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From Briefing.com
Periodicals Wrap-Up for Friday, November 7th
WALL STREET JOURNAL: The Wall Street Journal reported that a growing number of analysts believe that because of its exposure to the deteriorating equities market, Goldman Sachs (GS) may post a loss for its fourth quarter. A spokesman for the company did not comment on the projections…FINANCIAL TIMES: Following comments by Yahoo (YHOO) CEO Jerry Yang, the Financial Times reported that Microsoft (MSFT) CEO Steve Ballmer said his company would not bid for the internet company again. While Ballmer said there were still opportunities for future partnerships, he insisted his company has no intention of resuming talks…ASSOCIATED PRESS: An Arkansas state law that enabled payday lenders to obtain high fees for short-term loans violates the state’s constitution, the Arkansas Supreme Court ruled unanimously. The state’s constitution prohibits interest rates above 17%, and the Associated Press reported that the court found the fees charged by the lenders were actually interest rates…BUSINESS WEEK: Despite the economic slowdown, putting casinos and gambling on the ropes, designer and maker of video and slot machines and video lottery terminals, WMS Industries (WMS), is reeling in fat sales and profits. However, Business Week reported that even with those fat sales and profits, the shares have slumped to $24.81, from a $41 high in February. Alan House, an analyst at Value Line says, “The big price drop as earnings rise adds to the stock’s long-term appeal.”…
Asian Markets Wrap-Up for Friday, November 7
Stocks in Asia retreated as commodity prices fell and corporations lowered profit forecasts…JAPAN: The Nikkei 225 Stock Average fell 316.14, or 3.6%, to 8,583.00, while the broader Topix Index lost 30.30, or 3.3%, to 879.00. Toyota (TM) lowered its annual profit target by 56% to Y550B or $5.64B, the lowest in nine years, and its stock dropped 9.2% to Y3,460. Honda Motor (HMC) sank 8.7% to Y2,260. Nissan Motor Co. (NSANY) slid 7.3% to Y422. Denso (DNZOY) plunged 15% to Y1,756. Mazda Motor Corp. tumbled 9.8% to Y194. Olympus (OCPNY) lost 9.3% to Y1,611. Inpex dived 8.9% to Y546,000. Mitsui & Co. (MITSY) lost 8.8% to Y943…CHINA: The CSI 300 Index gained 28.05, or 1.7%, to 1,677.83. Industrial & Commercial Bank of China rose 2.2% to 3.77 yuan. SAIC Motor added 2.7% to 5.03 yuan. FAW Car Co. was up 4.3% to 5.11 yuan. Jiangling Motors Corp. increased 3% to 6.92 yuan. China Petroleum & Chemical Corp. (SNP) climbed 0.18 yuan, or 2.7%, to 6.95. Huaneng Power International (HNP) gained 0.22 yuan, or 3.5%, to 6.54…AUSTRALIA: The S&P/ASX 200 Index fell 98.40, or 2.37%, to 4,051.30. BHP Billiton (BHP) slid 4.4% to A$27.93. Rio Tinto (RTP) tumbled 8.6% to A$72.27. Woodside Petroleum (WOPEY) sank 6.7% to A$39.80…AROUND ASIA: In Hong Kong, the Heng Seng Index advanced 453.39, or .29%, to 14,243.43…In South Korea, the Kospi gained 42.27, or 3.9%, to 1,134.49. KB Financial Group (KB) was up 2.7%. Daewoo Engineering & Construction Co. added 8.5%
Hedge fund selling adding to pressure on markets-WSJ
In two days the stock market fell about 10%. Adding to the pressure was the billions of dollars of securities that hedge funds were selling to meet cash demands. “It’s an overhang for the market,” says Merrill Lynch’s Mary Ann Bartels. Especially acute is the additional collateral requests on the $16B Citadel Investment Group by a number of key banks. The fund is down 40% this year.
Automakers plead with Democratic congressional leaders for help-WSJ
The three Detroit automakers and the UAW went to Washington and were open to conditions such as giving stock warrants to the government in return for financial aid, reports the Wall Street Journal. They met with Democratic leaders in Congress. However, House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid made no promises to approve additional assistance.
“No sacred cows” says new Royal Bank of Scotland CEO-WSJ
Stephen Hester, the new CEO of the Royal Bank of Scotland (RBS), has set out to turn the bank around and intends to cut the balance sheet and its risk, reports the Wall Street Journal. That strategy is in part to support the bank’s efforts to raise nearly $24B to meet the U.K. government’s bailout requirements.
Is Goldman Sachs headed for a Q4 loss?-WSJ
Since it went public nearly a decade ago Goldman Sachs Group (GS) has never had a down quarter. Now it may, according to the Wall Street Journal, as a number of analysts say the firm’s exposure to the slumping equities market may result in a fourth quarter loss. Analysts have estimated a profit of $1.62 but are beginning to change their views. Goldman’s stock has fallen 35% in the past month and is down 62% year to date.
U.S. equity futures point to a higher open
U.S. equity futures are pointing to a higher open after two days of significant losses. The markets lost 10% of their value, recording one of the biggest two day declines ever. Investors await the much anticipated jobs report which is due out at 8:30 am. Analysts are expecting a loss of 200,000 jobs in the non-farm sector and a 65,000 loss in the manufacturing sector. The figures are released monthly and have the potential to affect the markets.
Big oil waiting to see Obama’s energy plan-WSJ
Expecting a push for environmentally friendly fuels from the Obama administration, the major oil companies are at work on how to deal with the new government, reports the Wall Street Journal. Included is a call for financial assistance for research similar to the coal industry’s aid for clean coal technology. “It’s political judo,” says Kevin Book with Friedman, Billings, Ramsey Group. “If you make a reasoned argument that your enemy can help you to your goals faster than you can get there by yourself, you might actually succeed. It’s using the weight of political opposition to your advantage.”
Analysts Initiation Summary for Friday, November 7th
MOST NOTEWORTHY: Bristol-Myers (BMY), Pfizer (PFE) and Johnson & Johnson (JNJ) were today’s noteworthy initiations: Goldman initiated Bristol-Myers with a Buy rating and $27 target as they believe it is making progress in becoming a mid-sized specialty biopharmaceutical company. The firm expects the company to be active in M&A and to spin-off or divest its slow-growth or fast-growing assets, such as virology and oncology. Goldman believes Pfizer needs a “radical transformation” and restructuring that includes a break up, spin and merger in order to outperform over the next several years. Shares were assumed with a Sell rating and $19 target. Johnson & Johnson was initiated with a Neutral rating and $65 target at Banc of America. The firm prefers to be on the sidelines given uncertainties surrounding 2009 revenue growth and the potential for negative rhetoric out of Washington on pharma costs…OTHER INITIATIONS: Acorda (ACOR) was started at RBC Capital with an Outperform rating and $30 target. Cavium Networks (CAVM) and NetLogic (NETL) were initiated with Neutral ratings at Cowen. Edwards Lifesciences (EW) was assumed with a Buy rating and $61 target at Piper Jaffray.
Analysts Downgrade Summary for Friday, November 7th
MOST NOTEWORTHY: Macquarie Infrastructure (MIC), Sanofi-Aventis (SNY) and Cleveland Cliffs (CLF) were today’s noteworthy downgrades: Jefferies downgraded Macquarie Infrastructure to Hold from Buy to reflect the company’s sensitivity to the economic slowdown and funding risk. The firm lowered their target to $9 from $40 after the company announced a dividend reduction. Sanofi-Aventis was cut to Sell from Neutral at UBS due to the company’s exposure to potential generic competition and a lack of new products. Friedman Billings downgraded Cleveland Cliffs to Market Perform from Outperform and lowered their target to $42 from $50 to reflect the risk of further production cuts…OTHER DOWNGRADES: Credit Suisse lowered Acme Packet (APKT) to Neutral from Outperform. Delta Petroleum (DPTR) was downgraded at Deutsche Bank to Sell from Hold. Siemens (SI) was downgraded to Sell from Buy at UBS.
Analysts Upgrade Summary for Friday, November 7th
MOST NOTEWORTHY: Abercrombie & Fitch (ANF), select E&P companies and Whole Foods (WFMI) were today’s noteworthy upgrades: Jefferies upgraded shares of Abercrombie & Fitch to Hold from Underperform on valuation as they with the stock down 40% since they initiated coverage on September 19. The firm maintains a $29 target. Citigroup upgraded EOG Resources (EOG), Quicksilver (KWK) and Southwestern Energy (SWN) to Buy from Hold on their belief U.S. natural gas focused E&P companies have near-term upside. Barclays upgraded Whole Foods to Equal Weight from Underweight citing the $425M private equity investment, which reduces liquidity risk, and its reduced cost structure…OTHER UPGRADES: Brandywine Realty (BDN) and AvalonBay (AVB) were upgraded to Neutral from Underperform at Merrill Lynch. tw telecom (TWTC) was upgraded to Neutral from Underweight at JP Morgan. AmeriCredit (ACF) was upgraded to Market Perform from Underperform at Friedman Billings.
Priceline.com-PCLN target lowered to $78 from $100 at Stanford
Stanford lowered their target after the company reported higher than expected EPS but significantly lowered its Q4 gross bookings guidance. The firm maintained their Buy rating.
For investors, no easy exit from private equity-WSJ
Blackstone Group (BX) yesterday made clear to its investors that they are legally committed to meet capital calls. The firm had no choice but to comply with its fiduciary duty to its shareholders and investors in its funds. Is that the way it’ll work in the future? asks the Wall Street Journal’s “Heard on the Street”. Changes that could come include shorter lockup periods or an option to take money out if needed. Or, investors could allocate fewer funds to illiquid holdings. Lower fees could follow. But no matter what, buyout firms may be looking at taking a hit in the future.
JP Morgan-JPM says ‘braced’ for increasing loan losses going forward
JP Morgan-JPM says Level 3 assets increased $1.3B in Q3
Level 3 assets increased $1.3 billion in the third quarter of 2008, largely as a result of $15.2 billion of transfers of assets into level 3, principally AAA-rated collateralized loan obligations backed by corporate loans for which liquidity decreased and market activity was limited, and $5.8 billion of purchased mortgage servicing rights related to the Washington Mutual transaction. These increases were largely offset by decreases in level 3 assets due to $12.3 billion of sales and markdowns of residential mortgage exposure and $3.5 billion of sales and markdowns of leveraged loans and transfers of similar leveraged loans to level 2 due to the increased price transparency of such assets.
Goldman Sachs, Morgan Stanley estimates lowered at JP Morgan
JP Morgan believes Goldman Sachs’ (GS) quarter is shaping up to be its worst ever since going public due to the difficult markets and marks on its private equity portfolio. JP Morgan estimates Goldman will take $2.3B of losses for its PE portfolio and lowered their Q4 estimate to (58c) from $2.02. The firm thinks Morgan Stanley (MS) will hold up better in the quarter given its smaller exposure to private but still lowered their Q4 estimate to 28c from 77c. JP Morgan maintains an Overweight rating on Goldman Sachs but thinks shares of Neutral-rated Morgan Stanley could do better in the near-term.
Treasury looks to dramatically widen scope of rescue effort-Washington Post
Government and industry officials are saying that the Treasury is working to widen its rescue effort beyond the $250B set aside for financial firms and may look to take tens of billions of dollar sin ownership stakes in companies outside the sector. The officials say the Treasury’s expanded effort could involve hundreds of billions of the $700B rescue package and details are being finalized. An announcement may not come until the end of next week “at the earliest,” as sources say the Treasury is looking to make sure President-elect Barack Obama “is on board”.
Wells Fargo-WFC target lowered to $20 from $25 at Friedman Billings
FBR believes Wells Fargo will have to raise more capital following its $11B capital raise since the company’s tangible common equity to assets ratio is just 3.3%. The firm maintains an Underperform rating.
Cleveland Cliffs-CLF downgraded to Market Perform from Outperform at Friedman Billings
Friedman Billings downgraded shares to reflect the risk of further production cuts. The firm lowered their target to $42 from $50.
Jim Cramer’s “Mad Money”
Cramer said he can’t find a catalyst to take the markets higher, after another triple-digit slide in the DJIA. He said, consumer spending is withering away, and that is evident in the earnings of company after company. Cramer said the auto industry, also a driver of growth for the economy, has died, too. With Toyota (TM) down almost 13 points Thursday, Cramer again called for a massive federal bailout of all U.S. automakers. Cramer reiterated earlier sentiments that the fate of the U.S. economy really is tied to the economies of Europe, China, Russia, and Latin America, which are also teetering on the brink of collapse. He said the foreign central bankers must slash interest rates significantly to avoid a worldwide recession. The only stocks that work, he said, are high yielding dividend stocks, recession proof names and companies trading at near their cash values. But even these companies, warned Cramer, are not immune to further declines. Cramer again recommended Caterpillar (CAT), AT&T (T) and Verizon (VZ) as some names to consider. Cramer welcomed Rick Goings, chair/CEO of Tupperware (TUP), to the show to find out why his recommendation of the stock has gone so wrong, with the stock now trading at just under $23 a share. Goings said Tupperware’s stock price doesn’t make a lot of sense, as the company beat estimates in its most recent quarter, raised its growth estimates and recently announced a stock repurchase program. He said the price of oil-based resins, which has worried analysts, account for only 17% of the company’s cost of goods sold. Cramer remains bullish on the stock. SELL BLOCK: Cramer said it’s time to put some Wall Street analysts into the block for leading investors astray in Foster Wheeler (FWLT), who recommended the shares from $80 all the way down to $23, and then suggested selling the shares. While Cramer said he doesn’t feel Foster Wheeler has bottomed, he said it’s far too late to sell the company that now trades near its cash value. Wheeler’s engineering and construction business is doing very, very well, he noted, with management citing eight potential mega deals in its pipeline. “Now is not the time to sell,” said Cramer. OUTRAGE OF THE DAY: Cramer talked with CNBC Silicon Valley correspondent Jim Goldman about Yahoo! (YHOO). Both Cramer and Goldman thought it was outrageous for CEO Jerry Yang to now say his company is interested in selling now, when he wasn’t when Microsoft (MSFT) offered to buy it at a much higher price. FINAL NOTE: Cramer said Disney (DIS) shares have finally fallen enough and he’d be a buyer. LIGHTNING ROUND: (Bullish) GS; CB; TRV. (Bearish) ABB; PFG; MFC; HIG; MET; INTC.
Fast Money position recap: Macke Owns (DIS), (BNI), (MSFT), (SDS), (UUP), (WMT); Finerman’s Firm Owns (MSFT); Finerman’s Firm Owns (OIH) Puts; Finerman’s Firm Is Short (IYR), (IJR), (MDY), (IWM), (SPY), (USO), (USO); Najarian Owns (MBI) Put Spread; Najarian Owns (MSFT) And Is Short (MSFT) Calls; Najarian Owns (YHOO) And Is Short (YHOO) Calls; Seymour Owns (AAPL), (BAC), (EEM), (F), (MER); Seygem Asset Management Owns (EEV)
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