US & World Daily Markets Financial Briefing 09-02-2010

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Stocks Posting Strong Gains In Mid-Morning Trading

Stocks are seeing considerable strength in mid-morning trading on Tuesday, as traders are picking up equities at reduced prices following recent weakness. The major averages are all in positive territory, attempting to recover from recent three-month lows.

On the economic front today, the Commerce Department released a report showing an unexpected decrease in wholesale inventories in the month of December, although the report also showed a continued increase in wholesale sales during the month.

Wholesale inventories fell by 0.8 percent in December following an upwardly revised 1.6 percent increase in November. Economists had been expecting inventories to increase by 0.5 percent compared to the 1.5 percent increase originally reported for the previous month.

At the same time, the Commerce Department also said that wholesale sales increased by 0.8 percent in December after surging up by 3.6 percent in the previous month. The increase reflected a 3.0 percent jump in sales of durable goods.

With earnings season drawing to a close, Coca-Cola Co. (KO) reported fourth quarter earnings of $0.66 per share, just short of the $0.67 per share forecast by analyst. Net revenues for the quarter rose 5 percent to $7.51 billion, topping the consensus revenue estimate of $7.21 billion.

Pulte Homes Inc. (PHM) reported a fourth quarter net loss of $0.31 per share, compared to a net loss of $1.33 per share in the year ago quarter. Consolidated revenue for the quarter rose 5 percent to $1.73 billion. Analysts expected Pulte to report a loss of $0.19 per share on revenues of $1.50 billion.

In other corporate news, fast food giant McDonald's Corp. (MCD) announced that global comparable sales for the month of January grew 2.6 percent, driven by the European and Asian markets. Total sales for January rose 9.1 percent, including a 0.1 percent drop in the U.S.

Earlier in the day, Japanese automaker Toyota Motor Corp. (TM) announced the recall of nearly half a million new Prius and other hybrid cars due to problems related to the software program that controls the vehicles' anti-lock braking system.

The major averages have cooled their advance but remain near the highs for the session. The Dow is currently up 144.73 points or 1.5 percent at 10,053.12, the Nasdaq is up 22.66 points or 1.1 percent at 2,148.71 and the S&P 500 is up 12.81 points or 1.2 percent at 1,069.55.

Sector News

Airline stocks are some of the morning's strongest performers, driving the NYSE Arca Airline Index up by 6.3 percent. The index is being boosted by UAL Corp. (UAUA), the parent company of United Airlines, which has surged by 14 percent to its best price in fifteen months.

The advance has come after UAL reported a 2.4 percent rise in January traffic and a load factor of 78.5 percent for the month compared to 75.1 percent in the same period last year.

Steel and gold stocks are also notably higher, with the NYSE Arca Steel Index and the NYSE Arca Gold Bugs Index posting gains of 4.4 percent and 3.6 percent, respectively. The advance by gold stocks comes as the price of the precious metal is up $6.40 at $1072.60 an ounce.

Oil service, networking, natural gas and semiconductor stocks are also moving significantly higher, while modest weakness is visible among tobacco stocks, with the NYSE Arca Tobacco Index down by 0.3 percent.

Stocks Driven By Analyst Comments

Despite the strength in the broader markets, GameStop Corp. (GME) is under pressure after a downgrade at Credit Suisse from Outperform to Neutral. The broker also lowered its target price on the stock from $28 to $25. Shares are down by 4.5 percent and sank to their lowest intraday price in fourteen months in earlier trading.

Meanwhile, Lamar Advertising (LAMR) is moving higher after being upgraded at Wells Fargo from Market Perform to Outperform. The stock is up by 4.4 percent, bouncing off of yesterday's three-month closing low.

Monolithic Power (MPWR) is also on the rise after an upgrade by Wedbush Morgan from Underperform to Neutral. Shares are currently up by 2.6 percent, continuing their recovery from last Thursday's more than eight-month low.

Crude Edges Up Ahead Of Inventories Data

The price of crude oil edged up Tuesday morning ahead of inventories data, even as analysts expect a jump in U.S. stock piles. Marginal weakness in the dollar and value buying after the price of this energy product slipped to its two-month lows last week aided trader sentiment.

Light Sweet Crude Oil (WTI) futures for March 2010 were at $72.82, up $0.93 a barrel.

However, alarming debt levels in Europe, high unemployment in the U.S. and fears of Chinese monetary tightening continued to depress oil prices.
 
Meanwhile, the U.S. dollar came off from its 8-month high versus the euro, while easing against the British pound and the Canadian dollar.

Some of today's trading will be guided by the inventories data from the API, due out later today. Analysts expect U.S. crude stocks to jump by 2 million barrels, according to a survey released Monday by Platts, the energy information arm of McGraw-Hill.

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Asian Markets End In Positive Territory On Bargain Hunting

The markets across Asia, except Japan and Australia, ended in positive territory on Tuesday as traders evinced fresh buying interest on beaten-down stocks. Optimism about resolving sovereign debt crisis and bargain hunting at lower levels offset most of the losses across the markets in the region.

In Japan, the benchmark Nikkei 225 Index ended down 18.92 points, or 0.19%, at 9,933, while the broader Topix index of all First Section issues fell 1.44 points, or 0.16%, to 882.

On the economic front, a statement released by the Japan Machine Tool Builders' Association revealed that the country's machine tool orders surged 192% year-on-year in January, following a 63.4% increase in the previous month of December. The statement further noted that the sharp increase in total orders was led by external demand, which soared 297% in January compared to the previous year, while domestic orders climbed 78.9%.

Pharmaceutical stocks ended in negative territory. Takeda Pharmaceuticals fell 2.62%, Eisai Co. lost 1.35%, Chugai Pharmaceutical Company shed 2.52%, Astellas Pharma slipped 1.21% and Dainippon Sumitomo Pharma declined 2.63%.Among land transport stocks, Yamato Holdings declined 1.91% and Nippon Express slipped 1.34%.

Automotive stocks ended in positive territory after the local currency weakened against the US dollar. Toyota Motor, which had been declining in the past few sessions on recall concerns, surged up 3.05%. Honda Motor added 0.82%, Mitsubishi Motor advanced 0.83%, Isuzu Motor gained 1.50% and Nissan Motor climbed 2.38%.
 
Banking stocks ended higher. Sumitomo Mitsui Financial climbed 2.05%, Resona Holdings added 0.64%, Mitsubishi UFJ Financial edged up 0.22% and Mizuho Financial rose 1.16%,

Shipping stocks also ended in positive territory on bargain hunting. Kawasaki Kisen Kaisha gained 2.05%, Nippon Yusen rose 2.19% and Mitsui OSK Lines edged up 0.19%.

Mixed trading was witnessed among trading companies. Mitsubishi Corp. rose 1.86%, Mitsui & Co., gained 1.02%, Marubeni Corp., advanced 1.39% and Itochu Corp. added 0.88%. However, Toyota Tsusho Corp. fell 1.17% and Sumitomo Corp. lost 1.09%.

In Australia, the benchmark S&P/ASX 200 Index slipped 16.30 points, or 0.36% to close at 4,505, while the All-Ordinaries Index ended at 4,521, representing a loss of 18.10 points, or 0.40%.

On the economic front, results of the latest Dun & Bradstreet's national business expectations survey revealed that more companies in Australia are contemplating to hire more workers and undertake larger investments in the coming months on optimism that the economy is gaining strength. According to the survey, the employment expectations in the country jumped back to positive territory at 5 points for the June quarter, compared to a reading of minus 26 for the same period last year.

Investment banker Macquarie Group released a trading update for the second half as well as outlook for the full fiscal year that failed to enthuse investors. The Group stated that it expects profit in the second half of the year mostly in line with the first half, thus expecting total profit for the full year to be around A$960 million, compared to A$861 million reported for full year 2009. Following the announcement, the stock plunged 6.10%.

Among other major banks, ANZ Bank lost 1.91%, Commonwealth Bank of Australia edged down 0.09%, National Australia Bank shed 1.37% and Westpac Banking fell 1.59%.

Mixed trading was witnessed among mining stocks ahead of quarterly results from BHP Billiton on Wednesday and Rio Tinto on Thursday. Among the gainers, BHP Billiton advanced 0.63%, Fortescue Metals rose 1.10%, Macarthur Coal gained 0.83% and Mincor Resources climbed 1.45%. Iluka Resources remained unchanged from previous close. However, Rio Tinto edged down 0.28%, Gindalbie Metals fell 2.79%, Minara Resources lost 1.64%, Murchison Metals declined 0.97% and Oz Minerals shed 0.51%.

Mixed trading was also witnessed among gold stocks. Lihir Gold managed to end in positive territory with a gain of 1.79% while Newcrest Mining edged down 0.22%.
 
Oil stocks ended in negative territory. Woodside Petroleum slipped 0.52%, Santos lost 0.99%, Oil Search shed 0.39% and Origin Energy declined 0.51%.

Airline stocks also displayed mixed trading. While Qantas Airways declined 1.41%, Virgin Blue Holdings managed to end in positive territory with a gain of 0.88%.

In Hong Kong, the Hang Seng Index ended higher with a gain of 1.22% or 239.39 points, at 19,790, as traders preferred to evince fresh buying interest at beaten down stocks at lower levels amid optimism that the sovereign debt crisis in Greece will be resolved. The weakening of the dollar against the other currencies and moderate strength in commodity stocks including gold and oil lifted market sentiment across the markets. As many as 38 of the 42 components in the index ended in positive territory.

In South Korea, the KOSPI Index gained 17.70 points or 1.14% to close at 1,570, as retail investors evinced fresh buying interest in stocks across the market that were beaten down in the past few tradign sessions, amid increasing optimism that the sovereign debt crisis in Greece and other European countries will be effectively resolved. Financial stocks, automotive and blue-chip technology stocks led the gains amid speculation that the economic recovery will be sustained.

Reversing an early fall, the Indian market ended notably higher on Tuesday, taking cues from the rising U.S index futures after a severe setback overnight. Battered IT stocks witnessed firm buying interest. The benchmark Sensex opened flat and later fell to a low of 15,863 before recovering significantly. After rising to the day's high of 16,094, the Sensex pared some gains before finishing at 16,042, up 107 points or 0.67%. The Nifty rose steadily to settle up by 32 points or 0.68% at 4,793,

Among other major markets open for trading in the region, Indonesia's Jakarta Composite Index added 13.91 points, or 0.56% to close at 2,489, China's Shanghai Composite Index advanced 13.67 points, or 0.47%, to close at 2949, Taiwan's Weighted Index surged up 145.16 points, or 2.01% to close at 7,361, and Strait Times Index in Singapore gained 51.40 points, or 1.91%, to close at 2,745.

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After showing some nervousness in early trading, the major European averages have recovered and are trading higher. The French CAC 40 Index is gaining 0.23% and the German DAX Index is advancing 0.39%, while the U.K.’s FTSE 100 Index is rising 0.55%.

In corporate news, UBS (UBS) said it reversed to a profit of 1.21 billion Swiss francs in the fourth compared to a loss of 9.56 billion Swiss francs in the year-ago period.

On the economic front, a survey by the Royal Institute of Chartered Surveyors showed that a net 32% saw house prices rising in January compared to 30% in December. Economists had expected a net house price balance of 27%. However, new enquiries from potential buyers fell for the first time in 14 months, while the number of new sellers entering the market fell for the first time in seven months.

Meanwhile, the British Retail Consortium reported that total retail sales value in the U.K. fell 0.7% on a like-for-like basis in January compared to a year ago. On a total basis, sales rose 1.2% compared to January 2009. This marked the worst January sales growth in the 15-year history of the survey.

The final consumer price inflation report released by the German Federal Statistical Office said German consumer prices rose 0.8% year-over-year in January, slightly softer than the 0.9% increase in December. On a monthly basis, the consumer price index fell at an unrevised rate of 0.6%. Mineral oil product prices and electricity prices were behind the bulk of the annual increase, while food prices fell from the year-ago period.

Provisional data released by the German statistical office showed that Germany’s current account balance showed a surplus of 20.6 billion euros in December, higher than the 17.8 billion euro surplus in November and the 13.9 billion euro surplus in the year-ago period. The higher surplus compared to the previous month reflected an increase in the services account surplus and a surplus in current transfers compared to November, partly offset by a lower surplus on the trade balance. Meanwhile, on a year-over-year basis, the trade surplus increased to 13.5 billion euros compared to 7.3 billion euros in the year-ago period.

U.S. Economic Reports

The Commerce Department is due to release its wholesale inventories report at 10 AM ET. Economists expect wholesale inventories at the end of December to show a 0.5% increase.

Wholesale inventories at the end of November rose 1.5% month-over-month, although they declined 11% compared to the year-ago period. Meanwhile, wholesale sales rose 3.3% in November compared to the previous month and edged up 0.6% from the year-ago period. The wholesale inventories to sales ratio was at 1.14 compared to 1.29 in the year-ago period

Earnings

NYSE Euronext (NYX) reported fourth quarter non-GAAP earnings of 58 cents per share, higher than 52 cents per share in the year-ago period. Net revenues declined 6% to $640 million. Analysts estimated earnings of 48 cents per share on revenues of $638.30 million.

Pulte Homes (PHM) said its fourth quarter consolidated revenues rose to $1.7 billion from the year-ago’s $1.6 billion. The company reported a loss of $117 million or 31 cents per share, including $925 million in charges that were partly offset by a $800 million income tax benefit. In the comparable period of the previous year, the company reported a net loss of $1.33 per share, including goodwill impairments and land related charges of $386 million and an income tax benefit of $142 billion. Analysts estimated a loss of 19 cents per share on revenues of $1.50 billion.

Biogen Idec (BIIB) said its fourth quarter revenues rose 5% year-over-year to $1.1 billion. The company’s non-GAAP earnings rose 29% to $1.20 per share. Analysts estimated earnings of $1.05 per share on revenues of $1.13 billion. For 2010, the company estimates revenue growth in the mid single digits and non-GAAP earnings of above $4.55 per share. The consensus estimates call for earnings of $4.37 per share on revenue growth of 3.1%.

Coca-Cola’s (KO) fourth quarter reported net revenues rose 5% year-over-year to $7.51 billion. The company reported fourth quarter earnings of 66 cents per share, up 53% from 43 cents per share last year, with the net impact of charges nil in the recent quarter and 21 cents per share in the year-ago period. The consensus estimates called for earnings of 67 cents per share on revenues of $7.21 billion.

Cognizant Technology (CTSH) said its fourth quarter revenues rose 20% year-over-year to $902.7 million and its non-GAAP earnings rose 22% to 50 cents per share. The results exceeded the consensus estimate. The company expects first quarter revenues of at least $935 million and non-GAAP earnings of 52 cents per share. For 2010, the company expects non-GAAP earnings of $2.03 per share on revenues of at least $3.935 million. Analysts estimated earnings of $2.01 per share on revenues of $3.92 billion.

Coventry Healthcare (CVH) reported fourth quarter earnings of 74 cents per share on operating revenues of $3.4 billion. Analysts expected earnings of 56 cents per share on revenues of $3.49 billion. The company expects 2010 consolidated revenues of $10.86 billion to $11.37 billion and earnings of $2.10-$2.25 per share. The consensus estimates call for earnings of $2.23 per share on revenues of $11.21 billion.

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Electronic Arts (ERTS) tumbled in Monday’s after hours session after it said it expects fiscal year 2011 non-GAAP revenues of $3.65 billion to $3.90 billion and a non-GAAP profit of 50-70 cents per share. Analysts had expected earnings of 74 cents per share on revenues of $4.07 billion. The company reported third quarter non-GAAP net revenue of $1.35 billion, down 23% year-over-year, and non-GAAP net income of 33 cents per share, higher than 56 cents per share last year. The results exceeded the consensus estimates.

Vulcan Materials (VMC) could be in focus after it reported a fourth quarter net loss from continuing operations of 10 cents per share compared to a profit from continuing operations of $1.92 per share last year. Net sales fell to $555.77 million from the year-ago’s $756.52 million.

CNOOC (CEO) could gain ground after it announced that it its partner Husky Oil China made a new deepwater gas discovery on Block 29/26 in the South China sea. CNOOC noted that it has the right to participate in up to a 51% working interest in any commercial discoveries on Block 29/26.

AstraZeneca (AZN) may also move to the upside after the FDA approved Crestor to reduce the risk of stroke, myocardial infarction and arterial revascularization procedures in individuals without clinically evident coronary heart disease but with an increased risk of cardiovascular disease.

Fuel Tech (FTEK) could see some activity after it announced the resignation of its CFO and Treasurer John Graham, effective March 5th, 2010. The company noted that Graham is joining a privately-held environmental consulting company as its CEO.

Amgen (AMGN) is likely to see buying interest after it announced that its fully human monoclonal antibody denosumab met its primary and secondary end points in a Phase III study evaluating the therapy against Novartis’ (NVS) Zometa for treating bone metastases in men with advanced prostrate cancer. Denosumab was found to be superior to Zometa in delaying the first on-study skeletal related event and reducing the rate of multiple skeletal related event.

United Airlines (UAUA) may be in focus after it reported that its January load factor rose 3.4 percentage points year-over-year to 78.5%. Capacity declined 2%, while traffic rose 2.4%.

FMC Corp. (FMC) could move to the upside after it announced that its president and CEO Pierre Brondeau has recently purchased $1 million of its common stock in open market transactions.

Ownes & Minor (OMI) is expected to trade higher after it announced a three-for-two stock split of the company to be effected in the form of a stock dividend. The company also noted that its board has increased its quarterly cash dividend by 15%. Separately, the company reported fourth quarter earnings from continuing operations of 76 cents per share compared to 66 cents per share last year. Revenues rose 4.2% to $2.04 billion. The consensus estimates called for earnings of 71 cents per share on revenues of $2.08 billion. For 2010, the company expects revenue growth of 4%-6% and earnings per share of $2.90-$3.05. Analysts estimate earnings of $2.94 per share on revenue growth of 5.2%.

Insurance stocks Hartford Financial (HIG), Lincoln National (LNC) and Principal Financial (PFG) traded lower in Monday’s after hours session after the release of their financial results. Hartford reported fourth quarter core earnings of $1.51 per share compared to a core loss of 72 cents per share last year. Analysts estimated earnings of $1.40 per share. For 2010, the company expects core earnings per share of $3.70-$4 compared to the consensus estimate of $3.96 per share.

Lincoln’s fourth quarter operating income was 90 cents per share compared to a loss of 50 cents per share last year. The consensus estimate called for earnings of 83 cents per share.

Principal Financial reported fourth quarter operating earnings of 62 cents per share, lower than 69 cents per share last year. Operating revenues fell to $2.37 billion from the year-ago’s $2.53 billion. Analysts expected earnings of 65 cents per share for the quarter.

Synopsys (SNPS) may react to its announcement regarding its proposed acquisition of electronic system designer CoWare. The company expects the deal to close in the second quarter of 2010. However, it did not reveal the financial terms of the transaction.

Charles River (CRL) may be in the spotlight after it reported fourth quarter net sales of $295.4 million, up 5.2% year-over-year. The company’s non-GAAP earnings rose 16.9% to 49 cents per share. Analysts estimated earnings of 44 cents per share on revenues of $291.16 million. For 2010, the company expects net sales growth in the low single digits and non-GAAP earnings of $2.20-$2.40 per share. The consensus estimates call for earnings of $2.38 per share on 2.6% revenue growth.

CIT Group (CIT), which announced the appointment of former Merrill CEO John Thain as its CEO late Sunday, could continue to be in focus after it announced that its board has authorized the voluntary prepayment of $750 million on its $7.5 billion first-lien credit facility. The company clarified that it would prepay the high cost debt out of its available holding company cash position.

SRA International (SRX) is likely to see some activity after it announced that its second quarter revenues rose 12% to $413.5 million, exceeding the mean analysts’ estimate of $396.63 million. The company’s earnings rose to 33 cents per share, also ahead of the 19 cents per share consensus estimate. The company raised its fiscal year 2010 revenue guidance to $1.63 billion to $1.665 billion and raised its earnings per share guidance to $1.22-$1.29. The consensus estimates call for earnings of $1.22 per share on revenues of $1.64 billion.

Waste Connections (WCN) may also be in focus after it reported fourth quarter revenues of $309.9 million, up 19.4% year-over-year. The company’s adjusted net income available to Waste connections shareholders rose to 37 cents per share from 30 cents per share last year. Analysts estimated earnings of 37 cents per share on revenues of $308.76 million. The company estimates 2010 revenues of $1.28 billion compared to the $1.29 billion consensus estimate.

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