Archive for the ‘Week in Review’ Category

The Week in Review for January 14, 2008

Monday, January 14th, 2008

All stock market averages fell last week, with the exception of the NYSE Healthcare Index and NASDAQ’s Insurance Index. The Dow Jones Average was off almost 194 points to close at 12606. The S&P 500 was off 11 points to 1401 and the NASDAQ Composite dropped 65 points to close at 2440.

The market internals looked worse than these aggregates. The number of new lows (2,081) were a whopping 7-times the number of new highs (267). Down-volume on all exchanges was 25% more than up-volume and of the 8,333 issues traded on the three major stock exchanges, issues trading down outnumbered issues trading up by a 5-to-3 margin (4,772 down; 3,432 up; 129 unchanged). (Check out the market tables at the end of this article.)

In our Daily Views articles from last week, we briefly revisit three — Mastercard (MA: $179.17; MV: $24 B) and two gold stocks, Yamana Gold (AUY: $16.40; MV: $6 B) and Kinross Gold (KCG: $23.02; MV: $14 B). Gold is likely to remain an area of active investor interest, all year long. An ounce for February delivery jumped to $900.10 on the New York Mercantile Exchange Friday morning, finally settling at $898.70.

There are two fundamental factors at work in this current gold-boom market that are likely to propel the price of gold beyond normally anticipated levels. First, Gold is quoted in US Dollars. As the dollar continues to depreciate against almost all other major currencies, that ounce of gold quoted in US Dollars is relatively cheaper to an overseas buyer than a US buyer. Second, ETF’s that specialize in gold speculation are required to hold actual gold bullion to back up their shares.

The percentage gains in gold stocks are usually greater than the percentage gains in the price of an ounce of gold. At the moment, most industry observers mirror Jon Nadler, an analyst with Kitco Bullion Dealers in Montreal, whose firm forecasts a trading range of $750 to $950 an ounce. While no one is sticking their neck out, yet, the $1,000 technical barrier in the price of gold appears certain to be pierced, in which case both Yamana and Kinross could see significantly higher stock prices.

The other big news last week was that US jobs growth came to a virtual halt in December. American Express (AXP: $44.00; MV: $51 B) soon followed on that news to announce it expected higher credit card payment delinquencies, reserving $440 million, and that its 84 million member card holders demonstrated reduced spending patterns in December. American Express lost $6 billion in market value since then, but the more interesting strategy was selling Mastercard short.

In fact, Mastercard was off 21 last week to close at $179.17. Shortly afterward, it was disclosed that Fidelity Management & Research reduced its holdings of Mastercard to 5.2% of issued shares, down from a 10% shareholding in January 2007. The analytical genesis for this strategy was the aggressive price-times-sales ratio for Mastercard (7 times sales), versus 2 times sales for American Express, and 1.5 times for Discover (DFS: $13.73; MV: $6.6 B). The number of shares sold short for Mastercard, as of December, was 12 million, or 9% of the 131 million issued versus 1% – 2% for American Express and Discover. So this is not a new discovery.

Nevertheless, any news in the week ahead from Mastercard on credit losses á la American Express, and rather than losing $21 in stock price for the week, as Mastercard did, it could lose $21 in a day. Moreover, with so many banks reporting fourth quarter earnings in the week ahead (Citigroup and US Bank on Tuesday; JPMorgan and Wells Fargo on Wednesday), this would be the week to let any unfavorable news seep out to shareholders. There is sure to be more of it. Stated another way, Mastercard is in a danger zone where more can go wrong than right in the weeks ahead. If you own it, time to give the stock a rest.

Last week featured JPMorgan’s big healthcare conference. The Biotech funds in attendance reported some developments that might be useful — Biotech Funds are now perceived as the same risk-class as emerging market funds, where returns have been better. Two stocks at the conference received SRO attendance, ZymoGenetics (ZGEN: $11.99; MV: $ 821 mm) and Seattle Genetics (SGEN: $11.69; MV: $ 788 mm). The Mederex (MEDX: $10.42; MV: $ 1.3 B) presentation was poorly attended.

In the vein of new names in emerging markets, taking a cue from the JPMorgan conference, here are three that have recently been showcased (i) Flughafen Wien (FLU.Austria: $11.00) whose business is operating the Vienna International Airport; (ii) Gemina (GEM.Italy: $11.00), operator of the Rome Airport; and (iii) Kangwon Land (035250.SouthKorea: $11.00), operator of South Korea’s only legal casino.

In a Special Edition later this week, we’ll present a thumbnail analysis of which of these we’d rank the best investment of the three.

In conclusion, here are the internal market stats for the week ended January 11th —

Let us hear your thoughts below:

The Week in Review – 12/24/2007

Monday, December 24th, 2007

All stock market averages fared better last week, however, the number of new lows was 5-times the number of new highs — which primarily reflects year-end tax selling. The stock market will clock-in with its fifth straight year of finishing higher than the year before. It is only natural therefore to expect profit-taking as this year’s trading activity draws to a close. The Dow gained 111 points to end the week at 13450 from 13339 the week before. In this next-to-last week of trading for the year, the Dow is almost 1000 points ahead of where it began the year, for a gain of 7.9%. The S&P 500 was up 16 points for the week  to close at 1485. For the year, the S&P 500 is up 66 points, or 4.7%. Finally, the tech-laden NASDAQ  was up 56 points for the week to close at 2692.  NASDAQ is up 11% for the year.

A total of 8,363 stocks traded on the 3 major exchanges. Declines outnumbered advances by a 5-to-3 ratio, nevertheless, the overall market still advanced.  New lows were almost twice last week’s new lows (1,693 vs. 874) the week before. The overall market averages were higher, with up-tick volume of 10.5 billion shares one-third greater than down-volume, however, these broader, positive trends mask the real damage being done to individual stocks that are currently out-of-favor. If you have losses in your portfolio, it’ll probably get worse.

  AROUND the WORLD Last week we identified a few overseas companies warranting investor attention — Lufthansa (DLAKY.PK: $26.45) and Singapore Airlines (SPAAF.PK: $12.85). The Singapore Airlines web site (http://www.singaporeair.com/ ) is full of useful information —- initially, it looks like a travel reservation site, however, be sure to click on the buttons at the bottom — one of which announces “Company Information”. Here’s the Lufthansa site — http://konzern.lufthansa.com/en/index.html

Occasionally, sites like this present some speculative opportunities. Air Terminal (SPASF/PK: $1.80) might be one. The stock was over $2.25 a share earlier this year, and once tax-selling diminishes in the stock market, this stock could be good for a quick ‘pop’. Check it out.

 

Elsewhere in the world, given that globalization is now a worldwide phenomenon, America’s latest export in this regard is the subprime mortgage debacle. In the UK, Northern Rock (NHRKF.PK: $1.68) was once the fifth largest mortgage banker; emphasis on “was”. It is currently the topic of discussion as to whether the British government nationalizes Northern Rock, or sells it to the private sector. Last week, the stock almost hit $2 / share on such rumors.

For the less speculative, we suggest Lloyds Bank Group (LYG: $37.59), which for being near its 52 week low, and not burned by subprime mortgages, could be a real bargain looking back a year from now. Also, just look how it has performed relative to two heretofore prominent American banks, Citigroup (C: $30.24) and Bank of America (BAC: $41.92).

 

Stocks listed in the Pinksheets aren’t always less than $5…neither are stocks listed on the New York Stock Exchange assured of a stock price north of $5 / share. In the last few issues, we listed two stocks that were among the most active last week. Pier 1 (PIR: $5.26) and Rite Aide (RAD: $2.98) each reported a third quarter loss. HOWEVER — Pier 1’s was less than expected, and the stock advanced a stunning 59%—whereas Rite Aide’s loss was larger than expected, and the stock lost one-third of its market value last week, dropping $1.03 to close the week at $2.98. Some short sellers are thinking “terminal short” for RAD, versus overvalued short.

In the student loan arena, we identified First Marblehead (FMD: $18.70) as a company that appeared to be doing the right things, and last week, was #4 on the NYSE’s most active list (over 26 million shares traded).  Compare that with another student loan company, SLM ($19.85) – off almost $7 / share last week, or a 25% loss of market value.

Companies in similar industries, Pier 1 and Rite Aide, each reporting a loss, but with totally different stock price outcomes. The reason is a reflection of how each company communicated its expectations to the marketplace, and did so credibly. Reading about these communications online, in places like this, can make you money as an individual investor, or cost you money if you keep your head in the sand.

COMING UP NEXT WEEK —– Last week, we introduced a model portfolio of ten stocks. In the upcoming edition on Wednesday, we present a performance review of that portfolio, and any others submitted to us by our readers. We will introduce a new section next Sunday called a Walk-in-the-Pinksheets. In addition to being the USA Stock Market home to Lufthansa, Singapore Airlines and Singapore Air Terminal, there are companies such as Heineken(HKHHF: $55.25) and Kirin Brewing (KNBWY: $14.90)…though as we will illustrate next week, the Pinksheets aren’t all Airlines and Beer (see for yourself at http://www.pinksheets.com/). HELPFUL HINT— the graphs on that site are superior to those appearing in Yahoo’s finance pages  (www.yahoo.com/finance).