Market highlights for next week: Home Depot (HD), Macy's (M) to report

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Monday August 13
Tuesday August 14
  • The Home Depot Inc (NYSE: HD) to report Q2 earnings; conference call at 9am. Home Depot is expected to post substantial Q2 revenue/EPS declines, but equally important will be the company's comments: with the housing sector expected to remain sluggish through at least late 2007, analysts will evaluate whether HD can overcome that headwind with a new focus on customer service, demographic trends that suggest increased home repair/remodeling, and 20-year high homeownership rates that suggest steady house goods demand.
  • District Court California: Broadcom Corporation (NASDAQ: BRCM) to request an injunction related to Qualcom Incorporated's (Nasdaq: QCOM) infringement of 3 Broadcom cellular baseband patents.
Wednesday August 15
  • Macy's Inc (NYSE: M) to report Q2 earnings; conference call at 10:30am.
  • PDUFA date for GPC Biotech's (NASDAQ: GPCB) Satraplatin for treatment of hormone refractory prostate cancer.
Thursday August 16
  • JC Penney Co Inc (NYSE: JCP) to report Q2 earnings; conference call at 9:30am.
  • Hewlett Packard Company (NYSE: HPQ) to report Q3 earnings; conference call at 5pm. Analysts will evaluate HPQ's ability to maintain momentum in its innovative imaging/printing group, which is expected to help HPQ post solid Q3 revenue gains.
Friday August 17

 

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Housing bears: We told you so

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Time was, back in the go-go days of 2005, nobody would listen to the housing bears. Anyone who pointed to shaky fundamentals, or questioned the wisdom of the don't ask, don't tell mortgage vehicles being given to any Tom, Dick or Harry, were quickly shouted down. Fools, they said. Bitter renters.

Real estate, after all, only goes up. And not only real estate. Investors loved all things mortgage. Those sexy CDOs were snapped up like hotcakes.

So we watched. And we waited. And we read blogs like Ben's Bubble Blog daily, and talked amongst ourselves while waiting for the inevitable to happen.

And now here it is. The Wall Street Journal's A1. (subscription required). I'm sure I'm not the first to say this. But we told you so.
Now the Fed, in what experts agree is highly unusual, is intervening in the market to keep things from really getting ugly. Isn't the open market supposed to take care of these things by itself? Is the Fed action helping or hurting?

It didn't help the situation when even the vaunted Countrywide Financial Corp. (NYSE: CFS) the country's largest mortgage lender in terms of volume, went on record as saying the situation is rapidly evolving and that the impact on the company is "unknown." That doesn't sound like happy news to me. Shares plunged as much as 13.7% when this acknowledgment came to light.

Bear Stearns (NYSE: BSC) is is still in trouble. Even the mighty Goldman Sachs Group, Inc. (NYSE: GS) is trying to quell panic over two hedge funds that are hemorrhaging money.

None of this, in fact, sounds like the situation is "contained," as our leaders have been telling us.

Thank God it's Friday, huh?

 

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Buy on fear today? Bear Stearns (BSC), Countrywide (CFC), IndyMac (IMB), Popular (BPOP), Washington Mutual (WM)

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Plenty of investment guru's have suggested buying on fear and selling when greed reaches its pinnacle. Well I think the fear side is self evident but I'm not hearing about many analysts who are brave enough to buy right now. As a matter of fact I only hear that this would be a very foolish time to invest in the financial sector, in particular, any stocks with sub-prime or "Alt-A" mortgage exposure.

For this reason, contrarian that I am, I thought I would speak out about my recent BAD CALLS, or at least very premature calls, and start tracking them for all to see -- accepting the ribbing, tomato-throwing and blunt comments about the error of my ways.

I own four of the five stocks I will be following for the next year, Bear Stearns (NYSE: BSC), IndyMac Bancorp Inc. (NYSE: IMB), Popular Inc. (NASDAQ: BPOP), and Washington Mutual (NYSE: WM). I wrote favorable comments on each and in the case of WM, more than once. Needless to say, I am under water on all of them. I do not own Countrywide Financial (NYSE: CFC) but it will make for a fine pace car in the middle of this storm.

I have no crystal ball and clearly blundered here, at least in the short term, but if I had to wager, I'd say this group will be higher in 12 months' time rather than lower. And I have put my money where my mouth is. I am not for one moment suggesting that small investors, or those without the emotional (or financial) wherewithal to take losses follow my lead. This will simply be a test of the fear/greed scenario and my belief that both good news and bad overshoot the mark frequently.

Yesterday I wrote Dow down 387 - still preaching calm and change and the following were the closing prices for the five stocks discussed here and in earlier stories.

  • Bear Sterns: $114.05
  • Countrywide Financial: $28.66
  • IndyMac: $20.58
  • Popular: $12.50
  • Washington Mutual: $36.76

It is not easy to expose yourself to public ridicule and watch the stock value of your most recent portfolio be in the red. Perhaps I am still too arrogant because all my others are firmly in the black and beating the market. In any event one of my partners suggested to me that I may have to eat humble pie sooner rather than later. A large slice has been duly served up.

For comparison, I am going to add yesterday's closing of some market darlings (and those of my colleagues) as well as the DJIA. All are NASDAQ stocks in contrast to most of the NYSE financials. These four companies have very strong stocks, so the comparison might not be particularly fair, but I like a challenge.

As I write this piece I can't help but be reminded how often bravery and foolishness go hand in hand. Stay tuned each month and let's see how this story plays out.

Those of you who are new to BloggingStocks can check out my other stories and read Chasing Value or Serious Money to find more potential opportunities and verify my track record as well -- INCLUDING ANY BAD CALLS.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm.

 

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MercadoLibre (MELI) is en fuego

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It's been a mixed bag for IPOs this week. But, as for the MercadoLibre (NASDAQ: MELI)'s offering, things were certainly upbeat.

The IPO priced at $18 (at the top of the $16-$18 range) and raised a cool $332.8 million. So far, shares are trading up 38% to $25.

MercadoLibre operates the largest online trading platform in Latin America (which has about 550 million or so people). In fact, the region is experiencing high rates of internet penetration.

MercadoLibre has an assortment of services: product listings, which are based on either a fixed-price or auction-based format; classifieds; and secure payment solutions. There are more than 2,000 product categories, and the sites attract about 2.9 million listings per month.

The top-line growth has been impressive. From 2004 to 2006, revenues surged from $12.7 million to $52.1 million. During this time, operating expenses increased at a slower rate, going from $16 million to $46.7 million. In other words, the company is realizing operating leverage.

There is competition, such as from DeRemate and MasOportunidades.com. There is also pressure from large online communities like Google (NASDAQ: GOOG), Amazon.com (NASDAQ: AMZN), Microsoft (NASDAQ: MSFT), and Yahoo (NASDAQ: YHOO).

Also, eBay (NASDAQ: EBAY) owns roughly 19% of MercadoLibre. However, the strategic alliance has expired and eBay is now able to become a competitor as well.

The lead underwriters on the deal include J.P. Morgan Securities Inc. (NYSE: JPM) and Merrill Lynch (NYSE: MER).

You can find the prospectus at the SEC website. Also, if you want to check out more IPO pricings, click here.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

 

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Gary Shilling sees a recession ahead

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One advisor who was not surprised by the recent troubles in the mortgage markets has been Gary Shilling, who has been voicing concerns on both his weekly appearances with Larry Kudlow on CNBC and his newsletter, Gary Shilling's Insight.

The advisor notes, "The consensus for economic forecasters remains convinced that the housing meltdown will not spread to the rest of the economy."

Silling, however, disagrees. He notes, "The bulls believe the recent financial market problems will be contained. Of course, those folks have a strong optimistic bias. And the vast majority of investors only hold long stock positions, and perennially hope for an ever-rising economy and stock market."

The bulls' argument, he suggests, boils down to this: The collapsing housing sector hasn't sunk the overall economy yet, so it won't as robust domestic job growth and strength abroad keep the economy humming.

He continues, "We believe the subprime slime is oozing throughout the U.S. housing sector and spreading to consumer spending as the supporting house appreciation disappears. Inventories look like they're being liquidated, not poised for rebuilding."

Further, he contends, economic growth abroad will not keep the American expansion afloat, but rather succumb as U.S. consumers retrench. He asserts, "With the usual lags, the faltering U.S. housing sector will drag the economy into recession, probably by year's end, and it will spread abroad in 2008."

The advisor states, "Housing is not the only area of heavy risk-taking, but just the most vulnerable. A great disconnect between the real economy and the speculative financial world has existed since the late 1990s."

This "disconnect" he adds, has been fed by mountains of liquidity, expectations of and demands for oversized investment returns, and low market volatility, all of which he says have encouraged risk taking as ample financing and loose lending kept corporate defaults at record lows.

He explains, "The huge gap between speculative financial markets and economic reality has persisted for a decade. It probably is in the process of closing, with many attendant tears."

Overall, he now forecasts, "We continue to expect a 25% fall in house prices and a 60% decline in sales. Along with this, a stock bear market and recession lie ahead."

What will benefit in this environment? He notes, "We believe that a faltering economy will turn low inflation into deflation, to the benefit of U.S. Treasurys. Rates are likely to decline further as deflation again becomes a widespread concern. Longer run, our forecast of mild deflation implies Treasury bond yields will decline to 3%."

Each day, Steven Halpern's TheStockAdvisors.com features the latest investment ideas and market commentary from the financial newsletter community.

 

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Two long ideas for the current market

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Yesterday was a stinger with the markets down 2%+ all around. But that doesn't mean there isn't money to be made, even on the long side! After going through many charts Thursday night, I've come up with two ideas that should work in this volatile environment. For my current take on how to play the market please see this recent post.

The first idea is Hoku Scientific (NASDAQ: HOKU):


As you can see from the chart above, Hoku is certainly a very volatile stock. You can also see that the stock has recently run from the $8 per share level to about $10.50 per share. While many would argue that the stock's run is over because a regression is due, I beg to differ. I've found that volatile stocks like Hoku can run 50-100% when the market regains optimism for the stock.

As a result, I think a buy here makes sense. Stochastics are turning up -- indicating that the stock was very oversold and is nowhere near overbought as of now. The stock's recent breakout made perfect sense (bounced back above the 50 day moving average and confirmed the move on increasing volume).

I think the stock could very well reach and even break through its prior 52-week high of roughly $14.50 per share. The "profit window" can be seen on the chart as a blue rectange.

Next up is JA Solar Holdings (NASDAQ: JASO):

JA Solar Holdings IPO'd about eight months ago and since then has been on fire. Since April, the stock has seen prices as low as $17.50 per share and as high as $42.50 per share. This stock is like Hoku in that it's very volatile.

As you can see from my chart, the last time the stock was on the 50-day moving average, it served as a support line for the stock and allowed the stock to base before nearly doubling. Now the stock is again hovering over its 50-day moving average -- a positive sign.

Interestingly, the stock has recently been showing a "bounce" from the trendline and 50-day moving average (both seen on the chart). This is positive because it indicates that, in fact, the stock is bottoming off of these important figures.

In my opinion, the stock is a buy if it can break the downtrend line which now resides around $36 per share. Why? Most importantly, because a move about this downtrend line would "confirm" a reversal in the stock and prevent you from becoming involved in the story too early.

Good luck out there and I hope you're finding my ideas useful.

 

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EqualLogic has reason for an IPO

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With the explosion of data in corporate America, there's a big need for intelligent storage systems. In fact, there are other key drivers, such as the increase in security threats as well as the emergence of server virtualization. But, of course, companies don't want to spend a ton of money on this technology, right?

Well, EqualLogic is attacking these issues.

And, now the company has filed to go public.

Founded in 2001, EqualLogic is the developer of high-performance storage products - and is focused on the mid-sized enterprise market (which is a sector that is certainly price sensitive).

Basically, the company's products have the same kind of capabilities of more advanced systems. What's more, it's easy to add systems without downtime, which allows for a "pay-as-they-grow" business model.

The company more than 2,500 customers (across 30 countries). From 2004 to 2006, revenues surged from $30 million to $68.1 million.

Although, EqualLogic does face tough competition. Some of the rivals include EMC (NYSE: EMC), Dell I(NYSE: DELL), and IBM (NYSE: IBM).

The lead underwriters on the IPO include Goldman Sachs (NYSE: GS) and Credit Suisse (NYSE: CS). The proposed ticker symbol is "EQLX."

You can find the prospectus at the SEC website. Also, if you want to check out more IPO filings, click here.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

 

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Should the Wall Street Journal Online be set free?

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Most online news services give their readers access to their daily news stories for free, the main exception to that rule being Wall Street Journal Online, which charges users a annual fee to access all its content. This, however, may change shortly as the soon to be owner, Rupert Murdoch, appears to be toying with the idea of opening up the site's content to anyone wishing to see it.

This brings up an interesting discussion, and one that could have major consequences. Unlike most sites that have tried (and failed) to charge annual subscription fees, Dow Jones & Co. (NYSE: DJ)'s Wall Street Journal Online has proved able to successfully do just that. The site pulls in $79 for an annual subscription from its estimated 1 million users. That's a nice little chunk of change that Mr. Murdoch is considering throwing away.

But would he really be throwing away anything? That is where the debate comes into play. How many internet users would start to use Wall Street Journal Online for their primary news service if they were allowed unlimited free access? My opinion is that the number would be large, much larger than its current numbers, and as we all know... visitors equal revenues. In this case, visitors would equal huge advertising revenues.
All said and done, it is estimated that Wall Street Journal Online is currently pulling in around $65 million from its subscribers, but you have to consider the possible upside. Industry experts are quoted as saying that the U.S. online ad market is roughly $17 billion this year. They have set forward estimates at somewhere between $26 and $30 billion annually by the year 2011. This is only four years from now, we must remember.

If it were up to me, it would be a no-brainer. There are so many venues for obtaining news in today's world I find it hard to believe that anyone pays for an annual Wall Street Journal Online subscription. If i had to guess, I would estimate that a sizable chunk of the site's current subscribers are companies using soft dollars to pay for these services, and only a small portion are actual normal, everyday users like you and me. I could be wrong on this, but I doubt it.

From my own personal experience, I find at least four or five times a week I see a headline to a story pointing to Wall Street Journal Online that I would love to go read, but once there, I get the one paragraph teaser and then the "log in to read full story" option. What do I do? I go to the free online sites and look for the story there. I am sure I am not alone in this.

Perhaps I am just biased, and perhaps I just am too cheap to dish out the $79 to read what the site has to say, who knows? But I see nothing but upside should Mr. Murdoch open up the site to us all. What are your thoughts?

Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer.

 

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HealthSouth an opportunity to make money

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While investors around the world have been dumping stocks the past few days, HealthSouth Corporation (NYSE: HLS), the restructured rehabilitation company, reported one heck of a quarter.

The company now expects to generate 2007 EBITDA of $300 and analysts are forecasting 2008 EBITDA of $360 million. Interest expense is estimated to come in at $200 million, maintenance capex of $30 million, leaving $120 million to $130 million for debt reduction and fund growth.

More importantly in today's tight credit market, the company was able to lock in all of its debt expense on low-cost, fixed-rate terms -- before the recently brutal change in the credit markets.

New HealthSouth management joined the company in 2004 and the fruits of their labor are just paying off. This is one gem of a turnaround investors should bottom fish on during this market correction.

Leerink Swann & Company, an investment banking firm specializing in the healthcare sector, reiterated its $27 price target on this $17 stock this morning.

 

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Universal Music Group to offer unprotected downloads

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Universal Music Group, a division of Vivendi SA (LSE: VIV) , announced plans yesterday to test the sale of tracks without Digital Rights Management technology with vendors Amazon (NASDAQ: AMZN), Google (NASDAQ: GOOG), and Wal-Mart (NYSE: WMT), according to Reuters. Notably absent from the trial is Apple Inc. (NASDAQ: AAPL)'s iTunes Store, but DRM-free MP3 tracks will still be playable on the iPod, in addition to various other players.

Universal's trial run is set to last through January, allowing largest of the four major music companies to "analyze such factors as consumer demand, price sensitivity and piracy in regards to the availability of open MP3s."

With the test run, Universal joins EMI Group PLC (LSE: EMI) as the only two of the four major music labels to offer DRM-free tracks for sale. Warner Music Group (NYSE: WMG) has remained staunchly in favor of the technology, while Sony (NYSE: SNE)'s BMG Music Entertainment has made hints that it may too explore DRM-free tracks, but remains with the protective technology.

Apple's absence from the trial could hint at record labels' displeasure with the company, or perhaps it's simply a method to ascertain a test run away from the third-largest music retailer. iTunes has offered EMI's DRM-free tracks as part of a new "iTunes Plus" service since late May. Those tracks run 30 cents higher than DRM-encoded tracks, but it is not known whether Universal will adopt a similar price scale during its trial.

 

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Relax, you're in Bush country

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As Zac Bissonette wrote so eloquently yesterday, the nation rests comfortable in the assurances of President Bush that the economy is strong and the current meltdown correction is nothing to worry about. So don't cancel your cable television, and take down that Craigslist ad for your Lexus.

I thought this might be a good time to remind our readers of the president's mastery of economic policy, via his comments as compiled by Jacob Weisberg of Slate.com.

"I promise you I will listen to what has been said here, even though I wasn't here." - at the President's Economic Forum in Waco, Texas, Aug. 13, 2002

"We need an energy bill that encourages consumption." - Trenton, N.J., Sept. 23, 2002

"My plan reduces the national debt, and fast. So fast, in fact, that economists worry that we're going to run out of debt to retire." - radio address, Feb. 24, 2001

"Because the - all which is on the table begins to address the big cost drivers. For example, how benefits are calculate, for example, is on the table; whether or not benefits rise based upon wage increases or price increases. There's a series of parts of the formula that are being considered. And when you couple that, those different cost drivers, affecting those - changing those with personal accounts, the idea is to get what has been promised more likely to be - or closer delivered to what has been promised. Does that make any sense to you? It's kind of muddled." -- explaining his plan to save Social Security, Tampa, Fla., Feb. 4, 2005

"This is an impressive crowd -- the haves and the have mores. Some people call you the elite -- I call you my base." - at the 2000 Al Smith dinner

"Rarely is the questioned asked: Is our children learning?" -- Florence, South Carolina, Jan. 11, 2000

"You work three jobs? ... Uniquely American, isn't it? I mean, that is fantastic that you're doing that." -- to a divorced mother of three, Omaha, Nebraska, Feb. 4, 2005

"I'm going to spend a lot of time on Social Security. I enjoy it. I enjoy taking on the issue. I guess, it's the Mother in me." -- Washington D.C., April 14, 2005

"This morning my administration released the budget numbers for fiscal 2006. These budget numbers are not just estimates; these are the actual results for the fiscal year that ended February the 30th." -- referring to the fiscal year that ended on Sept. 30, Washington, D.C., Oct. 11, 2006

"Recession means that people's incomes, at the employer level, are going down, basically, relative to costs, people are getting laid off." -- Washington, D.C., Feb. 19, 2004

"They misunderestimated me." -- Bentonville, Ark., Nov. 6, 2000

"See, in my line of work you got to keep repeating things over and over and over again for the truth to sink in, to kind of catapult the propaganda." -- Greece, N.Y., May 24, 2005

 

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Suburban Propane (SPH): Still going strong

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Back in December 2005, I picked Suburban Propane Partners Lp (NYSE: SPH), which sells propane and fuel oil. I liked the fact that the stock was in the mid-$20's and that its propane business n particular enjoyed captive customers due to the difficulty of switching services. I also felt it was under-priced at the time.

The stock price doubled between then and last month; although since then it has lost some ground. But in my thinking this only provides investors to buy SPH at a slight discount. In fact, I hear that the stock slipped down recently because a large hedge fund ran into some trouble and needed to liquidate many of its winners....SPH being one of them.

2007 has been going well so far for SPH. Despite warm winter temperatures in the first quarter, particularly in December, which saw limited revenue growth, operating income was up 43% over the first quarter of 2006. The second quarter saw revenues grow more, and net income was up about 25% over the second quarter of 2006. These strong margins are due in large part to some savvy cost cutting -- SPH cut off some less profitable customers, reduced fleet and labor costs, and reorganized its HVAC division -- and these cuts should continue to deliver profits going forward. I also like the fact that SPH has returned these profits to investors with an excellent dividend yield of 6.5%.

On a less shiny note: There isn't much room for growth, except by acquisition, though, so it may be difficult for SPH to dramatically increase revenues.

Type of Stock: A propane company with steady profits and a very nice dividend.

Price Target: SPH is trading in the low $40s after nearly hitting $50 in July. With the dividend providing protection against a downside, I think this is a solid buy below $45, but if you see it drop below $40, I think it's a no brainer.

Note: I own shares of SPH.

Hilary Kramer is a financial editor and money coach for AOL and an authority on investing. Visit her at www.hilarykramer.com

 

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Countrywide Financial (CFC) adds to subprime panic

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You would have to have been hiding out in a cave over the past few days not to know that subprime fears have turned into mass panic on Wall Street. The newest company adding to the growing fears is Countrywide Financial Corp. (NYSE: CFC), the biggest mortgage lender in the U.S.

The company says it's now facing "unprecedented disruptions" that may very well impact the company's future profits. This will only give Wall Street's bears more reason to come out and drive down prices, fearing that the subprime effects are going to spread into additional areas of the market.

Shares of Countrywide are getting pounded in European trading, and you can be sure that the same will be true once New York traders get down to business this morning. As of 7:20 AM EDT the stock is down 16% in premarket trading. Yes... it's going to be an ugly one out there today for this stock (and probably the whole market, truth be told).

It has been a tough month for Countrywide. Last month the company had to cut its 2007 earnings forecast, stating that we are currently in the worst period of price depreciation for homes in history, with the exception of the Great Depression.

Definitely going to be some tough times ahead for Countrywide and its investors. Luckily for the company's CEO, Angelo R. Mozilo, today's pain won't be so bad since he was able to exercise options on 92,000 shares stock on Wednesday that he then sold at $28.74. You can be sure the rest of the company's shareholders are wishing this morning that they had followed suit and dumped their holding before today's sharp selloff in the stock!

Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer.

 

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Newspaper wrap-up: Lions Gate close to acquiring Mandate Pictures

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MAJOR PAPERS:
OTHER PAPERS:
  • Lions Gate Entertainment Corp (NYSE: LGF) is in final negotiations to acquire production and foreign sales company Mandate Pictures for more than $40M, reported the Los Angeles Times.
  • British retail chain WH Smith is among several companies seeking to buy the U.K. operations of troubled bookseller Borders Group Inc (NYSE: BGP) , reported the Telegraph.
  • From BusinessWeek's "Inside Wall Street" section:
    • People are buying Marshall & Ilsley Corporation (NYSE: MI) because it is a bargain when you consider that Marshall is spinning off to shareholders its traditional banking and processing business in Q4.
    • One safe and steady stock in these volatile markets may be Iron Mountain Inc (NYSE: IRM), the world's largest provider of information storage and protection, whose business has been rock-solid and whose stock has kicked up despite the market's wild swings.
    • Shinhan Financial Group (NYSE: SHG), which has very solid credit metrics and top-quality loan portfolios, is attracting positive attention.

 

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Despite recalls, another great month for Chinese exports

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During the month of July, China had yet another very impressive trade surplus, showing a 67 percent jump year over year to $24.4 billion. The country has been under serious scrutiny regarding its currency controls, but still denies that it is trying to manipulate a surplus.

July's figures are sure to spark more debate over what to do with the Chinese trade situation.

Last year America had a trade deficit of $232.5 billion with China, its largest one-year deficit with one country in history. This year analysts are predicting that number to increase.

While it is true that the Chinese government has been trying to curb the difference by adding exports on some of its goods and taking back rebates on taxes of certain goods, the impact of these efforts has been negated by lower import levels of many high dollar items. The country has been undergoing massive growth over the past several years, and the country has been trying to cool the country's growth by slowing down construction, which has lowered its import levels.

It just goes to show that even with all the recent bad press over harmful Chinese imports, Americans are still gobbling up cheap Chinese goods as fast as they can.

Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer.

 

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Oil prices continue to feel pain

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What a difference a week can make! It wasn't that long ago, August 1 to be exact, that oil prices were setting record high prices and appeared to be ready to charge above the psychological $80 barrier. Well, that was 9 days ago and 10.2% above oil's current price, as concerns over the U.S. economy have pushed prices down by more than $8 a barrel.

Currently we are seeing prices down another 87 cents to $70.72.

So what is the major problem here? I wish I could pinpoint the concerns down to one single factor, at least that way we would be able to try to figure out exactly how deep the problem goes, but unfortunately there are several factors weighing down oil prices at this time. They include (but are not limited to):
  • Reports suggesting a sluggish U.S. economy
  • Concerns that the subprime mortgage woes are spreading into different areas in the market
  • Jobless claims have been on the rise
  • Disappointing July retail numbers
  • Ongoing uncertainty over supply coming out of the Middle East
The picture is pretty dim at this point. The main problem is, of course, the impact from the subprime mortgage meltdown on Wall Street. Credit concerns have spread across other areas of the market and many are fearing that corporations are going to start to really feel the impact of lower consumer confidence. This has been reinforced lately in the form of weak July sales from retailers.

We started seeing the first signs of oil's fall on Monday, and that time I wrote that I would not be surprised to see prices continue to fall a bit, but that I thought they should be able to hold in the $72 to $73 range. So we can't be right all the time, right? Do I think we are going to see prices head under $70? Two days ago I would have bet the farm against that possibility, but after the last few days your guess is as good as mine!

Should be a very telling week ahead of us. Is the market going to be able to find a bottom and start to move higher again? I am sure everyone reading this is hoping that will be the case, and when the market is able to get a bounce we should also see oil's fall stop and prices move higher again. If I had to go out on a limb and predict where we would see prices this time next week... I would once again estimate somewhere around $73. We will see how good I do on my guess this time around!

Just how bad has the past week been? See for yourself...



Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer.

 

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Who owns our toxic subprime waste?

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The New York Times reports that another European bank hedge fund has been wiped out due to its investment in subprime mortgage backed securities (SMBS). Netherlands' NIBC Holdings reported that it lost at least $188 million on investments in the American mortgage market for subprime loans. It joins Paris' BNP and Düsseldorf, IKB Deutsche Industriebank, and some Australian hedge funds and banks.

With the globalization of financial markets, it's clear that nobody knows which banks, hedge funds, insurance companies, and pension funds own those SMBSs. Nor do they know how much money banks have lent these institutional investors. But if the banks decide they want their money back, and the collateral is worthless, then the institutional investors will either need to sell more liquid holdings -- e.g., stocks -- or they will file for bankruptcy.

In a rather lame move, the Wall Street Journal reports that in an effort to see if they're hiding losses, the SEC is examining the books of U.S. investment banks to see if they're marking down the value of their own subprime portfolios in the same way as they are marking down those of their clients. But what's really needed, as I suggested above, is a view of the global damage -- not just the situation in the U.S.

Clearly European banks see the solution as pumping cheap loans into its banking system. The European Central Bank in Frankfurt lent more than $130 billion overnight at a rate of 4 percent to tamp down a surge in the rates banks charge each other for very short-term loans. The ECB last injected funds in this manner on September 12, 2001. We knew then why the ECB did what it did. Today we only have a vague idea.

And it looks like Ben Bernanke is stepping into the fray as well. Bloomberg News reports that the Fed has purchased $19 billion worth of mortgage-backed securities (MBSs). Technically, the Fed accepted these MBSs as collateral on its overnight loans to banks. I would really like to know which MBSs they accepted -- those backed by subprime mortgages or others with better credit quality.

If you own stocks, this process will cost you money. The question is whether you will sell now to avoid further losses or hold on through the painful downdraft. It is hard to know what to do because of the lack of hard numbers on how big the problem is.

Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter.

 

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Stocks plunge before finding footing -- experts urge calm

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Another day, another huge decline in the Dow Jones Industrial Average.

Stocks tumbled yet again today as widespread panic over subprime mortgages, worries over retail sales and general unease about the future caused investors to shift their money into safe havens such as mattresses, refrigerators and crawlspaces in their homes. Pleas for calm by pundits such as Citigroup Inc. (NYSE:C) strategist Tobias Levkovich, who today urged investors "not to succumb to an emotional desire to sell before things get worse" were ignored.

What's remarkable about this more than 100 point sell-off is that it came after the Fed pumped $24 billion in temporary funds into the economy. Central banks in Japan, Europe and Australia also responded to the crisis, according to Bloomberg News.

Still, the market isn't stable and bad signs abound.

Countrywide Financial Corp. (NYSE: CFC) scared the bejesus out of the market yesterday with its warning of "unprecedented disruptions." France's BNP Paribas froze three investment funds that until fairly recently were worth about $2.2 billion because of losses in the U.S. mortgage market and apartment builder Tarragon Corp (NASDAQ: TARR) raised doubts about its ability to continue in business, according to the Wall Street Journal.

About the only good news came from the Fed's declaration this morning that it would provide liquidity "as necessary" to bolster the market.

Smart investors know that it's always darkest before the dawn, but that doesn't make times any less dark.

 

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Coppock Curve gives rare 'killer wave' warning

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Unlike many who have turned bearish after the market's recent decline, advisor Jim Stack fortuitously moved to a bear market stance in his model portfolio as the Dow was hitting its record high.

At the time he noted, "When the DJIA scores a new record high, yet there are twice as many stocks closing down for the day (as the number closing up), then something is wrong. Declining stocks overwhelmed advancing stocks by a 2:1 margin, an ominous divergence that has never occurred in the past 75 years of market history."

As such, in his InvesTech Market Analyst, he stated, "We are moving to a full bear market defensive mode." Since that timely market call, he has seen an additional warning sign that has added to his concerns.

In particular, he cites a rare "killer wave" signal from the Coppock Curve, a technical indicator developed 50 years ago by Edwin S. Coppock. It can be described as a 'barometer of the market's emotional state.' As such, it moves very slowly and methodically from one emotional extreme to another.

Mainly, the indicator has been used to signal low risk buying opportunities. Stack notes, "Over the past 8 decades, this indicator shows a remarkable track record when it comes to signaling the start of a new bull market for stocks."

What about signaling tops? For the most part, he explains, "The Coppock Curve is not noted for timely sell signals." But there is a rather unpleasant exception -- and that is when the signal is for a very significant decline.

Stack explains, "In the late 1960s, a technician named Don Hahn observed another phenomenon about the Coppock Curve Guide and its ability to identify double-tops within bull market that hadn't experienced any normal, healthy washouts or corrections." In other words, he adds, "These signals suggest a runaway bull market that is headed for disaster."

Stack explains, "In the late 1960s, a technician named Don Hahn observed another phenomenon about the Coppock Curve Guide and its ability to identify double-tops within bull market that hadn't experienced any normal, healthy washouts or corrections." In other words, he adds, "These signals suggest a runaway bull market that is headed for disaster."

This double-top, he notes, has occurred only 6 times in 80 years. And 4 of those signals were at the start of the worst bear markets of the 20th century: 1929, 1969, 1973 and 2000. Says Stack, "So there is a critical historical aspect to double-tops: They can result in nasty bears!"

The advisor continues, "Those resulting bear markets reveal why the double-top in the Coppock Curve has been nicknamed a 'Killer Wave.' The average decline (excluding the 86% loss in 1929) was almost 40%! And we now see that Coppock Curve developing a second peak over the past few months. This dramatically raises the odds that what lies ahead may be severe."

Each day, Steven Halpern's TheStockAdvisors.com features the latest investment ideas and market commentary from the financial newsletter community.

 

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James Altucher tells Jim Cramer that Time Warner (TWX) is worth $25

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On an online video on TheStreet.com this morning, James Altucher, founder of Stockpickr.com, and Jim Cramer reviewed Time Warner Inc. (NYSE: TWX). What was funny was that this brief two-minute discussion was filmed outdoors and had sort of a "Candid Camera" on-the-street feel. Plus, it was really made up of Cramer asking Altucher what he thought rather than the other way around.

Cramer was less enthusiastic on Time Warner than he had been in the past, but Altucher said at today's lower stock price, it is seems cheap. Altucher discussed the AOL ad growth model not being as great as originally hoped, but noted that AOL on a standalone basis could be worth $30 billion.

Cramer said Wall Street wasn't happy, but Altucher said the stock purchase by Time Warner CEO Richard Parsons last week was a solid vote. As far as the buyback, TWX bought back enough stock that it was like buying an entire AOL. On cable subscriber growth, it sounded a lot like Altucher thought there could be some organic subscriber growth left. To top it off, Altucher said $25 could be a target and that 2008 and 2009 could be great years.

We'll see if this comes to pass and if AOL turns into a standalone company. Recently I laid out a path that I think the company can take to make it a quasi-standalone company again. Frankly it would be ludicrous to pick this apart after such an ugly day in the market yesterday and with such a large gap down this morning.

The good news is that if you are into buying strong companies on weak days, Time Warner may be worth a look. It was down less than the market overall yesterday and shares are still above the post-earnings lows of last week.

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

 

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Analysts upgrades: DTV, EAT, NVDA and STX

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MOST NOTEWORTHY: Red Lion Hotels (RLH), Constellation Energy (CEP), Brinker Int'l (EAT), Nvidia (NVDA) and InfoSpace (INSP) were today's noteworthy upgrades:
  • Baird upgraded Red Lion Hotels (NYSE: RLH) to Outperform from Neutral based on valuation, brand expansion progress and takeover potential.
  • Constellation Energy (NYSE: CEP) was upgraded to Buy from Hold at Citigroup based on higher cash flow expectations and valuation.
  • JP Morgan upgraded Brinker (NYSE: EAT) to Overweight from Neutral, and sees potential upside from slower unit development and a possible Mac Grill sale.
  • BMO Capital upgraded Nvidia (NASDAQ: NVDA) to Outperform from Market Perform following a strong second quarter.
  • Stanford upgraded InfoSpace (NASDAQ: INSP) to Hold from Sell on valuation; They consider the core online segments looks to be priced into the stock and downside support is given with tax credits and the cash balance...
OTHER UPGRADES:
  • JP Morgan upgraded shares of PepsiAmericas (NYSE: PAS) to Neutral from Underweight.
  • Friedman Billings upgraded shares of Emulex (NYSE: ELX) to Outperform from Market Perform.
  • DirecTV (NYSE: DTV) was raised to Buy from Hold at Gabelli.
  • Seagate (NYSE: STX) was upgraded to Buy from Neutral at Goldman.
Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

 

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Bob Nardelli's Home Depot (HD) legacy: NOW ON SALE IN AISLE 7!

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Bloomberg News reports that Chrysler's new CEO, and departed Home Depot Inc. (NYSE: HD) CEO Bob Nardelli's legacy -- its $12.1 billion HD Supply unit -- is now on sale at a discount. The buyers -- Bain Capital LLC, Carlyle Group and Clayton Dubilier & Rice -- are now balking at the $10.3 billion price they agreed to pay.

HD Supply was a lower margin business because it sold to contractors who have greater bargaining leverage than individual home owners. So even though it grew to account for 13% of Home Depot's 2006 revenue, Home Depot is dumping it.

In addition to the lower margins, HD Supply is probably suffering the effects of the worst U.S. housing slump in 16 years. And the private equity buyers are likely encountering challenges in financing the bid and meeting their investment goals given the newly chilled market for financing LBOs.

Meanwhile, the possible drop in the purchase price for HD Supply is damaging its share buyback offer. Home Depot cut the price it's willing to pay for its stock in a tender offer to $37 to $42 a share, from $39 to $44 previously. Investors who had already agreed to sell their shares at the higher range won't get that price. If the deal falls apart, the buyers must pay a $309 million breakup fee.

Hopefully for Chrysler, Bob Nardelli can leave a more profitable legacy. But I am not holding my breath.

Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Home Depot.

 

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Cramer pumps Cisco Systems (CSCO) and technology again

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Cisco Systems, Inc. (NASDAQ: CSCO) opened at $31.00. So far today the stock has hit a low of $30.84 and a high of $31.29. As of 10:45, CSCO is trading at $31.05, down 0.35 (-1.1%).

Following a steady climb over the past several months, CSCO hit a new one year high yesterday at $32.47. Jim Cramer is still touting tech as the strongest sector on Wall Street right now, and even a giant mortgage crisis isn't going to hold back stocks like CSCO. Technical indicators for CSCO are bullish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.

For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $27.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk and leverage returns. For this particular trade, we will make a 11.1% return in less than 3 months as long as CSCO is above $27.50 at October expiration. CSCO would have to fall by more than 11% before we would start to lose money. Learn more about this type of trade here.

CSCO hasn't been below $27.50 since early July and has shown support around $29 recently. This trade could be risky if the proposed bullish tech cycle never materializes, but this stock is one that has been basically immune to the market jitters over the past few weeks.

Brent Archer is an options analyst and writer at Investors Observer.


 

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Analyst downgrades: AFL, HWAY, NVDA and SUNW

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MOST NOTEWORTHY: Nvidia (NVDA), Briggs & Stratton (BGG), Sun Microsystems (SUNW), Healthways (HWAY) and MGIC Investment (MTG) were today's noteworthy downgrades:
  • Stifel cut shares of Nvidia (NASDAQ: NVDA) to Sell from Hold on valuation.
  • Briggs & Stratton (NYSE: BGG) was cut to Underperform from Neutral at Baird following the disappointing Q4 report and guidance.
  • Goldman also cut Healthways (NASDAQ: HWAY) to Sell from Neutral on valuation, following the recent rally that lacked material news of fundamental changes at the company.
  • JP Morgan cut MGIC Investment (NASDAQ: MGIC) to Underweight from Overweight following recent strength which they believe is not warranted by fundamentals. They believe the overhang of the proposed RDN merger along with weak near-term fundamentals will likely drive underperformance in shares until the merger issues are fixed...
OTHER DOWNGRADES:
  • RBC Capital downgraded Symmetricom (NASDAQ: SYMM) to sector Perform from Outperform.
Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

 

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Analyst initiations: BBBB, CVS and MHS

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MOST NOTEWORTHY: MRU Holdings (UNCL), CVS/Caremark (CVS), Medco Health (MHS) and Blackboard (BBBB) were today's noteworthy initiations:
  • Kaufman Bros. expects MRU Holdings (NADAQ: UNCL) to post a profit in Q4 for the first time due to its first student loan securitization and started shares with a Buy rating and $9 target.
  • Thomas Weisel believes shares of CVS/Caremark (NYSE: CVS) represent a compelling risk/reward at these levels, initiating shares with an Overweight rating and $51 target, given the positive trends in the market and the likelihood of successful merger integration.
  • Thomas Weisel believes Medco Health (NYSE: MHS) is well positioned to capitalize on continued generic conversions, starting shares with an Overweight rating and $100 target.
  • Banc of America would be buyers of Blackboard (NASDAQ: BBBB) current levels, initiating shares with a Buy rating and $50 target, given the company's defensible business model and market leadership position.
OTHER INITIATIONS:
  • Leerink Swann initiated Phase Forward (NASDAQ: PFWD) with a Market Perform rating and $19-$20 valuation range.
Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

 

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Two funds in one: Energy & agriculture

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In the past, Richard Lehmann has recommended positions in both energy and agriculture in his Forbes/Lehmann ETF Investor. His latest recommendation is a single fund that invests in both.

The advisor explains, "We've felt that oil prices would likely continue to remain high, mostly because OPEC has control of supply and has become accustomed to $60 plus oil rather than the old $35 target price."

He adds, "We've also recommended positions in agriculture Fund because distortions caused by increased ethanol production has caused an increase in corn prices, which translated to higher wheat and soybean prices as farmers switched production to corn."

Now, he says, there is a fund that tracks not only agricultural commodities but also energy prices at the same time -- the iPath Dow Jones-AIG Commodity Index Total Return ETN (ASE: DJP).

Actually, this "fund" is not an ETF; rather, it is an ETN, or Exchange-Traded Note. Lehmann explains, "ETN's have an advantage over ETF's in that they don't have to pay out distributions and are treated like a zero coupon debt instrument or a promissory note backed by Barclays."

This ETN, he notes, tracks several commodity sectors. According to Lehmann, the fund has 35% invested in the energy sector, 28% in the agricultural sector, 19% in industrial metals and 9% each in precious metals and livestock.

He suggests, "This ETF will tend to be uncorrelated with the broader equity market. Barclays invests in the respective futures contracts and keeps any remaining cash in Treasuries."

Each day, Steven Halpern's TheStockAdvisors.com features the latest investment ideas and market commentary from the financial newsletter community.

 

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Electronic Arts (ERTS) to game up Hasbro (HAS) brands

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This week games-maker Electronic Arts (NASDAQ:ERTS) announced a deal with Hasbro (NYSE:HAS) to create electronic versions of the toymaker's brands, including Scrabble and Monopoly. The deal runs through 2013, and covers all Hasbro properties, which include such popular names as the Bratz dolls, the Fantastic Four, Gastrointestinal Joe, The Simpsons, and Twister.

While EA hasn't released information about their plans to make use of these properties, the possibilities are endless -
  • Monopoly Extreme -- Why should players be allowed to stroll uninhibited down Boardwalk and Atlantic Avenue, when the game could be much more interesting in a Grand-theft- Auto-type world? Imagine shooting your way out of Marvin Gardens, highjacking a Reading Railroad train, and trolling Baltic Ave. for a hooker.
  • Chutes and Ladders -- In the video world, falling into a chute would cost the player much more than a few squares - perhaps even a visit the Hell! Ladders, on the other hand, could lead to greater rewards, such as a front row seat at a Barry Manilow show in Las Vegas. Or do I have those backwards?
  • Bratz - the Hilton version. Dress up your Bratz from an endless variety of skanky outfits (underwear tonight- yes, or no?), take her partying in the hottest Hollywood clubs, indulge her in the very best drink and toot, and check her in to the most exclusive rehab clinics. Accumulate points every time she manages to smack a paparazzi with her purse.
  • Scrbl - txt vrsn. Txtrs cmpt 2 c who cn use t fwst ltrs 2 spl wrds.
  • Easy-Bake Iron Chef - No more light bulbs and tasteless cakes. In the virtual world, mini-chefs can compete with gamers around the world to create monster desserts, exotic entrees or even cook up batches of meth.
Now, that's entertainment.

 

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Insiders selling Adobe (ADBE) like hotcakes

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Adobe Systems Inc. (NASDAQ: ADBE) opened at $41.30. So far today the stock has hit a low of $40.10 and a high of $41.46. As of 10:55, ADBE is trading at $40.72, down 0.03 (-0.1%).

Insiders have sold almost $39 million in ADBE shares over the past month, and more than $55 million over the past two months, indicating that people who know think that the stock is not going much higher any time soon. Technical indicators for ADBE are bearish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.

For a bearish hedged play on this stock, I would consider an September bear-call credit spread above the $45 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk and leverage returns. For this particular trade, we will make an 11.1% return in just 6 weeks as long as ADBE is below $45 at September expiration. ADBE would have to rise by 10% before we would start to lose money. Learn more about trades like this one here.

ADBE has never been above $45 and has shown some resistance around $42 recently. This trade could be risky if Adobe stabilizes and starts to move higher, but even if that happens, it could be tough for the stock to get back over the $45 level where it topped out in June.

Brent Archer is an options analyst and writer at Investors Observer.


 

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Stay focused on telecom

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Global Crossing Limited (NASDAQ: GLBC), Time Warner Telecom (NASDAQ: TWTC) and Level 3 Communications Inc (NASDAQ: LVLT), had one heck of a rally the past few day, despite horrific market conditions.

Both Global Crossing and Time Warner Telecom reported very strong results. Global Crossing's stock is selling from $22, up from $17.50 earlier this week. Why? The international telecommunications service provider reported a 500 basis-point improvement in its gross margin. This is a company that had some of the lowest gross margins in the telecommunication sector a few years ago. EBITDA came in $4 million ahead of analysts expectations. A good sign for a company that has often missed financial targets.

Jefferies has EBITDA going from $144 million in 2007 to $388 million by 2010. The combination of better industry conditions and recent acquisitions bodes well for the once-bankrupt telecom provider.

Time Warner Telecom also reported strong results earlier this week and should be looked at.

Emerging telecommunications providers got hit pretty hard after Level 3's results came in lite. Level 3 said demand for its services was strong, but messed up getting new customers on the network. Investors were not sure to believe management. From the results of both Global Crossing and Time Warner Telecom, it appears the demand for service from these new service providers is most definitely strong.

 

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Luxottica(LUX) looking good

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Luxury eyewear manufacturer and distributor Luxottica Group (NYSE: LUX) certainly has turned its eye towards profits. Despite the continuing erosion of the U.S. dollar against the Euro, Luxottica's July 26 2Q earnings report looks good. The only blind spot is Luxottica's inability to capitalize on its retail sector, particularly in the U.S. market. That is not to say Luxottica is not trying. The company has recently acquired 870 additional retail locations globally, and is aggressively establishing a retail presence in China and South Africa. In order to strengthen its brands in the U.S., Luxottica is unveiling a new line of eyewear products under a licensing agreement with Polo Ralph Lauren. Within the next several quarters, Luxottica intends to launch an ultra-luxury (obscenely overpriced?) eyewear brand named ILORI as part of a full luxury line. Perhaps the problem in its retail sector stems from Luxottica's inability to define precisely what type of eyewear distributor it is. While going after the vanity eyewear market of the uber-wealthy, Luxottica also owns LensCrafters and Sunglass Hut, the epitome of value-driven suburban mall retail demographics.

Despite problems in its retail sector, and being repreatedly hammered by exchange rate fluctuations, Luxottica continues to post good numbers. The company posted its ninth consecutive quarter of double-digit growth in its wholesale sector. In the most recent quarter, wholesale sales were up 17.5%. This gain follows 1Q 2007 wholesale gains of 20.4%. For the first half of 2007, wholesale sector operating income has increased 24.5%, which certainly helps to offset a 12% decline in retail operating income for the same period. Wholesale sales in emerging markets have increased by 50% during the previous quarter with so sign of a slowdown. On the basis of recent wholesale figures, Luxottica CEO Andrea Guerra raised FY guidance for growth in consolidated EPS to the 26-29% range, excluding the impact of exchange rate fluctuations, always a major concern to potential and current shareholders. For the first half of 2007, consolidated EPS stands at $0.83.

Luxottica stock is up over 15% from the beginning of the year, closing on 9 August at $35.50. Investors with a tolerance for currency volatility may wish to look into Luxottica.

 

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