Premarket Analysis for 10/23 - Upgrades/Downgrades, Gappers, Actionable Calls

Posted By Optiondragon for myhappytrading.com

From Briefing.com

Periodicals Wrap-Up for Thursday, October 23rd
WALL STREET JOURNAL: Goldman Sachs Group (GS) is about to cut 10% of its 32,500 employees, the Wall Street Journal reported, as the credit crisis continues to take its toll on Goldman, and as the wave of downsizing affects Wall Street…The Wall Street Journal also reported that the U.S. government is considering an approximate $40B proposal to help stop foreclosures, one of the problems at the heart of the financial crisis. As well, the Treasury Department has a separate plan to employ a part of the $700B financial rescue aid to buy and renegotiate mortgages…BARRON’S: Exxon Mobil (XOM), with its cash-rich balance sheet, could easily rebound well ahead of its integrated energy peers, Barron’s Online said. With more than $30B of net cash on its balance sheet, Exxon can continue to fund its operations, pursue growth opportunities, increase its dividend and buy back stock when other companies are facing liquidity issues…

Bush administration set to tackle troubled mortgages-WSJ
The U.S. government is considering an approximate $40B proposal to help stop foreclosures, one of the problems at the heart of the financial crisis, reports the Wall Street Journal. As well, the Treasury Department has a separate plan to employ a part of the $700B financial rescue aid to buy and renegotiate mortgages. The research firm Moody’s Economy.com says that about 7.3M U.S. homeowners are expected to default on their mortgages between this year and 2010, and 4.3M of them are expected to lose their homes.

Bain Capital hard hit by credit crunch-WSJ
Some of private equity firm Bain Capital’s credit investment funds as losing up to 50%, and Sankaty Advisors, its credit affiliate, has lost between 40% and 50% in two fund that buy secure corporate loans, reports the Wall Street Journal.

Asian Markets Wrap-up for Thursday, October 23
Stocks fell sharply in a majority of Asian countries, led by commodity producers and exporters. JAPAN: The Nikkei 225 Stock Average declined 2.46%, to 8,460.98. Mazda (MZDAF) tumbled 11%, and Sony (SNE) dipped 6.3% after lowering its 2008 EPS earnings guidance by 38%. Oil producer Inpex sank 7.1% and Sumitomo Metal Mining (STMNF) declined 7.2%. Brokerage house Mitsubishi fell 5%. HONG KONG: The Hang Seng Index sank 3.55% to 13,760.49, a three year low. Energy company Cnooc (CEO) fell 8.1% and PetroChina (PTR), another oil producer, dropped 5.1%. Aluminum Corp. of China (ACH) tumbled 8.8% and China Railway Construction Corp. (CWYCF) retreated 2.5%. HSBC (HBC) declined 3.1%. AROUND ASIA: South Korea’s Kospi index dove 7.5% as the nation copes with an intense financial crisis….China’s CSI 300 Index inched up 0.08%, while Taiwan’s Taiex dipped 2.72% and Indonesia’s Jakarta Composite lost 3.08%…Taiwan’s export orders increased at a slower pace than expected last month.

Are banks fully prepared for credit card losses?-WSJ
History is not turning out to be an accurate gauge of how bad things can be. Take the mortgage crisis and structured debt products. Now banks face mounting credit card losses and what they expect might not be calculated high enough, according to the Wall Street Journal’s “Heard on the Street”. That’s because many credit card users have ongoing credit balances that help them to maintain their lifestyle. One result has been high charge off rates. As unemployment grows higher losses will follow.

Paulson says the U.S. could not save Lehman-NY Times
The government did not have the power to bail out Lehman Brothers (LEHMQ), Treasury Secretary Henry Paulson told The New York Times. Paulson had previously told Lehman CEO Richard Fuld to seek a buyer for the firm, the Times reported. The Treasury Secretary said that he had asked other firms to buy some of Lehman’s toxic assets, and tried to convince a bank to buy Lehman.

U.S. equity futures weaken
U.S. equity futures weakened over the past hour following the Asian and European markets which were lower overnight. Corporate earnings continue to pour in with mixed results. Dow Chemical (DOW) reported earnings that were up 6.2%, but the company’s CEO said he sees a recession in 2009. Insurance giant Allstate (ALL) reported its quarter with larger than expected losses as a result of hurricanes Ike and Gustav. The company reported better than expected revenues but suspended its buyback program to conserve cash.

Mastercard fee increase adds even more pressure-Telegraph
Mastercard (MA) has increased its fees to 0.0235 from 0.005 and retailers say that its added another pressure to the sector. The fees follow higher overdraft rates and overall banking fees.

Hedge-fund sellers turn to a secondary market-WSJ
Hedge fund automatic “gates” or voluntary suspensions of redemptions limit how much of their assets can be redeemed in any quarter. So investors have been forced to seek other ways to get out, reports the Wall Street Journal. In lieu of the right industry contacts there’s the Hedgebay Trading Corp. which runs a secondary market of buyers and sellers of hedge fund stakes. Discounts can be as high as 50%.

How falling energy prices help big oil companies-WSJ
With lower oil prices the heat is off oil companies for now, and the benefits include a halt to spiraling costs, a backing off in the call for windfall-profit taxes, and it also makes it easier to work with countries and get at their untapped reserves, according to the Wall Street Journal. Meanwhile, the major companies continue to make money from refining and marketing. They also are in a position to solidify their balance sheets, cut debt, and build cash. “You won’t see the obscene profitability, and the lower costs at the pump will help things,” says Frank Verrastro, director of the Energy and National Security Program at the Center for Strategic and International Studies.

Google’s Chrome web browser losing market share-Silicon Valley Insider
It’s been out just three weeks but Google’s (GOOG) Chrome web browser is seeing its market share fall. Perhaps it’s too soon to call it a failure, but a key will be if computer makers like Dell (DELL) and HP (HPQ) agree to preinstall it. Meanwhile, down-loaders are heading back to Internet Explorer and Firefox.

Analysts Upgrade Summary for Thursday, October 23rd
MOST NOTEWORTHY: S&T Bancorp (STBA), GSI Commerce (GSIC), DHT Maritime (DHT) and General Maritime (GMR) were today’s noteworthy upgrades: B. Riley upgraded S&T Bancorp to Buy from Neutral and lowered its target to $35 from $38 on valuation, as they believe the sell-off post-Q3 results is overdone. Jefferies upgraded GSI Commerce to Buy from Hold on valuation after Q4 revenue guidance was reset lower. The firm lowered their target to $13 from $18. JP Morgan upgraded shares of DHT Maritime and General Maritime to Overweight from Neutral on the company’s valuation and dividend stability…OTHER UPGRADES: Whole Foods (WFMI) was upgraded to Neutral from Sell at UBS. Archer Daniels (ADM) was upgraded to Equal Weight from Underweight at Barclays. AutoZone (AZO) was raised to Buy from Neutral at Merrill Lynch.

Analysts Downgrade Summary for Thursday, October 23rd
MOST NOTEWORTHY: Dover Downs (DDE), Prudential (PUK) and Overseas Shipholding (OSG) were today’s noteworthy downgrades: Jefferies downgraded shares of Dover Downs to Underperform from Buy on the increasing threat of gaming being legalized in Maryland after a Washington Post poll showed that 62% of Maryland voters expressed support of the November ballot measure to legalize slot machines. The firm lowered their target to $5.50 from $9. HSBC cut Prudential to Neutral from Overweight as they believe capital has eroded and debt refinancing is increasingly difficult. JP Morgan downgraded shares of Overseas Shipholding to Neutral from Overweight on lower spot rate forecasts and the company’s high leverage…OTHER DOWNGRADES: Freeport McMoRan (FCX) was downgraded to Neutral from Buy at Goldman. Logitech (LOGI) was lowered to Hold from Buy at Citigroup and to Neutral from Outperform at Credit Suisse. Covance (CVD) was cut to Hold from Buy at Jefferies.

Analysts Initiation Summary for Thursday, October 23rd
MOST NOTEWORTHY: Opnext (OPXT), Church & Dwight (CHD) and Take-Two (TTWO) were today’s noteworthy initiations: B. Riley believes Opnext has a solid balance sheet and is positioned in one of the fastest-growing segments of the optical components market. The firm started shares with a Buy rating and $6.60 target. Church & Dwight was initiated with a Hold rating a $60 target at Jefferies. The firm recommends waiting for a better entry point. Take-Two was initiated with a Neutral rating and $14 target at Banc of America Banc of America, citing tough comps going forward and the potential loss of key employees…OTHER INITIATIONS: Oppenheimer initiated Urban Outfitters (URBN) and American Eagle (AEO) with Outperform ratings and a $27 target and $14 target, respectively. Merrill Lynch initiated Omnicom Group (OMC) and Interpublic Group (IPG) with Neutral ratings.

US Airways-LCC 2009 to be a much better year than 2008
US Airways-LCC reports Q3 EPS ($2.35) vs. consensus of ($2.54)
Reports Q3 revenue $3.26B vs. consensus $3.26B

Jim Cramer’s “Mad Money”
Jim Cramer warned viewers on his show Wednesday that that “recession has only just begun.” He told them this is the worst market he’s ever seen and advised them to sell into strength and stick only with the right stocks for this environment, those with a sky-high dividend yield and management who can handle a recession. One company that fits that bill is Eaton (ETN), he said. Eaton has slid to $39 a share and sports a 5.1% dividend yield. The company has also prepared itself for a recession by diversifying out of autos, which accounted for 41% of the company’s sales five years ago to 27% today. He advised buying Eaton on a scale as it trends lower and selling portions if it trends higher. Cramer spoke with Ronald Shaich, chairman and CEO of Panera Bread (PNRA), a stock which he called one of the bright spots of a horrendous day, as earnings and comps store sales beat estimates. Shaich called the impending recession a good thing for Panera, and one that the company has been preparing for over a year. He said the company has high customer satisfaction, a strong cash position and no debt on its balance sheet. Shaich said the company sees no need for a stock buyback program and instead has chosen to use the money to expand its operations. Cramer last recommended Panera on July 23 on the premise that the company’s input costs have been falling. Since then the stock has fallen 13.6%, but Cramer said the company is still enjoying those cost savings. OUTRAGE OF THE DAY: Cramer added Sandisk (SNDK) CEO Eli Harari to his “Wall of Shame” list of the worst executives, for his rejection of Samsung’s takeover bid. MAD MAIL: Cramer is worried about Genuine Parts (GPC) and thinks that Monro Muffler (MNRO) is the better auto parts play. LIGHTNING ROUND: (Bullish) DUK. (Bearish) DDS; ROP; PII; GNW; SJI; AME.

Fast Money position recap: Macke Owns (SDS), (UUP), (MSFT), (BNI), (MCD); Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Finerman Owns (GS), (PM), (RAI), (DEO); Finerman’s Firm Owns (MO), (MSFT); Finerman’s Firm Is Short (BBT), (COF), (IYR), (IJR), (USO), (SPY), (IWM); Seymour Owns (AAPL), (BAC), (EEM), (F), (MER)

I thought the market was doing well until yesterday. This move down is not good at all and it is breaking support lines. The market seems to want to test the recent lows. I want everyone to be very careful right now and plan for a possible bigger drop. Art Cashin who has been dead on with the market since earlier this year was on CNBC this morning and was warnings that we will test the recent lows and we could have a climatic sell off which will trust the market much lower but could be the defining moment where we reach a washout bottom. Please be careful and protect your positions and portfolio with hedges, be in cash so if that moment does happen you can have your own Tudor moment. Plan for the worst.