paulo perez's thoughts on the mkt:
February 8, 1998.
Last week, the Dow Jones Industrial Average was up 282.99 points to 8189.49
(+3.58%), the Nasdaq Composite was up 74.99 points to 1694.35 (+4.63%), the
S&P 500 was up 31.18 at 1012.46 (+3.28%) and the Russell 2000 index of small
cap stocks was up 15.44 to 445.49 (+3.59%). The SE Asian markets are
modestly higher this evening, 0.5% to 2.5% gains generally
(http://quote.yahoo.com/m2?u ).
Needless to say it was a fabulous week for the bulls and those who used the
weakness in january to bottom fish. On Tuesday, a special report was sent
out to update you on what was the bullish signs in the market especially
with the Nasdaq. The crossing of the 20 and 50 day moving averages, and
the further distancing of these moving averages continues to add to the
argument that the Nasdaq is heading higher. However, with the kind of move
that occurred this week it won't be surprising to see some profit taking
before the next move up. The question is , what is support? Just using
wednesday, thursday and friday...it seems that some support is being found
at the 1670 area (give or take a few points).
Another positive sign mentioned on Tuesday was the 5 day streak of less than
40 new lows on the NYSE. It continued through the rest of the week.
Officially, the number of new lows from Monday to Friday were 20, 17, 16,
13, 14. Numbers this low usually signifies a strong market...one that is
now buying on the dips again. Just a few weeks ago, this market was selling
on the strength.
What brought about the sudden about face?
It seems that the Asian bug wasn't as prevelent in 4th quarter earnings as
most on Wall Street had expected. Therefore, there was alot of catching up
to do...sounds like something that was said before in the newsletter. Of
course, there were some signs that Asian troubles were hurting some
companies. For example, Qualcomm, a cellular phone maker, got crushed this
week...blaming cancellations from Asian customers as the reason in a
slowdown in business.
So what about the effects of Asia on the 1st quarter?
Looking at the way stocks have responded in the last week, one would seem
to think that the worst is over...but I want to remind you of what Alan
Greenspan ( the head of the nation's central bank) said in a prepared speech
before the US senate Committee on the Budget on january 29, 1998. Quoting
from the transcipt:
"Second, to date, we have as yet experienced only the peripheral winds of
the Asian crisis. But before spring is over, the abrupt current-account
adjustments that financial difficulties are forcing upon several of our
Asian trading partners will be showing through here in reductions in demand
for our exports and intensified competition from imports. All of this
suggests that the growth of economic activity in this country will moderate
from the recent brisk pace. "
In other words, maybe the worst hasn't trickeled into the economy yet....and
if that is the case, maybe just maybe some earnings warnings for the current
1st quarter could take some of the air out of this latest runup....or maybe
he is hinting that trouble will be really be felt in the 2nd quarter
("before spring is over"). This is just something to keep in mind
especially for the tech stocks....but it could be that strength in Europe is
going to be offsetting the weakness in SE Asia. (I feel like I'm going in
circles!)
If you are interested in reading the transcipt of the above speech, it can
be found at the following link.
bog.frb.fed.us
So what else could knock the sails off this rise??
Military confrontation in the Middle East. The stock market doesn't like
uncertainty...that is exactly what a strike on Iraq would create. For the
time being, the market is completely ignoring this event...and maybe it will
be settled by diplomacy, but it sure doesn't seem like the solution is that
simple. It seems that the White House it trying to get as much support as
possible for a military strike on Iraq. British Prime Minister Tony Blair
was in Washington this week to show his support. Madeline Allbright has
been abroad doing some convincing...however, the Soviet Union (Boris
Yeltzin) had some strong words (warning) for what could happen if the US
attacked Iraq. There's a card that was the surprise of the week. Stay
tuned!
STOCK OF THE WEEK
This week's stock of the week is in an industry that suppiles services to
the oil and gas industry. The name of the company is Global Marine
(GLM:nyse:$24.75).
Global Marine Inc., headquartered in Houston, is a premier offshore drilling
contractor, providing drilling services on a dayrate basis. In providing
dayrate drilling services worldwide, the company uses its own mobile
offshore drilling rigs and crews. The Global Marine 29-rig fleet includes 23
premium jackups, four severe-environment semisubmersibles, a deep-water
drillship, and a special-purpose submersible for arctic operation. The
company has two additional rigs presently undergoing conversion into a
dynamically-positioned deep-water drillship, and a semisubmersible,
respectively. Global Marine is also the world's leader in offshore turnkey
drilling, providing its drilling management services through three
subsidiaries: Applied Drilling Technology Inc., Global Marine Integrated
Services-International, and Global Marine Integrated Services-Europe. These
subsidiaries operate primarily in the U.S. Gulf of Mexico, West Africa, and
the North Sea, respectively.
Global Marine is benefitting from the surge in offshore deep water drilling.
Its earnings has improved dramatically and according to IBES estimates, GLM
is expected to earn 2.07 in 1998. Global Marine has plenty of street
coverage. There are 28 estimate for the 1998 FY. They range from $1.75 to
$2.35. Over the past four weeks however, there have been 8 revisions ,
averageing 2.11 for 98, in other words, estimates are rising. GLM earned
$1.58 in FY97. If it can hit $2.07 in 98, it would be a 31% increase in
earnings. Compared to the rest of its industry, GLM trades at a discount.
It's 98 PE is about 11.9. The P/E for its industry is about 17.0. If it
can get to that P/E, it would sell at $35.
Global Marine's stock took a beating with the rest of the oil drillers and
riggers over the past few months as the price of oil has dropped. However,
demand for the the services that GLM provides is projected to outstrip the
supply of offshore rigs available. This should lead to higher rates for
these rigs. It was this type of thinking that put a fire under this group
of stocks last year and if that fire returns, GLM could be in the low 40's.
The price target is therefore $38 by dec98.
Note: GLM has risen about 25% over the past few weeks. It seems that its
15 day MA is providing support during any bout of profit taking. If that is
the case, GLM will probably visit the 23.50 area. However, if it does go
there, it would provide an even better buying opportunity that where it is
now.
Global Marine has a website...it can be seen at glm.com . On
Monday evening the newsletter website will be updated with GLM being added
to its "Featured Stocks" page..be sure to check out GLM's web links at the
newsletter website. ( www3.edgenet.net ).
INTERNET SITE OF THE WEEK
This week's site is a place to find a chart and analysis on the
probabilities on the 1 day and 5 day movement in the S&P 500. It is the
S&P500 Probablilities Page by the Short Term Stock Selector Service. It can
be found at flash.net . Once in a while I go
to the site to see what they expect for the market in the short term. Use
it for entertainment or as seriously as you'd like. I haven't done any
study on its track record, but thought I'd throw it out as an interesting
site.
INTERACTIVE PORTION
This week, the newsletter website received quite a number of hits...and
that's GREAT. The work is paying off. If you have any suggestions for the
website, feel free to send them along. If you have other questions about
the market, send them along also. Maybe a midweek special report with some
answers or comments would be issued. The number of recipients continues to
grow each week and that is mainly because of the readers of this newsletter.
Word of mouth is a marvelous thing. Thanks and if you like what you read,
pass the info on to others. If you find the website useful, let a friend
know about it also. If you've noticed, I signed up with a few banner
exchange services on the web. The number of click throughs with these
services has been anemic in the past few weeks...so I may remove them form
the website...although one of them provides some pretty cool stats about the
newsletter website. Again, the newlsetter website can be found at
www3.edgenet.net
Enjoy the week....finally, the correction is over. I was glad to write
about it and steer the newsletter through it. Hopefully, you were too.
Paulo
(paulo@edgenet.net)
__________________________________________
Disclaimer: All contents and recommendations are based on data and sources
believed to be reliable, but accuracy and completeness can not be
guaranteed. Please be aware of the risks involved in stock investments. I
may or may not have puchased or sold the securities mentioned in this
newsletter without any further notice. Please do your own analysis before
investing in any stock. |
