK was still an inexpensive growth name that could see a price of $12 or more, with the company potentially guiding earnings higher.
MEK rose another 29% to $10.13 in less than a month.
Nov. 28 05 Origin Agritech (SEED) $9.21: Tarsala called Origin Agritech a SEED that should produce strong growth, saying that the low-priced Chinese stock targeting the agriculture market was one of the fastest-growing, most profitable and best-known genetically modified seed companies in China. He also said it would simply be a name that would benefit from being discovered by the crowd that seeks growth at low P/E multiples.
SEED rose 50% to $13.80 in less than 2 weeks.
Nov. 10 05 Saifun Semi (SFUN) $33.43: Tarsala noted a potential red flag in the hot chip IPOs prospectus $16.5 mln of the $37.44 mln it reported in first-half license revenue was designated non-cash. Excluding the non-cash license revenue, Tarsala noted that SFUN was trading at 19x its 05 sales run rate, vs. 1 to 5 times sales for other profitable, growing memory chipmakers.
SFUN fell 15% to $28.51 in less than 2 weeks.
Nov. 3 05 Borland (BORL) $5.61: Tarsala talked about BORL on a pullback as the stock was garnering more attention from value players who believed that the company could sell off a forgotten piece of the company for a price approaching BORLs entire enterprise value. M&A speculation increased when the company named a new CEO a few days later.
BORL rose 17% to $6.58 in a little more than a week.
Nov. 1 05 OptionsXpress (OXPS): $19.40: After a conversation with CFO David Fisher, Tarsala called OXPS one of the fastest-growing online stockbrokers with a niche market, a fairly inexpensive stock, impressive margins, the lowest subscriber acquisition costs in the industry, and the potential to become a very attractive takeover for a larger company in its niche.
OXPS rose 34% to $26.05 in a little more than a month.
Oct. 27, 05 Relm Wireless (RWC): $5.22: Tarsala called Relm, maker of digital and analog emergency radios, a low-float, small-cap high-growth tech company with a great stock chart, with the chance to make significant market share gains on Motorola (MOT). He added that he expected very strong bookings growth when the company reported earnings.
RWC rose 62% to $8.48 in less than 2 months.
Oct. 18, 05 BioCryst (BCRX): $16.71: Tarsala called BCRX a stock to watch as a potential short, naming 10 reasons why at minimum, he wouldnt be willing to hold BCRX as a long, including its valuation, minimal revenue, and lack of multiple drug candidates. He said it may just be a matter of time until the market gets tired of bird flu plays such as BCRX.
BCRX fell 35% to $10.90 in less than 4 weeks.
Oct. 18, 05 SuperTex (SUPX): $28.66: Tarsala highlighted SUPX as a trade ahead of earnings, saying that one of his contacts with a very successful track record suggested that the analog and mixed-signal chipmaker would beat earnings, due partly to strong sales of chips inside the Motorola RaZr handheld.
SUPX rose 42% to $40.52 in less than 4 weeks.
Oct. 13, 05 Blue Coat (BCSI)): $40.01: Tarsala went back to a name he had written about with success in the past, suggesting that BCRX had gas in the tank, and made sense as a trade above $40.80, as he continued to hear that the companys new products were in strong demand. He suggested that revenue estimates could go higher for the companys seasonally strong January quarter.
BCSI rose 27% from his trigger in less than a month.
Oct. 7, 05 The Knot (KNOT): $10.40: Tarsala noted The Knots projected EPS growth of 140% in 06, its low float of about $12.6 mln shares, a recent stock pullback, and that he believed KNOT was a takeout candidate by a big-box retailer such as Target (TGT).
KNOT rose 39% to $14.39 in a little more than 2 weeks.
Sept. 21, 05 Catcher Holdings (CTHH): $3.85: Tarsala said he thought that the airport security play was getting close to announcing its first customer contract, and that he believed beta versions of the product had been sold.
CTHH rose 40% to $5.40 in about 5 weeks.
Sept. 8, 05 On2 Technologies (ONT): $0.67: Tarsala wrote that he expected tiny On2 to be a beneficiary of an anticipated voice-over Internet protocol service from America Online, resulting in incremental business, upfront fees, and an ongoing royalty.
ONT rose 40% to $0.94 in less than two weeks and more than doubled in 4 mos.
August 29, 05 Pike Electric (PEC): $15.25: Tarsala said the recent IPO would likely gain significant business fixing downed power lines. He called the company and confirmed that it already had dispatched crews to Florida and Louisiana. He also noted that the fast-growing company traded at 16.8X forward EPS, a discount to rival Quanta Services, at 29.9X forward EPS.
PEC rose 34% to $20.30 in one month.
Aug. 11, 05 Home America Solutions (HOM): $2.31: Tarsala called the restoration services stock a rare play on both momentum and value, a stock in hot sector trading at just 11.6X the high end of its EPS guidance. He said the stock had more than 50% upside. Follow-up coverage also detailed how the co could get additional business and stock appreciation from Hurricane Katrina.
HOM rose 203% to $6.99 in less than 3 months.
August 10, 05 -- American Oriental Bioengineering (AOB): $2.21: Tarsala said AOB would benefit from investors looking for other Chinese growth stocks due to the Baidu (BIDU) IPO. He noted that AOBs net income was up 69% in the previous year, yet the stock was trading at a little more than 12Xs '04 earnings -- very cheap for its growth rate.
AOB rose 248% to $7.68 in less than 3 months.
July 25, 05 I2 Technologies (ITWO): $12.36: Tarsala said the supply-chain software company was just hitting investors radar screens following its relisting. He said he expected ITWO shares to climb, as it showed its first signs of recovery from its messy restructuring. He also noted that the stock was a steal at less than 1X sales, vs. more than 3X for many competitors.
ITWO rose 101% to $24.88 in a month.
10:26 am Texas Instruments (TXN)
34.18 -0.27: In the latest technology-related buyout, Texas Instruments said Monday that it is selling its Sensors & Controls business to private investment firm Bain Capital for $3 billion in cash. Texas Instruments' board has already approved the sale, which is expected to be completed in the first half of 2006.
The Sensors & Controls division, which is based in Attleboro, Massachusetts, supplies engineered sensors and controls to a variety of industries, including the automotive, aircraft, and appliance segments. It has about 5,400 employees and generates annual revenue of more than $1 billion. The unit's operating margins of 25% are roughly double those of its larger rivals.
"This agreement is about unlocking value," said Texas Instruments' President and CEO Rich Templeton. "TI will intensify its focus on our high-growth core digital signal processing and analog semiconductor opportunities, while Sensors & Controls will have greater access to the investment and strategic resources it needs to fuel its future growth." Over the last ten years, Texas Instruments has sold off certain non-core units in order to focus on chips for consumer electronics and wireless communications. That focus is expected to continue to fuel growth and investment in fabrication capacity, and has been the basis for our Overweight rating on the Technology sector.
--Richard Jahnke, Briefing.com
09:35 am Tyco (TYC)
30.80 +0.82: Shares of Tyco International moved higher in early trading after a Wall Street Journal article stated the company may proceed with a plan to break up the business. CEO Edward Breen stated in November that the industrial conglomerate was considering a split due to a languishing stock price. The company, which under former CEO Dennis Kozlowksi was beefed up through a number of acquisitions, has already agreed to sell off its plastics unit for $975 mln. The Journal, citing people familiar with the matter, said Breen will ask the board this week to approve a full breakup.
The company has made significant improvements to its balance sheet over the last few years, cutting its debt load and alleviating concerns over perceived liquidity issues. Breen has publicly acknowledged his disappointment with the share price, saying he was considering strategies, including share repurchases and an increased dividend payment. The WSJ reported the board will be asked to approve a spin-off of the high-growth electronic and health-care businesses. Breen would be left to run the remaining security, fire-protection, and pump and valve operations, according to the article.
In the past, we've been bullish on Tyco due to its restructuring efforts and improved transparency, but grew wary as organic growth failed to materialize. The market clearly views a potential break up of the company as positive - as do we - as a value-enhancing exercise. Shares tumbled to a low of $25 in October, but have retraced lost ground over the last quarter. The stock trades at a forward P/E of 14.9x compared to Honeywell (HON), 3M (MMM) and GE (GE) at 17.9x, 18.4x, and 20.6x, respectively.
--Kimberly DuBord, Briefing.com
09:16 am Boston-Scientific (BSX)
26.24: In a move to hold off rival Johnson & Johnson (JNJ), Boston Scientific Corp. on Sunday made a definitive offer to acquire beleaguered medical device maker Guidant Corp. (GDT) for $25 billion in cash and stock. The offer is in line with the company's preliminary proposal made in December and is approximately 12% higher than J&J's reduced offer of $22.3 billion.
To help ensure regulatory approval of the deal, Boston Scientific also said it will sell two of Guidant's units to Abbott Laboratories (ABT) for $4.3 billion. Under the terms of the agreement, Abbott would pay $3.8 billion upfront for Guidant's vascular business and an additional $500 million upon regulatory approval of Guidant's stents.
Boston Scientific's bid for Guidant comes as J&J lowered the price of its offer in November, due to increasing safety concerns and litigation over Guidant's implantable heart devices. The purchase of Guidant would give Boston Scientific access to the $10 billion market for pacemakers and defibrillators, creating the world's largest cardiovascular company.
Separately, Boston Scientific on Monday announced preliminary sales results for fiscal 2005 and its fourth quarter. The Natick, Massachusetts-based company said net sales for the year are estimated to be $6.28 billion, up 12% from $5.62 billion in the year-ago period. At the same time, worldwide coronary stent sales are expected to be $2.69 billion, compared with $2.35 last year. For the fourth quarter, the company said it expects sales of $1.54 billion, including worldwide coronary stent sales of $640 million.
--Richard Jahnke, Briefing.com
09:10 am General Motors (GM)
20.80: The automotive industry takes center stage this week with the Detroit Auto Show. There are a slew of headlines in the early morning hours, but what the market will be looking for is news on how GM (GM) and Ford (F) will return their North American businesses to profitability. The market spotted an albatross flying over GM at last year's show, when the automaker said it would no longer provide details of its sales forecasts - foreshadowing the worst had yet to come.
GM's CEO Rick Wagoner commented that he expects improving financial results this year, resulting from recent cost-cutting measures and new model lines. Consensus estimates denote the market expects GM to post its fifth straight quarterly loss when it reports its fourth quarter later this month. Wagoner stated special charges could "blur" underlying operating results through FY06. GM expects it could be liable for $12 bln as part of the Delphi bailout. Wagoner rejected the possibility the automaker would have to file for bankruptcy and denied that he was under pressure from GM's board.
General Motors was upgraded this morning by Goldman Sachs to In-Line from Underweight despite their negative long-term fundamental outlook. The call was sentiment-driven with Goldman stating, the 40% drop in GM's stock price "overstates" the risk of bankruptcy. GM continues to lose ground against its Asian rivals. According to Autodata, GM's market share has tumbled 2.5% from 28.7% since 2002, while Toyota has gained almost 3% to 13.3%.
The auto show provides an up-close view of new models, making it a must-see event for auto-industry observers. Design, innovation, and conservation are key themes with the latter taking center stage as consumer demand for hybrid cars has risen exponentially. Toyota is expected to release a new hybrid version of is Lexus GS sedan. The huge success of its Prius propelled hybrids into the spotlight as one of the best selling cars last year, selling 107,897 units. Ford showcased its new Edge - a crossover wagon with highway fuel mileage in the mid-20s, compared to 15-20 MPG for a traditional SUV.
GM's CFO Fritz Henderson also commented over the weekend that the company's effort to sell a controlling piece of its finance unit General Motors Acceptance Corp were "moving pretty fast." A sale is critical to raise GM's debt rating and lower its borrowing costs.
At a time when GM's fundamentals continue to deteriorate, sentiment may be shifting. Catalysts including the auto show and a possible GMAC deal may create buying interest in shares. While we continue to think GM faces considerable hurdles, we acknowledge the downside risk may have lessened as of late. We do expect further market share losses, production cuts, and cash burn. GM has a lot riding on the success of its new GMT900 series. The SUV-heavy lineup faces an uphill battle due to changing consumer tastes in the face of higher energy prices. It's a completely different marketplace since GM first started working on these new models. While its pipeline is full over the next few years, it's too early in the game to determine GM's fate.
--Kimberly DuBord, Briefing.com
08:58 am Wal-Mart (WMT)
45.88: Just days after posting its smallest gain for December same-store sales (2.2%) in five years and guiding Q4 earnings to $0.82-0.86 per share (consensus $0.83), near the low end of prior guidance, Wal-Mart maintained its January sales forecast. The world's largest retailer said it expects 3.0-5.0% same-store sales growth in January at its U.S. stores open at least a year, as demand for groceries outstripped general merchandise sales.
Wal-Mart got off to a quick start to the holiday season, as strong November sales benefited from aggressive advertising and discounts, but demand fell in early December as shoppers waited longer than usual for deeper discounts. Also contributing to Wal-Mart's sluggish December performance was the fact that general-merchandise sales, tied largely to a strong flow of gift-card redemptions in the week between Christmas and New Year's, outpaced food sales. As a reminder, Wal-Mart's aggressive move into the grocery space has been a buffer against lost sales in the discretionary area and has acted as a same-store sales driver. A reversal from previous weeks could bode well from a margin standpoint; however, concerns about an earnings deceleration continue to play a huge part in the stock's ongoing underperformance.
The S&P 500 is already up 3.0% during just four days of trading in 2006, matching its final tally for all of 2005. Wal-Mart shares have merely extended last year's 10.3% drubbing, tacking on an additional 2.0% decline. The recent disappointment aside, we continue to believe WMT holds appeal at current levels for the patient-minded investor.
--Brian Duhn, Briefing.com
1:48PM Tower Semicon clarifies terms of rights offering in response to questions raised by US market participants (TSEM) 1.65 -0.11 : The co, in response to questions from US market participants, today issued a clarification with respect to the terms of its rights to purchase its Convertible Debentures due 2012. As described in Tower's prospectus dated December 15, 2005, each right allows the holder to purchase $100 principal amount of debentures. Holders of the debentures will be entitled to purchase, at a subscription price of $100, $100 of Tower's US dollar denominated convertible debentures. The debentures will be convertible into Tower's ordinary shares at a conversion price of $1.10 per share. The debentures will be convertible commencing the day after the debentures are listed for trading on the Tel Aviv Stock Exchange through December 27, 2011.
10:00AM Western Digital - - Relative Strength (WDC) 21.37 +1.47 : The stock displays RS today as it extends its recent upward momentum to a fresh multi-year high....minor resistance lies around 21.44 based on its 1999 peak. |
