Intraday: Bond Insurers Rally, Google Falls!

- Bond insurers were dealt some good news...Moody's agency rating reaffirmed their "AAA" rating on MBIA this afternoon.  Shares of MBIA were up 3.5% to $15.10 after the well-received news. 

-  Google shares are taking a beaten right now after an industry report published this week showed a decline in key measure for how Google gets paid by advertisers.  UBS trimmed its first quarter EPS (est.) to $4.66 to $4.76.  That now means that Street consensus, excluding one-time items, now stands at $4.69 a share.  The range of those estimates:  $4.23 to $5.02.  Longer-term I still believe in the name but would expect some for form of near term volatility.

-  As I have said before, I enjoy watching other traders and reading into their sentiments as they relate to current market conditions.  Doug Kass being one of the "famed traders".  His favorite long is UltraShort Oil & Gas ProShares (DUG), while his favorite short is Retail HOLDRs (RTH).  Basically, he is bearish on the market in the near term and has choosen to short sell oil/gas and retails stocks.  Not sure I agree with those picks.  And based on closing market prices, it appears as though Dougie has taken it in the chin today:  DUG was down 2.785 and RTH was up 1.21%.  Ouch!

-  CNBC's Charles Gasparino said within the past half hour that their may be a bailout in the works for mortgage insurers.  More to come...

         

      

Thoughts from Monday's Action...

-  What can I say?  The Dow up 189 points and the S&P 500 up almost 20 points.  Probably the biggest news was that Standard & Poor's affirmed its ratings for Ambac Financial Group Inc. and MBIA Inc., raising hopes that troubled bond insurers will emerge from the credit market crisis on solid footing.  Just don't buy the stocks and keep in mind that rating agencies have a tendency to be "late to the party."  If you decide to engage the bond insurer stocks then I say two words: "caveat emptor".

-  S&P outperformed the Nasdaq today based primarily on the equity fuel in energy-related stocks.

-  Dowgrades today included: GM (GM), Peabody (BTU), and a big SELL rating on New York Times (NYT).

-  The one that interests me the most is the New York Times downgrade.  The stock has been up some 50% since late January.  One would expect that at some point NYT will axe some of the current dividend payment.  As it stands right now, the dividend is 92 cents a share and with the stock trading at 19.59 then the effective dividend yield is 4.70%.  Way too high you ask me...With that said, I say that you should expect the axe on the dividend! 

-  Famed hedge fund manager, Doug Kass, has said that he is getting back into the UltraShort Oil & Gas ProShares (DUG).  Thinks that energy stocks prices are somewhat overpriced.  Note that the last time he took this same position in DUG, then he made about 15%  in two weeks.

   

Weekend Notes.

From time to time, I like to post notes that I think are interesting and relevant (or maybe not).  Its always a good idea to keep an eye on signifcant trades/rumors/speculation etc.  Here's a rundown:

1.  According to the Barron's 13D Filings column, Firebrand Partners and Harbinger Capital Partners are seeking representation on the board of the New York Times (ticker: NYT). The pair of hedge funds said that they have raised their stake in NYT to about 16.9 million (11.82%) shares, after a Harbinger fund bought 793,000 Class A shares for $18.71 each on Feb. 15.

2.  Also, Discovery Group I reported ownership of about 5,175,394 sharess (5.4%) of Drugstore.com (ticker: DSCM), after buying 733,849 from Jan. 4 to Feb. 15 at $2.65 to $3.05 each.

3.  Billionaire investor Edward Lampert raised his Autonation (ticker: AN) stake to 60,714,921 shares (33%), after buying 1,906,157 from Feb. 11 to 13 at prices ranging from $15.18 to $15.55 apiece.

4.  Money manager Steven Cohen (SAC Capital Management) cut its stake in the Vistacare Inc (ticker: VSTA) to 813,538 shares (4.8%), from the 998,493 stake (5.9%) reported on Feb. 1.  Can anyone say, "...don't catch the falling knife?"  I can!

5. Action continues to pick up in Yahoo $25 puts.  Traders are beginning to feel as though the deal could fall apart.  We shall wait and see.  About three weeks ago I did a "Question and Answer" piece on the deal and some of the details. (You can find it HERE)  I still think the deal goes through at this point.  The Softie (another name for Microsoft) PR Machine is full throttle with recent assurances to the public.  The downside for Yahoo stockholders is way too much if the deal falls apart.  Yahoo has tried almost everything to battle the Google giant only to fail and fail miserably.  Incidentally, Softie has done the same thing.  The only difference between the two firms:  Softie pockets are deeper and are looking to buy their way into a showdown.  If you are a holder of Yahoo I say pack your bags, book a gain, and look elsewhere.

6. Seeking Alpha is speculating a Ruth Chris Hostile Bid for its battered and woeful shares...HERE   

7.  According to Xinhuanet.com (www.chinaview.cn), Goldman Sachs raised China's 2008 inflation forecast to 6.8% from 4.5% in light of the rapid growth in money supply.  Goldman's Chief China Economist, Liang Hong, said in a report that inflation may continur to accelerate in the short-term and rise by double digits in coming months.  And he also expects the yuan to appreciate 12% in the coming 12 months.   

Intraday: Stocks Stronger on Upbeat Retail Sales

-  Wall Street is moving up today based on an unexpected increase in retail sales last month and eased some concerned about consumers' willingness to spend despite economic uncertainty.  At this moment the Dow is up over 150 points.

-  There was a rumor this morning that Citigroup's money markets were having liquidity issues.  However, Dow Jones reported that the rumor was incorrect.  Citi is up 18 cents at this point to $26.40 per share.

-  Traders are bidding up Microsoft shares today more than 1.5%.  As I have said in the past, I think Softie maybe good to look at.  They had a real strong earnings report that showed better than expected numbers earlier this month.  And I think the Yahoo takeover is a sign of agressive tactics being made by Balmer to counter the Google brainpower.  Let's hope for Softie's sake it isn't too late. 

-  Speaking of Yahoo...did you know that YHOO last repurchased almost $3 billion in outstanding shares.  And aren't normally, share repurchase plan goods for firms?  Yes, but YHOO badly miscalculated their move....the average share price of their repurchased allotment during last year was over $30 per share.  Keep in mind, that before the takeover bid, the shares were trading at about $17 per share.  Ummm, can anyone say, "stop throwing good money after bad..."?

-  On the other hand, renowned short seller Doug Kass is buying March $25 puts on YHOO for 30 cents a share.  His reasoning:  reports are that News Corp. might be interested in a joint venture with YHOO.

That's all I have for now...stay tuned.

After-Hours: Market Closes Higher!

- Stocks finished the day higher as the Dow closed up 46 points today after three straight days of losses.

- Earnings season is coming to end now.  Almost 80% of firms have already reported.  Earnings season can create shockwaves in the market when macro volatility is existent.  Now we will sit on our hands until April when 1Q08 figures are released.

- 60% of the firms that have reported have met expectations, 25% beat expectations and about 15% missed their earnings expectations.  But always remember that its not always about the numbers but about their forecast of future sales and net income.

- I have never been a big buyer of restaurant operator stocks...example: IHOP down 11% yesterday and California Pizza Kitchen down over 10% as well.  Two words: caveat emptor!   

Intraday: From my perch...

-  As I said yesterday, one of my concerns was how Cisco would be guide after they announced their earnings.  Well, unfortunately, Cisco provided a poor outlook for product near-term demand.  As a result, the stock has sold off accordingly.  Goldman Sachs believes it will take at least another quarter or two of solid results before the stock can regain sustained positive momentum.  They went on to reduce their 6 month price target from $32 to $28 per share.

-  I am seeing some big traders (including Doug Kass) that are starting to buy CSCO on this dip.  With the stock trading at only 15 times current profit and 13 times prospective earnings, he thinks the stock is a screaming buy.  I, personally, am not a fan of CSCO and telecom.  I say avoid this stock.   

- I am going to start adding to my portfolio based on my conviction list:  Goldman, iShare China and Dow Jones Ultra Index.    I will start with GS based on lower relative vaulation, then purchase DDM on the possibility of to the Dow returning to 13000 levels and a bit of FXI.

- Got my eyes on a few new names for the conviction list:  McDonalds (MCD), Transocean (RIG), and Raytheon (RTN).

- DJIA can't make up its mind whether to be negative or positive...the volatility continues.

Stay tuned.

Intraday: Markets Rebound on Disney news and Productivity results

-  Stocks rebounded slightly today based on better than expected results from Disney.  Disney posted a 26 percent decline in profit late Tuesday, but the results beat expectations. The company reported a 9 percent rise in revenue due in large part to increasing revenues from ESPN, "High School Musical" and "Hannah Montana."

-  Investors were also happy to hear that fourth quarter economic productivity climbed by 1.8% and labor costs rose by only 2.1%.  Both numbers exceeded economists predictions.

-  I am hearing of lots of shorting in the UltraShort Oil and Gas Proshares (DUG).  I sure hope that they are short term traders because, longer term, oil and gas remain a scarce commodity with no alternative anywhere in sight.  Shorting is a dangerous business only unless you have tons of capital and can trade with no emotional ties otherwise run and don't walk away from this trade. 

-  Expect the Bank of England to cut interest rate by 25 basis points to 5.25% tomorrow.  This should continue to devalue the British pound which has fallen to recent weeks from its November peak. 

-  Cisco's shares are up ahead of this afternoon's earnings.  The Street is looking for revenue of $9.79 billion and EPS of 38 cents.  But like all earnings calls, traders want to hear about the firm's outlook...that is the key!  Its always about the outlook.   

-  Yesterday, I predicted an Asian sell-off and it happened.  Asian markets fell the furthest in two weeks prompted by short-selling which knocked the index lower by 5.4%.  Luckily, most Asian markets will now be closed until the beginning of next week for the Chinese New Year - China's exchange will not open again until Feb 12th.         

-  On the Goldman Sachs front, the Massachusetts state pension fund has fired Goldman Sachs for poor performance with respect to the Global Alpha fund.  Nice piece from the dealbook HERE.

As I finish this post - Dow up about 5 points, S&P even and the Nasdaq down 7 points. 

Intraday: Market Pulls Back Again (if you can believe it)!

- All the stocks on my radar are down today - for the exception of one stock: Google.  It's hanging in tough right now at about $502 per share up $7.12 for the day.  I think perhaps bargain hunters are now picking away at this stock.  I am just not so sure about this one right now.  Keep in mind, that in a slowing economic environment, advertising and media stocks will get blasted.  Its the first and easiest line item for executives to trim on the income statement.

- Yahoo remains in its "target" price range therefore its virtually unchanged for the day at $29.30.  Merger talk will do that to a stock.  In case you missed it, be sure to check out my Q&A regarding the MSFT and YHOO deal as it gives a nice synopsis on the current status of the deal and the underlying strategy.

- I am hearing of some late day buying of QQQQs based on an "oversold" conditions.  Honestly, I've never been a big fan of the cubes...too volatile and too much Tech.

- I will be interested in two after-hours "macro" events coming up:  (a) Super Tuesday election results and (b) the extent of an Asian selloff this evening...

- Expect Google to lay on the heat with respect to antitrust political pressures on a proposed deal between MSFT and YHOO.  MSFT did the same to GOOG during the GOOG and DoubleClick deal.  I guess its payback time.

- With respect to buying and selling equities, I would recommend sitting on your hands for a bit more...remember no huge bets and cash is not a bad thing.

END OF DAY UPDATE:  Dow Jones loses 360 points on the session.  Stay tuned for more updates...

Microsoft goes "HOSTILE" on Yahoo! A Q&A Perspective...Part I

A successful hostile takeover from the perspective of the bidder is a rare occurrence.  Generally speaking, hostile deals are frowned upon by not only some shareholders on both sides of a deal but also by the bankers that sometimes provide the financing.  The synergies are also highly scrutinized as history has not been kind to these types of deals.  But this case may be different...

As we all know, Microsoft placed a $44.6 billion bet that buying Yahoo can give it the Internet presence that it has longed for in recent years.  After years of testing and research, Microsoft's foray into online search and advertising can be summarized in one word:  FAILED!  With Balmer at the helm, he is determined to change that here and now.  The software giant's surprising, unsolicited offer for Yahoo represents a 60% premium over the Internet company's recent share price.  If the deal goes on to close, this would be the biggest tech transaction ever recorded.

With so many details and questions surrounding this deal and the use of a "hostile" strategy, I have decided to tackle this deal from a Q&A standpoint.... 

What is a hostile takeover and why is Microsoft forcing a hostile takeover on Yahoo?

Normally, when a bidder makes an offer for another company, it usually informs the board of the target beforehand. If the target board feels that the offer is such that the shareholders will be best served by accepting, it will then recommend the offer be accepted by the shareholders.  This is commonly referred to as a "friendly" takeover.  A hostile situation is complete different.  In the case of hostile takeover normally one of the two (if not both) following conditions will exist between the respective parties:  (1) the board rejects the offer, but the bidder continues to aggressively pursue it, and/or (2) a bidder goes public to make an offer without informing the board prior to such offer.

In the case of Microsoft and Yahoo, I would say both conditions, to some extent, exist.  In 2006, Microsoft began showing interest in a Yahoo deal.  But after some initial discussions, Yahoo pushed Microsoft away.  Yahoo figured that they could go "Lone Ranger" by way of strategic partnerships and internal growth initiatives.  Well that failed miserably.  In recent years, Yahoo has suffered from disappointing online-ad sales, declining web-search market share and high management turnover. 

With Yahoo turning its back to Microsoft, that basically meant that the desktop giant had no choice but to take the deal public and make a hostile bid for it.  And, in all fairness, to Microsoft, its a smart move knowing that they themselves are in a "must win" situation.

Is it possible that other potential buyers could enter the fray at this point? 

Possible but very unlikely.  I am not sure that there is anyone, at least among those who might be interested in making a play on Yahoo, that has the kind of financial firepower and war chest of cash that Microsoft has on hand.  And in this world of high powered private equity firms, the turmoil of the credit markets make it unlikely that any consortium of dealmakers could ban together to pick up Yahoo.

So at this point I don't see any white knights entering into a bidding war with the Goliath of desktop software. 

I heard of a tactic that Yahoo may use which involves enacting a "poison pill"...what is it and how does it apply in this case?

The "poison pill" is a takeover defense used by target firms and can take many forms as it applies to defense.  The most common poison pill is known as a shareholder rights plan.   

In a shareholder rights plan, the target company issues rights to existing shareholders to acquire a large number of new securities, usually common stock or preferred stock, at a discount to the current market price. The new rights typically allow holders (other than a bidder) to convert their right into a large number of common shares if anyone acquires more than a set amount of the target's stock (typically 10-20%). This dilutes the percentage of the target owned by the bidder, and makes it more expensive to acquire control of the target.  Many times the dilution can kill pending deals. 

In the case of Yahoo, the firm does have a shareholder rights plan in place which could make the deal expensive.  However, the timing of the deal suggests the Microsoft (aka "Softie) might be looking to take its case to shareholders via a proxy fight for Yahoo board seats.  If Softie wins seats on the board then they could in effect have the new board members drop the provisions of the poison pill and let Softie close the deal without a shot fired.

What are the odds that this deal is consummated? 

Tough to put numbers on it but if I were forced to do so, I would say about 75% chance it gets done.  Microsoft can make a great case and has the war chest to put together a hefty deal.  And Yahoo, on the other hand, has very little leverage in light of the poor financial results and forecasts that they have provided shareholders in recent quarters.  So, with that, I say that a deal is definitely "more likely than not."

Should I buy Yahoo stock on the premise that Microsoft will probably up the target price at some point?

Absolutely not!  This is a risky transaction that has many hurdles and potential pitfalls (proxy vote, antitrust problems, white knight scenario, etc.) that could kill the deal and send Yahoo's stock tumbling into a complete free fall.  It could easily lose 30-40% in minutes if news broke that the deal is off while the upside at this point is pretty much capped.

If anything, you might be able to look at the weakness in Softie's share price as an opportunity to initiate a position.   

How important is this deal to Microsoft?

This deal is real important to Microsoft.  While I hate to cast a superlative on Microsoft, I will say that Microsoft's long term survival is very dependent on their Internet success or lack thereof.  And up to this point, Microsoft has struggled mightily to establish a foothold in the search and online ad market.  With that said, it's a must do deal for Balmer and Co.

This Q&A is to be continued, please stay tuned...

 

February is going to be an UP month!

I will predict right now that February will be an "up month" for equities all across the board.  Stocks were battered so much last month that momentum traders will pick up "cheap" names and move them higher.  My predictions for the month...

DJIA will be up about 4% for the month

S&P 500 will be up about 5% for the month

and the NASDAQ will move up somewhere near 7% but will end the month still in negative territory for the year...