Wednesday Morning, September 19th
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Dow Stock News
DD - announced they are investing $500 million to expand Kevlar production.
The Wall Street Journal writes that Intel (INTC) has come out with a new line of chips that should best offerings from rival AMD (AMD).
The Wall Street Journal writes that Wal-Mart (WMT) will incur new expenses based on health plans it will offer its employees.
DIS Walt Disney Credit Suisse Initiated at Outperform $38
Ice Man Stocks
Breakouts the Ice Man may consider trading:
GRMN - 110
PCU - 116
ONNN - 12.50
Regular Trades the Ice Man may consider:
RUT - has 835 upside Gap
AKAM - 32.15
TZOO - 20
S&P - 1562 upside Gap / 1563 measured leg
PNR - 34
MRK - 51
JNJ - 64.10
JPM - 48.30 = 49.90
WMT - 44.70 = 46.17
RIG - 109.50
FHN - 31.50
SPF - 10
AXR - 33.50
BW - 48.90 = 50.60 Gap
GIL - 36
Extended Shorts the Ice Man may consider:
RIMM - 92.50 / 93
Dollar Man Ideas:
PWER - 5
SCT - 3.60
WRLS - 7
TELK - 3.25
DFC - 6
Media Commentators
Cramer's Comments:
Bullish: WB, GOOG, FWLT, DE, CAT, XOM, COP, BEAS, GLS
Zacks:
Positive: CREE, GE, LEH
Ice Cold Commentators
Swing Man Market Recap:
Stocks gapped up this morning on better than expected earnings news from one of the major brokers LEH. The rally took the SPX to resistance at 1484 within the first few minutes. After a small pullback the market rallied again, passing 1484, then to 1490 by 11:00. Then for the next three hours the market marked time while pulling back, but holding the pivot at 1484. At 1:00 the NAHB reported that home builder sentiment had reached its lowest level ever, in the 20 odd year survey. Still the market held 1484. Then at 2:15 the FED announced that they were lowering the fed funds rate 50 bps, as expected, and the discount rate another 50 bps. The discount rate was first cut 50 bps on August 17th. The market simply soared on the news, rallying 20 SPX points in a matter of minutes; it then kept right on rising into the close. At the close the SPX/DOW were +2.7%, and the NDX/NAZ were +2.65%.
Last night, I stated the following "many indices continue to setup in handles of major basing patterns which could be a precursor to a move up from these levels. The formation of handles tend to produce choppy trading as we've witnessed over the past several trading days, but typically resolve in the direction of the trend once completed. Needless to say that is exactly what occurred today. The breakout on the SP 500 above 1490 now opens the door for a test of the July highs around 1550-60 area over time. Volume increased on today's move and breath was outstanding. Short term momentum is overbought, and close to the highest levels it usually achieves during an uptrend. We should see a pullback, at some point, tomorrow.
Please remember that we will get overbought from time to time and can have some decent pullbacks. We must use weakness now as our friend and thus look to add to positions on pullbacks. One day at a time here and let's never get cocky. We will always have our guard up and look for the unforeseen. If things change we will adapt as always.
Good Trading.
CNBC Fast Money Review
1. BEST DAY IN FOUR YEARS:
The headline: Dow Surges Most Since April 2003 After Fed Cuts Rates More Than Expected
Najarian spent the morning trading the inexpensive upside calls in the XLF ahead of the Fed decision. He had been long the financials, but since the rate cut, his conviction is even stronger.
Adami had been saying he expected a sell-off if the Fed cut rates by 50 basis points, as investors would interpret it as a “panic move’ – he was proven wrong.
2. FINANCIALS
The headline: Financial Stocks Among Biggest Beneficiaries of Fed Cut
Adami says if LEH, which had been at the bottom of the totem pole, could blow out numbers like it did Tuesday, then other financials like GS and MS should “absolutely obliterate the numbers.’
Macke said looking through the actual FOMC statement he noticed a complete change in direction from previous statements. It pointed to shift in concern from inflation to growth. The language made it clear that Bernanke was guiding toward protecting growth while effectively dismissing inflation. With language like that, “you can´t be short financials.’
3. DID BEN SAVE THE HOUSING MARKET
The cracks that are the basis for this rate cut started with poor lending practices in the housing market. Did Bernanke signal that he won´t standby and let the housing slump drag us into a recession? As a result, should housing stocks be back in the ‘buy´ column?
Adami As a trade, and only as a trade, some homebuilders are back in play. He stressed that he doesn´t believe the industry is safe but there may be further upside in names like HOV, PHM and TOL.
Finerman, who has been a holder of HD, said it would all pan out for the retailer when the housing cycle turns. Until then, she will continue to be “married to’ Home Depot.
4. DID THE FED BLOW IT
Forget the knee jerk euphoria. Was Tuesday's Fed move the right one and does it signal the okay to jump back into stocks? Several esteemed Wall Street watchers joined the panel. Here´s a summary of their main points.
John Ryding, Bear Stearns Economist
- Surprised Fed made a half point move.
- Says Fed cut interest rate to help economy when, as yet, there´s not a big sign of weakening.
- Believes rate cut could “let inflation genie out of the bottle.’
- Urges investors to read the last chapter of Greenspan´s book, which anticipates interest rates going into double digits.
Stacey Briere Gilbert, Chief Options Strategist for Susquehanna International Group
- Believes inflation risk is still lurking.
- Doesn´t feel a 50 basis point cut will save the estimated 1.7 million homeowners from foreclosure because of subprime slime.
- Recommends buying stocks with a lot of international exposure such as FCX because oil is trading at $81and the dollar is making lows.
Jon Najarian, Co-Founder OptionMonster
- Feels Fed gave credit market much needed relief to ease stress and consequently stock market will benefit.
- Believes European Central Banks and Bank of England will move into a "loosening" mode.
5. CONSUMER STOCKS
The headline: Retail Shares Surge as Fed Cut Sends Investors on Shopping Spree
Macke said this cut would be good for the American consumer, especially with the holiday season around the corner.
Najarian BBY, which jumped the most in a year after reporting better-than-expected earnings, was an indicator even before the surprise cut. The numbers were great, Pete says, but the most important thing was that the retail bellwether raised its outlook.
6. POPS AND DROPS
CAT popped 5%: Macke recommends getting long this stock.
TGT popped 6%: Finerman calls this stock a bullseye.
NILE popped 9%: Macke recommends getting long.
BHP popped 6%: Najarian likes this stock.
WEN popped 6%: Finerman reminds the panel that Wendy´s has been for sale for 5 months.
BA dropped less than 1%: Adami explains that the world's second-largest plane maker lost altitude after Bank of America cut their price target on "Dreamliner" delivery concerns.
7. YOUR FIRST MOVE FOR WEDNESDAY
Macke says M is a buy.
Adami likes NUE.
Finerman prefers MO.
Najarian recommends RIO.
News and Events Digest
Breaking News
Goldman Sachs won´t close its battered Global Alpha hedge fund or inject its own money into it -- but will change how it operates. - WSJ
SAP is launching cheaper Web-based software aimed at small and midsize companies, a shift from previous strategy. - WSJ
Apple (AAPL) said it's going to launch the iPhone in Germany by partnering with the T-Mobile network of Deutsche Telekom (DT). It will charge 399 euros ($553 million) and the iPhone will go on sale in Europe's biggest economy on Nov. 9, the same launch date Apple announced for iPhone sales in Britain. IPhone requires a new 2-year T-Mobile tariff, the companies said. - MarketWatch
Wall Street investment bank and broker Morgan Stanley (MS) said Wednesday that its third-quarter net income slipped 17%, to $1.45 billion, or $1.44 a share, compared to $1.85 billion, or $1.75 a share in the year-ago period. Revenue at the firm rose 13%, to $7.96 billion, from $7.06 billion. The firm said its loan markdowns in the quarter cost it $940 million. Analysts polled by Thomson Financial had expected the firm to earn $1.54 a share in the quarter. - MarketWatch
Nice Systems Ltd. (NICE) filed with U.S. regulators on Tuesday to periodically offer up to 4.5 million American depositary shares. - Reuters
Eagle Bulk Shipping Inc. said Wednesday it will sell 5 million shares to investment bank Jefferies & Co., who in turn plans to sell the shares to the public at $25.90 each. That sale price represents a 3.6 percent discount to the stock's Tuesday closing price of $26.88. - AP
Although Tuesday's Federal Reserve rate cut may soothe the market's psyche as evidenced by stocks' rally, the event will have little if any impact on the main problems in the housing market such as the inventory glut, falling home prices, a difficult mortgage market and rising foreclosures, according to a Morgan Stanley analyst. "While the Fed rate cut will likely help some homeowners with [adjustable-rate mortgages] that are about to reset, we believe it will have little overall impact on housing fundamentals," wrote Robert Stevenson in a research note Wednesday. He said he remains cautious on home-builder stocks "and would look to short the group should it trade meaningfully higher in the absence of further rate cuts." - MarketWatch
Repsol YPF (REP) said it's won a $15 billion contract to provide gas to Mexico from its operations in Peru. The contract is due to run for 15 years. It will transport the gas to the Mexican port of Manzanillo. - MarketWatch
Media Summary:
According to Reuters, Google (GOOG) will begin to test a new interactive ad service that will allow marketers to measure user respone on creative unites using video and images.
The Wall Street Journal writes that Goldman Sachs (GS) will keep its Global Alpha hedge fund open but it will change the way it handles borrowing and volatility.
The Wall Street Journal reports that SAP (SAP) will offer web-based software for medium and small businesses.
The Wall Street Journal writes that money managers could get a large benefit if the UAW manages its own health benefits with money from the UAW. The fund will need to rely on outside managers.
The Wall Street Journal writes that that Apple (AAPL) iPhone will have a lot of competition in Europe where multimedia handsets from other companies already have a strong foothold.
The Wall Street Journal writes that Murdoch may offer WSJ.com for free moving to an ad-supported model.
According to The New York Times, Google (GOOG) is offering mini-websiites, called widgets, as a way for advertisers to bring their messages to the market.
The FT writes that the housing situation in the US worsened as builder confidence dropped sharply.
The FT reports that the CEO of Time Warner (TWX) is open to spin-offs of its cable and AOL units.
M&A Activity:
Accredited Home Lenders Holding Co. (LEND), the San Diego non-prime-mortgage lender, agreed to be acquired by private-equity group Lone Star for $11.75 a share cash, the companies said. The deal, at a 20% premium to Accredited's closing price on Tuesday, settles the litigation between the two, the companies said. In June, Accredited had agreed to a takeover by Lone Star for $15.10 a share. In mid-August, Accredited sued Lone Star to enforce the deal after the private-equity firm said that Accredited might fail to meet the conditions of its offer. At the end of August, Lone Star offered to revise the deal price to $8.50 a share, a proposal Accredited rejected.
Lone Star has deposited $295 million with Bank of New York, the escrow agent, to fund payment of the amended deal, the companies said. Lone Star also has agreed to provide $49 million to pay Accredited $34 million debt to one of its creditors and give Accredited $15 million of additional liquidity, they said. The companies have agreed to halt the lawsuit and ask the court to dismiss it when the deal closes or if it is terminated according to the deal's terms, they said. Milestone Advisors provided an opinion to Accredited's board, saying the revised terms are fair to the company's holders. - MarketWatch
Allergan Inc. (AGN) on Wednesday said it would pay $370 million in cash to buy privately held Esprit Pharma Holding Company Inc., a U.S.-based pharmaceutical company with expertise in the genitourinary market. The transaction will require anti-trust clearance from the Federal Trade Commission and Allergan expects the deal will close in the fourth quarter. Esprit's estimated 2007 revenue range is about $40 to $48 million, mostly consisting of sales of its Sanctura drug. - MarketWatch
IPO Central:
Medical device maker MAKO Surgical filed with the Securities and Exchange Commission to sell up to $86.25 million worth of shares in an initial public offering. It plans to list on the Nasdaq under the ticker symbol MAKO. J.P. Morgan, Morgan Stanley, Cowen and Co. and Wachovia Securities are named as underwriters. It intends to use proceeds in part to make a $4 million payment to IBM (IBM), as required under a licensing agreement. - MarketWatch
Maiden Holdings Ltd. on Tuesday filed to raise up to $536 million in an initial public offering. The Bermuda firm plans to trade on the Nasdaq with a ticker symbol yet to be determined. The company was formed in June of this year to provide customized reinsurance products and services to subsidiaries of AmTrust Financial Services Inc. (AFSI) and small insurance companies and managing general agents in the United States and Europe. - MarketWatch
Wednesday Split Update
Summary Of Recent Stock Split Announcements:
On September 12, Clinical Data, Inc. (Nasdaq:CLDA) announced that its board of directors approved a 3:2 stock split to be distributed on October 1, 2007.
On September 13, Simulations Plus, Inc. (Amex:SLP) announced that its board of directors approved a 2:1 stock split to be distributed on October 1, 2007.
On September 13, Dick's Sporting Goods, Inc. (NYSE:DKS) announced that its board of directors approved a 2:1 stock split to be distributed on or about October 19, 2007.
On September 17, Cognizant Technology Solutions Corporation (Nasdaq:CTSH) announced that its board of directors approved a 2:1 stock split to be distributed on or about October 16, 2007.
On September 18, Monarch Financial Holdings, Inc. (Nasdaq:MNRK) announced that its board of directors approved a 6:5 stock split to be payable on November 1, 2007.
Companies that have previously announced stock splits which become effective in the next several trading days.
Ex-Date Split Symbol Company
9/28 5:4 LPHI Life Partners Holdings
9/28 3:2 FCSX FCStone Group, Inc.
10/1 2:1 NOV National Oilwell Varco, Inc.
10/2 2:1 SLP Simulations Plus, Inc.
10/2 3:2 CLDA Clinical Data, Inc.
10/2 5:4 OPOF Old Point Financial Corp.
10/2 3:2 MNRO Monro Muffler Brake, Inc.
10/2 3:2 PH Parker Hannifin Corp.
Economic Data:
8:30 CPI
8:30 Housing Starts
8:30 Building Permits
10:30 Crude Inventories
Upgrades and Downgrades by Sector:
Advertising
RHD Goldman Sachs Downgraded to Neutral
Apparel
WRNC Warnaco Group JP Morgan Upgraded from Neutral to Overweight
Beverages
CCE Coca-Cola Ent Deutsche Securities Downgraded from Buy to Hold
Biotech
ITMN InterMune Lazard Capital Initiated at Buy
ALNY Alnylam Pharmaceut Caris & Company Downgraded from Above Average to Average $30
ILMN Illumina GARP Research Downgraded from Buy to Neutral
Broadcasting
SIRI Sirius Satellite UBS Downgraded from Buy to Neutral
XMSR XM Satellite UBS Downgraded from Buy to Neutral
Business Services
MELI MercadoLibre JP Morgan Initiated at Overweight
Computer Hardware
PLXS Plexus JP Morgan Upgraded from Neutral to Overweight
BHE Benchmark Elec JP Morgan Downgraded from Overweight to Neutral
SILC Silicom Limited WR Hambrecht Downgraded from Buy to Hold
Computer Services
INTX Intersections JMP Securities Upgraded from Mkt Outperform to Strong Buy $12
INAP InterNAP Roth Capital Initiated at Buy $19
CKFR CheckFree Citigroup Downgraded from Buy to Hold
Computer Software
ATVI Activision First Albany Price Target Raised Buy $23 to $24
DOX Amdocs Cantor Fitzgerald Price Target Raised Hold $37 to $38
VMW VMware Jefferies & Co Price Target Raised Buy $74 to $89
Gaming Operations
IGT Intl Game Tech Nollenberger Capital Price Target Raised Buy $56 to $62
ISLE Isle of Capri Stifel Nicolaus Initiated at Buy $24
Healthcare Equipment
HNSN Hansen Medical Needham & Co Initiated at Buy $36
STXS Stereotaxis Needham & Co Initiated at Buy $16
Industrial Equipment
RBN Robbins & Myers Robert W. Baird Upgraded from Neutral to Outperform $52 to $60
FELE Franklin Electric Robert W. Baird Cut Price Target Underperform $45 to $36
GGG Graco Robert W. Baird Cut Price Target Neutral $41 to $38
MWA Mueller Water Robert W. Baird Cut Price Target Neutral $16 to $12
PNR Pentair Robert W. Baird Cut Price Target Neutral $39 to $34
WTS Watts Ind Robert W. Baird Cut Price Target Underperform $35 to $33
Manufacturing
AOS A.O. Smith Robert W. Baird Downgraded from Neutral to Underperform $50 to $37
BEZ Baldor Electric Robert W. Baird Downgraded from Outperform to Neutral $54 to $42
RBC Regal-Beloit Robert W. Baird Downgraded from Outperform to Neutral $63 to $57
ROP Roper Inds Robert W. Baird Downgraded from Outperform to Neutral $64
Metals - Mfg
ZINC Horsehead Holding Friedman Billings Initiated at Outperform $27
Mfg-Chinese Medicine
TCM Tongjitang Chinese Medic Brean Murray Downgraded from Buy to Hold
Mining - Minerals
LCC Morgan Stanley Upgraded to Overweight
Mining Non-Ferr Metal
RT Ruby Tuesday JP Morgan Upgraded from Neutral to Overweight
Multi-National Banks
CFR Cullen/Frost Bnkrs Lehman Brothers Downgraded from Overweight to Equal-weight
Regional Banks
ASBC Assoc Banc-Corp Lehman Brothers Upgraded from Underweight to Equal-weight
PCBC Pacific Capital Bancorp Lehman Brothers Upgraded from Underweight to Equal-weight
HBHC Hancock Holding Stifel Nicolaus Downgraded from Buy to Hold
SIVB SVB Financial Group Lehman Brothers Downgraded from Equal-weight to Underweight
TCBI Texas Capital Lehman Brothers Downgraded from Overweight to Equal-weight
ZION Zions Bancorp Sun Trust Rbsn Humphrey Downgraded from Buy to Neutral
SIVB SVB Financial Group RBC Capital Mkts Cut Price Target Outperform $60 to $57
REITs
MFA MFA Mortgage Bear Stearns Upgraded from Peer Perform to Outperform
EGP EastGroup Cantor Fitzgerald Initiated at Buy $48
Retail Trade
AZO Raymond James Upgraded to Strong Buy
BBY Bank of America Price Target Raised $54
BBY Best Buy BMO Capital Markets Price Target Raised Market Perform $50 to $52
FBN Furniture Brands Morgan Keegan Downgraded from Mkt Perform to Underperform
Savings & Loan
WBS Webster Financial Lehman Brothers Upgraded from Underweight to Equal-weight
Telecommunications
JNPR Merrill Lynch Downgraded to Neutral
VG Vonage Soleil Downgraded from Hold to Sell $5 to $1
Utilities
ITC ITC Holdings Credit Suisse Price Target Raised Outperform $53 to $56