Notablecalls is out with summary of the analyst comment on Etrade. Amid the concerns that the company will have a significant writedown on the sub-prime loans, the company share plunged yesterday to less than $4, significantly down from mid-20’s that the share was once trading in the middle of this year. The share price is at this point reflecting the possibility of bankruptcy and the Etrade customers fleeing to other brokerage names such as Schwab and TD Ameritrade. I think although the possibility of filing bankruptcy cannot be ruled out, I deem this as a highly improbable scenario. I see buyers of Etrade asset emerging at this share price level. It will take some time for Etrade share to recover. However, the stock is trading with worst possible scenario and I see some opportunity here with the stock.
ETrade (NASDAQ:ETFC): Color on news
We have couple of firms commenting on ETrade (NASDAQ:ETFC) after the co said on Friday it expects further write-downs on its $3 billion asset-backed securities portfolio and the U.S. Securities and Commission is investigating.
- Banc of America is lowering their tgt to $10.50 from $12 while keeping Neutral rating on the stock.
- Citigroup is lowering their rating on ETFC to Sell from Hold and cutting tgt to $7.50 from $13 saying the continued negative news flow about charges resulting from its mortgage & CDO exposure, an SEC inquiry, and continued deterioration in its financial condition, all increase the likelihood of significant client attrition.
Firm estimates that trying to liquidate E*Trade's loan & ABS portfolio would result in over $5b of losses (more than wiping out tangible equity). Based on accounting convention, E*Trade is not required to mark-to-market certain loans and securities. However, in the event that it has to sell these assets as a result of losing its funding sources (e.g. deposits & repo lines), losses could be realized. Citi's haircuts to arrive at the $5b loss estimate include 10% on 1st lien loans, 20% on HELOCs, and 25% on its ABS portfolio.
They lowering 07/08/09 earnings est to $0.31, $0.90, $0.90. the tgt of $7.50, includes a 15% probability of bankruptcy.
Notablecalls: Citigroup's call is titled "Bankruptcy Risk Cannot Be Ruled Out". That's why we have the stock down 30% in pre-market and not 10% like it should be following Friday's news. And it would still be a bounce candidate!
This stuff sounds like '00-'02 when Guy Moszkowski was covering ETFC for Citi (then Salomon). Think he downgraded the stock to Sell around $4. Man, this is clueless stuff. Prashant, you should have seen this coming and should now be looking for reasons to UPGRADE this stock, not downgrade. Phew!
It's a buy around $6. Even if the mortgage positions end up worthless, ETFC is worth a lot more than what it is selling for right now.
current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan, Goldman Sachs, Bank Of America, Wachovia, Comerica, and PNC Financial), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
Wednesday, November 14, 2007
Tuesday, November 13, 2007
GS and JPM continues to be the best financial names.
Citi bank analyst Keith Horowitz is out with a comment this morning saying that JPM has the extremely manageable exposure in the CDO and LBO loan market. He expects modest yet conservative writedown of 300 mil in Jan Q. He cuts the earning estimate by 8 cents due to the mark down to $1 for next Q. Unlike its counterparts such as Washington Mutual, B of A, C as well as WB, JPM superior risk management and conservative product position in the sub-prime market is helping the firm to fare much better than other financial institutions. In fact, GS and JPM are the two names that our investment group focused since last year, and they have performed the best in among the brokerage and large integrated bank names. I continue to recommend buying JPM and GS aggressively while the share price are down. With economy slowing, I see the money rotation out of the energy as well as tech which had seen large money influx due to investors' not having the alternative sectors to put money amid credit crunch debacle. With financial sectors beaten to death and clearly undervalued at this point, once people accept that the economic growth will slow down and earning in the energy and tech will also get impacted, the money will likely to flow into more conservative value names that include many of the financial names. I am even earning upto the story of Citibank as the valuation is getting compelling. If you want a full report of Citibank, email me via investorhives.com mail. I will send you the report. Below are the short synopsis of his comment.
ABS CDO Writedowns Expected To Be Very Manageable
We Estimate a Relatively Modest $300 mil Mark from CDOs — Unlike BAC or WB, we expect JPM to have a limited mark to market impact from ABS CDO writedowns since it was a very small player in this market. We view our $300 million mark as conservative, and note it includes estimated hits from subprime mortgage exposure that was effectively hedged in 3Q.
Assuming $400 million mark on Leverage Loan Commitments — While still early in the quarter, we are assuming JPM's $40.6 LBO loan book could see a 1% or $400 million negative mark in 4Q based on current market trends. Reducing 4Q estimates. Based on MTM adjustments, we are trimming our 4Q EPS estimate by $0.08 to $1.00.
We believe JP Morgan's strong capital position and improved risk management allow the firm to operate from a position of strength in a tough market, which should allow it to capitalize on the inevitable opportunities that will likely come about as more players are negatively impacted by credit and market headwinds. Reiterate Buy and $57 target price.
current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan, Goldman Sachs, Bank Of America, Wachovia, Comerica, and PNC Financial), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
ABS CDO Writedowns Expected To Be Very Manageable
We Estimate a Relatively Modest $300 mil Mark from CDOs — Unlike BAC or WB, we expect JPM to have a limited mark to market impact from ABS CDO writedowns since it was a very small player in this market. We view our $300 million mark as conservative, and note it includes estimated hits from subprime mortgage exposure that was effectively hedged in 3Q.
Assuming $400 million mark on Leverage Loan Commitments — While still early in the quarter, we are assuming JPM's $40.6 LBO loan book could see a 1% or $400 million negative mark in 4Q based on current market trends. Reducing 4Q estimates. Based on MTM adjustments, we are trimming our 4Q EPS estimate by $0.08 to $1.00.
We believe JP Morgan's strong capital position and improved risk management allow the firm to operate from a position of strength in a tough market, which should allow it to capitalize on the inevitable opportunities that will likely come about as more players are negatively impacted by credit and market headwinds. Reiterate Buy and $57 target price.
current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan, Goldman Sachs, Bank Of America, Wachovia, Comerica, and PNC Financial), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
Friday, August 03, 2007
Long term fundamentals intat for Apple.
Notablecalls is out with another interesting comment on Apple. There has been some concerns lately on possible production cut by Apple on hot selling iPhone. Goldman is now defending Apple stock, citing short pullback that the stock experienced last two days as buying opportunity. It seems as though a little production pullback is natural after a huge ramp up in anticipation of the iPhone introduction. The demand will definitely subside as the initial fervor around iPhone abate. However, I know several people are already waiting for cheaper version of iPhone which will be probably released by the end of this year. I have seen this device and it is one of the best tech inventions both in style and in terms of ease of use.
I continue to expect that short term, the stock could remain volatile as people try to lock in their profit after such a huge runup. However, I continue to expect positive sentiment in the tech land as the money will rotate out of energy and commodity into tech stocks. And Apple will be one of the favorite tech names. I expect with iphone Apple is in a position to increase PC sales as Ipod and Iphone sales lead to mo synergy with PC sales. I would use the dip as a buying opportunity. Notablecalls is a little more bearish on the stock but I have to agree with Goldman on Apple.
Apple (NASDAQ:AAPL): Color on iPhone cuts
- Goldman Sachs notes that after the Street's reset of overly optimistic iPhone estimates for calendar 2007 last week post Apple's (NASDAQ:AAPL) earnings, they view downward adjustments to Apple's build plan as backward looking. Firm's supply chain checks suggest that Apple has pulled down its build plan for iPhone but, while the magnitude is imprecise, the numbers that we are hearing still leave upside possibilities to GSCO's 2.8 million estimate for 2007. With Apple in the midst of a series of major product cycles, recent history has shown that pullbacks in the stock such as we have been seeing in the last few days are exactly the sorts of buying opportunities that investors should be taking advantage of.
Important to bear in mind is that what is going on with the supply chain now follows a well-established pattern for Apple that the firm has seen play out several times already with iPod, in each instance not a good indicator of actual demand. Specifically, in front of a new product launch, Apple secures initial manufacturing capacity for a larger number of units than it will ultimately need and then adjusts capacity downward to more realistic levels over time. The supply chain cuts taking place now for iPhone bring the build plan more in line with firm's current sell-out expectations
GSCO continues to see multiple upside opportunities for Apple.
Notablecalls: AAPL took a hit yesterday on rumors of iPhone production being cut. Goldman gives us the scoop. Looks like a non-event. Note that AAPL is up 1.5% this AM as Citigroup is taking their rating to Buy from Hold following yesterday's $10 pullback saying iPhone and iPod production cuts should not be a surprise, saying iPod production cuts reflect normal channel inventory clearance ahead of Aug/Sep new price product intros.
Two firms out with positive comments and the stock is up a platry 1.5%. To me this is a tell. A negative one.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
I continue to expect that short term, the stock could remain volatile as people try to lock in their profit after such a huge runup. However, I continue to expect positive sentiment in the tech land as the money will rotate out of energy and commodity into tech stocks. And Apple will be one of the favorite tech names. I expect with iphone Apple is in a position to increase PC sales as Ipod and Iphone sales lead to mo synergy with PC sales. I would use the dip as a buying opportunity. Notablecalls is a little more bearish on the stock but I have to agree with Goldman on Apple.
Apple (NASDAQ:AAPL): Color on iPhone cuts
- Goldman Sachs notes that after the Street's reset of overly optimistic iPhone estimates for calendar 2007 last week post Apple's (NASDAQ:AAPL) earnings, they view downward adjustments to Apple's build plan as backward looking. Firm's supply chain checks suggest that Apple has pulled down its build plan for iPhone but, while the magnitude is imprecise, the numbers that we are hearing still leave upside possibilities to GSCO's 2.8 million estimate for 2007. With Apple in the midst of a series of major product cycles, recent history has shown that pullbacks in the stock such as we have been seeing in the last few days are exactly the sorts of buying opportunities that investors should be taking advantage of.
Important to bear in mind is that what is going on with the supply chain now follows a well-established pattern for Apple that the firm has seen play out several times already with iPod, in each instance not a good indicator of actual demand. Specifically, in front of a new product launch, Apple secures initial manufacturing capacity for a larger number of units than it will ultimately need and then adjusts capacity downward to more realistic levels over time. The supply chain cuts taking place now for iPhone bring the build plan more in line with firm's current sell-out expectations
GSCO continues to see multiple upside opportunities for Apple.
Notablecalls: AAPL took a hit yesterday on rumors of iPhone production being cut. Goldman gives us the scoop. Looks like a non-event. Note that AAPL is up 1.5% this AM as Citigroup is taking their rating to Buy from Hold following yesterday's $10 pullback saying iPhone and iPod production cuts should not be a surprise, saying iPod production cuts reflect normal channel inventory clearance ahead of Aug/Sep new price product intros.
Two firms out with positive comments and the stock is up a platry 1.5%. To me this is a tell. A negative one.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
Tuesday, July 24, 2007
AAPL: iPhone demand declining?
I noted today from notablecalls that CIBC analyst is out with a comment this morning, citing declining demand for apple iphone over last 10 days. iPhone is seen to spur flash as well as ASIC demand for semiconductor sector so if he is right, this does not bode well for semiconudctor sector. Personally I think APPL iPhone is a game changing device. It will be a long term winner. But with so much worry about economy weakening due to credit problem and high energy price, I wonder whether continued demand for iphone that costs anywhere between $499 to $599 will be a hot seeling item after initiaL demand subsides. I am not making any statement here. Just a thought.
Following is the excerpts from notablecalls
Apple NASDAQ:AAPL: According to CIBC iPhone has seen a significant decline
- CIBC's Ittai Kidron is out with monster call on Apple NASDAQ:AAPL saying based on their store checks, they believe that demand for the iPhone has seen a significant decline in the past 10 days. CIBC has noticed decent inventories at stores, and thin demand at best. In fact, most Apple store visitors were not looking at the device and only a very small subset bought it.
With the weakness, they wouldn't be surprised to see AT&T and Apple step up their marketing efforts. Firm's channel checks suggest Apple is actually looking to introduce a 3G version of the iPhone for the U.S. market in November, ahead of the holiday season and earlier than currently expected.
Recent survey of iPhone buyers suggested that the key shortcoming of the current device is its poor data connectivity. This isn't a surprise and Apple's CEO Steve Jobs admitted the iPhone's cellular connectivity can use an improvement. CIBC now believes the "improvement" could come soon.
Notablecalls: AAPL stock is going to get hit today. Big time! Positive iPhone flow has driven AAPL up 50 bucks over the past months. CIBC's call will erase some of this. I expect to see 5 bucks of downside today! Actionable call! Short at will!
PS: Note that ThinkEquity upped their tgt on Synchronoss NASDAQ:SNCR yesterday to $44 from $36 based on increased expectations for the iPhone. The stock was also added to Think's Top Picks list. SCNR has enjoyed a nice run, fueled by iPhone flow. I would not be surprised to see weakness in SCNR following CIBC's call.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
Following is the excerpts from notablecalls
Apple NASDAQ:AAPL: According to CIBC iPhone has seen a significant decline
- CIBC's Ittai Kidron is out with monster call on Apple NASDAQ:AAPL saying based on their store checks, they believe that demand for the iPhone has seen a significant decline in the past 10 days. CIBC has noticed decent inventories at stores, and thin demand at best. In fact, most Apple store visitors were not looking at the device and only a very small subset bought it.
With the weakness, they wouldn't be surprised to see AT&T and Apple step up their marketing efforts. Firm's channel checks suggest Apple is actually looking to introduce a 3G version of the iPhone for the U.S. market in November, ahead of the holiday season and earlier than currently expected.
Recent survey of iPhone buyers suggested that the key shortcoming of the current device is its poor data connectivity. This isn't a surprise and Apple's CEO Steve Jobs admitted the iPhone's cellular connectivity can use an improvement. CIBC now believes the "improvement" could come soon.
Notablecalls: AAPL stock is going to get hit today. Big time! Positive iPhone flow has driven AAPL up 50 bucks over the past months. CIBC's call will erase some of this. I expect to see 5 bucks of downside today! Actionable call! Short at will!
PS: Note that ThinkEquity upped their tgt on Synchronoss NASDAQ:SNCR yesterday to $44 from $36 based on increased expectations for the iPhone. The stock was also added to Think's Top Picks list. SCNR has enjoyed a nice run, fueled by iPhone flow. I would not be surprised to see weakness in SCNR following CIBC's call.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
Tuesday, July 10, 2007
ISIS; Positive comments from Changewave investing newsletter
ISIS: Positive comments from Tobin Smith on his latest weekly update of Changewave Investing Newsletter.
Tobin Smith (a regular guest on bulls and bears on Fox) had the following comments on ISIS, following ALNY's deal with Roche. His target for ISIS remains at $20, which happens to be also Lehman's. I expect biotechs to outshine again towards ASH in early winter. If the atmosphere is right, I believe ISIS can trade above $20.
ISIS PHARMACEUTICALS (ISIS)
Isis Pharmaceuticals announced that it will receive $26.5 million from Alnylam Pharmaceuticals (ALNY) as its portion of the upfront fees and equity premium in the recently announced transaction between Roche Holding AG and Alnylam. In addition, Isis has the potential to receive milestone and royalty payments. This transaction underscores the value of Isis' innovation and the leadership role Isis has played in the field of nucleic-acid-based therapeutics. The close of the agreement is subject to certain regulatory approvals and is expected to occur within approximately 30 days.
OUR TAKE: The Alnylam deal with Roche has three major takeaways:
1) This agreement further validates the potential of RNA-based therapeutics becoming a major class of drugs and the excitement that large pharma has for the platform;
2) ISIS is well-positioned with its 2004 deal with ALNY to reap benefits from RNAi through substantial royalty payments from ALNY;
3) The Roche-Alnylam deal increases the probability that ISIS will be able to partner their broader drug ISIS301012 on extremely attractive terms.
Again, if big pharma wants to get a leg up on the major new emerging therapeutic world, my best guess is that Roche takes out ISIS for $20 per share.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
Tobin Smith (a regular guest on bulls and bears on Fox) had the following comments on ISIS, following ALNY's deal with Roche. His target for ISIS remains at $20, which happens to be also Lehman's. I expect biotechs to outshine again towards ASH in early winter. If the atmosphere is right, I believe ISIS can trade above $20.
ISIS PHARMACEUTICALS (ISIS)
Isis Pharmaceuticals announced that it will receive $26.5 million from Alnylam Pharmaceuticals (ALNY) as its portion of the upfront fees and equity premium in the recently announced transaction between Roche Holding AG and Alnylam. In addition, Isis has the potential to receive milestone and royalty payments. This transaction underscores the value of Isis' innovation and the leadership role Isis has played in the field of nucleic-acid-based therapeutics. The close of the agreement is subject to certain regulatory approvals and is expected to occur within approximately 30 days.
OUR TAKE: The Alnylam deal with Roche has three major takeaways:
1) This agreement further validates the potential of RNA-based therapeutics becoming a major class of drugs and the excitement that large pharma has for the platform;
2) ISIS is well-positioned with its 2004 deal with ALNY to reap benefits from RNAi through substantial royalty payments from ALNY;
3) The Roche-Alnylam deal increases the probability that ISIS will be able to partner their broader drug ISIS301012 on extremely attractive terms.
Again, if big pharma wants to get a leg up on the major new emerging therapeutic world, my best guess is that Roche takes out ISIS for $20 per share.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
Monday, July 09, 2007
ISIS: Lehman out with positive statement
Lehman is out with positive statement on ISIS, following ALNY megabuster deal with Roche. Last year, Merck paid $1.1 billion for small RNAi company Sirna. And today's ALNY deal that could surpass 1 billion (it is not an acquisition but merely non-exclusive licensing deal) clearly validates the RNA technology as one of the most sought after and promising areas for next generation drug development.
ISIS provides ALNY with exclusive license to ISIS IP for double stranded RNAi technology and as ALNY achieves major milestone with Roche, ISIS is likely to leap more revenue from ALNY's deal with Roche.
Lehman points out the extremely attractive pipeline of ISIS and thinks that pipeline platform value well exceeds the current valuation. The firm has $20 target on the company which represent near 90% gain from the current level.
ISIS got tremendous efficacy data on phase 2 trial on its ISIS 301012 to lower bad cholesterol (LDL) without significant long term side effects. This is highly prized market by the large pharma as big pharma had major setbacks in producing effective LDL lowering drugs without safety issues. In addition, ISIS 325568 and 377131 seems to be very promising in diabetes market, which is one of the largest healthcare market. Lehman point out that ISIS had received significant interest from the potential partners on 301012 and the company started a competitive ¡°auction process¡±. In my opinion, this company will not be a standalone company. Small companies in RNA space will be gobbled up by large biotech and pharma companies. As one of the most potent IP in RNA antisense technology, ISIS is a prime take-out target with substantial premium. Definitely recommends purchase of ISIS shares at current valuation.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
ISIS provides ALNY with exclusive license to ISIS IP for double stranded RNAi technology and as ALNY achieves major milestone with Roche, ISIS is likely to leap more revenue from ALNY's deal with Roche.
Lehman points out the extremely attractive pipeline of ISIS and thinks that pipeline platform value well exceeds the current valuation. The firm has $20 target on the company which represent near 90% gain from the current level.
ISIS got tremendous efficacy data on phase 2 trial on its ISIS 301012 to lower bad cholesterol (LDL) without significant long term side effects. This is highly prized market by the large pharma as big pharma had major setbacks in producing effective LDL lowering drugs without safety issues. In addition, ISIS 325568 and 377131 seems to be very promising in diabetes market, which is one of the largest healthcare market. Lehman point out that ISIS had received significant interest from the potential partners on 301012 and the company started a competitive ¡°auction process¡±. In my opinion, this company will not be a standalone company. Small companies in RNA space will be gobbled up by large biotech and pharma companies. As one of the most potent IP in RNA antisense technology, ISIS is a prime take-out target with substantial premium. Definitely recommends purchase of ISIS shares at current valuation.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
ALNY: ALNY hits a huge deal with Roche.
RNA drug development area is hitting up. One of our speculative RNA play ALNY has hit a major deal with major German pharmaceutical company Roche. According to the press release, Roche is paying 331 million in cash for ALNY to develop drug based on its RNA interference technology. Also Roche is taking major equity stake, paying $21.50 for ALNY's near 2 million shares. ALNY is currently trading at slightly above $15 so this deal represents 40% premium to the current share price. ALNY has slightly more than 37 million shares outstanding so Roche stake will be roughly more than 5% of the total shares. In addition, ALNY's market cap stands at 570 mil so this deal roughly valued at 1 billion is huge indeed. This deal clearly again validates RNA technology in developing next generation drugs and big pharmas are seeing definite interest in this field. I expect ALNY to trade up on this news. I believe that companies in the area will not be left alone and big pharmas are likely to acquire several of these companies at a hefty premium. I would not surprised ALNY doubles from here. Just above $15 presents outstanding entry point. However, do remember this is a speculative play. The company currently does not generate positive cash flow nor positive net income on GAAP basis.
ALNY has probably the best IP portfolio in RNA technology area. Merck took out Sirna at more than 70% premium to its share. With Roche paying hefty cash to develop drug, I would not be surprised if Roche acquires this company if the company is able to meet drug development milestones that are yet known to investors' communities.
ISIS, another our speculative biotech play based on RNA antisense technology is other company that is going to attract big pharma interest. While big biotech companies has been struggling of late due to increased safety requirement by FDA for drug approval and medicare reimbursement concern, small biotechs are receiving more investors' attention. For this reason, I want you guys to stay the course with ALNY and ISIS. If you don't have any exposure, it would not be a bad idea to expose small percentage of your investment portfolio to ALNY and ISIS.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
ALNY has probably the best IP portfolio in RNA technology area. Merck took out Sirna at more than 70% premium to its share. With Roche paying hefty cash to develop drug, I would not be surprised if Roche acquires this company if the company is able to meet drug development milestones that are yet known to investors' communities.
ISIS, another our speculative biotech play based on RNA antisense technology is other company that is going to attract big pharma interest. While big biotech companies has been struggling of late due to increased safety requirement by FDA for drug approval and medicare reimbursement concern, small biotechs are receiving more investors' attention. For this reason, I want you guys to stay the course with ALNY and ISIS. If you don't have any exposure, it would not be a bad idea to expose small percentage of your investment portfolio to ALNY and ISIS.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
Tuesday, June 26, 2007
More news on semi front.
Notablecalls summarizes the recent research call from Bank of America. Notablecalls reports that B of A thinks a recent slight uptick in DRAM price has gotten the investors excited about the second half recovery. But it is likely to be attributed to the suppliers' building the inventory ahead of fall season when they anticipate the demand will pick up. The firm actually thinks the demand is weakening across the board for the semi sector. Again, given the high energy price and weakening housing market, I don't know how willing the consumers would be to upgrade all kinds of consumer gadgets in the fall. If this scenario does not pan not, semi market is likely to deteriorate further and semi-equipment shares could see steep selling pressure. I don't like the risk to award ratio here to be aggressive on these names yet.
Here is the comment from notablecalls. (http://notablecalls.blogspot.com...)
Banc of America: DRAM price pop due to inventory build, not supply and demand Banc of America's Semi team notes a sharp rise in DRAM pricing in the last week fueled yesterday's rally in semi-equipment stocks. But the improvement in DRAM prices is likely driven by the accumulation of inventory at suppliers rather than a resolution to the oversupply problem. Day’s sales of DRAM inventory will likely increase across the board when suppliers start to report their June quarter earnings.
June and July are the two weakest months in the year for memory demand. So why are prices increasing if demand is seasonally weak? In the past, DRAM suppliers use this time of year to build inventory and push prices higher. Demand picks up sharply in August. Suppliers want to start the seasonally strong period (August to October) with the best possible backdrop to pricing.
So price increases in June and July have little to do with supply/demand. They think the DRAM industry is in an oversupply situation. Whether or not second half seasonal demand can soak up the excess supply is the critical issue. Recent favorable monthly PC demand is a better argument to support a soft landing in the memory cap-ex cycle than DRAM prices.
Notablecalls: Both AMAT and LRCX blew through my stops yesterday. Yet, it looks like the bounce in DRAM pricing has nothing to do with end demand. Also note that Piper Jaffray is out downgrading NSM, ADI and LLTC (analog space) this morning saying recent industry checks indicate a broad weakening of the semiconductor recovery cycle. Not making any calls here, though.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
Here is the comment from notablecalls. (http://notablecalls.blogspot.com...)
Banc of America: DRAM price pop due to inventory build, not supply and demand Banc of America's Semi team notes a sharp rise in DRAM pricing in the last week fueled yesterday's rally in semi-equipment stocks. But the improvement in DRAM prices is likely driven by the accumulation of inventory at suppliers rather than a resolution to the oversupply problem. Day’s sales of DRAM inventory will likely increase across the board when suppliers start to report their June quarter earnings.
June and July are the two weakest months in the year for memory demand. So why are prices increasing if demand is seasonally weak? In the past, DRAM suppliers use this time of year to build inventory and push prices higher. Demand picks up sharply in August. Suppliers want to start the seasonally strong period (August to October) with the best possible backdrop to pricing.
So price increases in June and July have little to do with supply/demand. They think the DRAM industry is in an oversupply situation. Whether or not second half seasonal demand can soak up the excess supply is the critical issue. Recent favorable monthly PC demand is a better argument to support a soft landing in the memory cap-ex cycle than DRAM prices.
Notablecalls: Both AMAT and LRCX blew through my stops yesterday. Yet, it looks like the bounce in DRAM pricing has nothing to do with end demand. Also note that Piper Jaffray is out downgrading NSM, ADI and LLTC (analog space) this morning saying recent industry checks indicate a broad weakening of the semiconductor recovery cycle. Not making any calls here, though.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
Friday, June 22, 2007
Still too early to be aggressive semi-equipment names
Recently, semiconductor and semi-equipment stock saw a nice rally. Sox has been lagging the market in the first half of this year. As the market advance has been largely driven by energy, commodity, industrial, and large conglomerate names, semi and semi-equipment names are seeing some catch-up action on the street. Traders are betting that with nice rebound on manufacturing and consumer sector, semi business will see robust second half pick-up. Also new consumer devices such as Apple iPhone may spur growth in the flash memory market and stabilize the price erosion that flash market has seen in recent times.
While tech names in the communication infrastructure area could rebound nicely in the second half, I still have doubt of robust recovery in the second half of this year for semiconductor sector. My contacts in flash memory market continue to tell me about very cautious environment in this segment, even in the second half of this year. DRAM market is in the midst of doldrums. With Vista operating system being the bust, DRAM market may continue to struggle, lacking corporate consumers who are willing to upgrade to the new operating system and new computers. Samsung has recently converted a lot of DRAM capacity into flash memory production. This is not to be interpreted as improving market condition in the flash memory but as extremely bleak DRAM market and cut-throat pricing pressure. Extra flash capacity now will saturate the flash market even more and could further erode the flash memory price.
With overall memory market still in anemic condition at best, I see no reason why Taiwanese, Chinese, and Korean chip foundries will buy any chip equipment in the second half of this year. I have been told that Samsung has depleted large amount of company cash reserve due to brutal memory pricing environment and more aggressive capital investment compared to other companies in Asia in the first half of this year. Consequently, Samsung could substantially tighten its spending belt in the second half.
That is not to say that flash memory market will not improve in the second half of 07. iPhone could be a big hit and we could see reaccelerated flash memory demand. However, given some semi and many semi-equipment stocks such as AMAT, LRCX and KLAC are trading at near 52 week high, earning expectation may turn out to be a little too aggressive. I think it may not be too prudent to jump into these names now. I would wait for one more pullback and would exercise extreme discipline about the entry price to buy these names. In summary, current strength could last. However, I would be a seller into strength and look for better entry point for these names.
I have added some comments from notablecalls about the state of the DRAM market below.
DRAM equipment space: real-time pushouts of tool shipments
Citigroup comments on the DRAM equipment space noting pushouts of future orders now appear to be giving way to real-time pushouts of tool shipments. Checks suggest ProMos - a Taiwan DRAM maker that has recently placed big orders (~30k wsm (wafers/month), or ~$1B+) in 1H:07 - is pushing out delivery on roughly half of these orders. Based on firm's calculations, these pushouts impact total industry tool shipments by ~5-10% in CQ3, putting more pressure on consensus EPS estimates that they feel are as much as ~20-25% too high in 2H:07 and C2008.
While all suppliers are impacted, it appears impact is greatest at AMAT, LRCX - both of which have big Taiwan DRAM exposure.
Citi notes they have been on the road the past few wks speaking with a broad base of investors. The general rhetoric remains cautious - yet incredulous that stocks have remained resilient in the face of "bad news". While there has been a lot of market speculation around capex cuts, there is frankly yet to be much in the public domain regarding pushouts, capex cuts, or the like. Firm thinks it all comes down to the numbers - and equipment stocks are simply not cheap enough to tell them that the buy side's EPS estimates are that much less than the sell side's estimates.
Indeed, major equipment stocks trade at roughly a market multiple off C2008 EPS - hardly discounting a big EPS cut for a cyclical group with a slowing growth profile.
Notablecalls: The DRAM space is a mess. During the past five months, the price of 512Mb has fallen to $1.80 from $5.80 (an almost-70% decline). The DRAM makers are bleeding from their eyeballs and slashing capex should not come as a surprise. Vista continues to be a disaster, so no help coming from there.
Citi's right pointing out the resilience of the semi equipment space in face of bad news. For example, AMAT's has climbed back to the levels where it was before reporting its terrible qtr in mid-May. I have to agree with Citi here - eventually, it all comes down to the numbers.
Sitting at my old desk I would put out a short line in both AMAT and LRCX here. Tight stops just above recent swing highs. Not looking for a home run here. Just some downside.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
While tech names in the communication infrastructure area could rebound nicely in the second half, I still have doubt of robust recovery in the second half of this year for semiconductor sector. My contacts in flash memory market continue to tell me about very cautious environment in this segment, even in the second half of this year. DRAM market is in the midst of doldrums. With Vista operating system being the bust, DRAM market may continue to struggle, lacking corporate consumers who are willing to upgrade to the new operating system and new computers. Samsung has recently converted a lot of DRAM capacity into flash memory production. This is not to be interpreted as improving market condition in the flash memory but as extremely bleak DRAM market and cut-throat pricing pressure. Extra flash capacity now will saturate the flash market even more and could further erode the flash memory price.
With overall memory market still in anemic condition at best, I see no reason why Taiwanese, Chinese, and Korean chip foundries will buy any chip equipment in the second half of this year. I have been told that Samsung has depleted large amount of company cash reserve due to brutal memory pricing environment and more aggressive capital investment compared to other companies in Asia in the first half of this year. Consequently, Samsung could substantially tighten its spending belt in the second half.
That is not to say that flash memory market will not improve in the second half of 07. iPhone could be a big hit and we could see reaccelerated flash memory demand. However, given some semi and many semi-equipment stocks such as AMAT, LRCX and KLAC are trading at near 52 week high, earning expectation may turn out to be a little too aggressive. I think it may not be too prudent to jump into these names now. I would wait for one more pullback and would exercise extreme discipline about the entry price to buy these names. In summary, current strength could last. However, I would be a seller into strength and look for better entry point for these names.
I have added some comments from notablecalls about the state of the DRAM market below.
DRAM equipment space: real-time pushouts of tool shipments
Citigroup comments on the DRAM equipment space noting pushouts of future orders now appear to be giving way to real-time pushouts of tool shipments. Checks suggest ProMos - a Taiwan DRAM maker that has recently placed big orders (~30k wsm (wafers/month), or ~$1B+) in 1H:07 - is pushing out delivery on roughly half of these orders. Based on firm's calculations, these pushouts impact total industry tool shipments by ~5-10% in CQ3, putting more pressure on consensus EPS estimates that they feel are as much as ~20-25% too high in 2H:07 and C2008.
While all suppliers are impacted, it appears impact is greatest at AMAT, LRCX - both of which have big Taiwan DRAM exposure.
Citi notes they have been on the road the past few wks speaking with a broad base of investors. The general rhetoric remains cautious - yet incredulous that stocks have remained resilient in the face of "bad news". While there has been a lot of market speculation around capex cuts, there is frankly yet to be much in the public domain regarding pushouts, capex cuts, or the like. Firm thinks it all comes down to the numbers - and equipment stocks are simply not cheap enough to tell them that the buy side's EPS estimates are that much less than the sell side's estimates.
Indeed, major equipment stocks trade at roughly a market multiple off C2008 EPS - hardly discounting a big EPS cut for a cyclical group with a slowing growth profile.
Notablecalls: The DRAM space is a mess. During the past five months, the price of 512Mb has fallen to $1.80 from $5.80 (an almost-70% decline). The DRAM makers are bleeding from their eyeballs and slashing capex should not come as a surprise. Vista continues to be a disaster, so no help coming from there.
Citi's right pointing out the resilience of the semi equipment space in face of bad news. For example, AMAT's has climbed back to the levels where it was before reporting its terrible qtr in mid-May. I have to agree with Citi here - eventually, it all comes down to the numbers.
Sitting at my old desk I would put out a short line in both AMAT and LRCX here. Tight stops just above recent swing highs. Not looking for a home run here. Just some downside.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
Thursday, June 07, 2007
FilthyRich hive communication - 06/07/06
Last three days saw the market retreating as the fears of the higher interest rate is pressuring many traders to lock in their huge gain. Given the huge run-up that most of the major indices were able to achieve year to date, this selling is not surprising. Recent spike in the put to call ratio also point to the fact that traders are getting very nervous about the recent market advance and willing to protect against possible market fall.
Despite temporary weakness that may last until the next earning season, I remain bullish about the market outlook in 07. I believe that although the rate cut is now being kicked out of most investor' expectation and the market premium associated with the rate cut could evaporate, forcing the market consolidate for next a few weeks, long term fundamentals continue to remain solid for the US economy. Earning picture for many US companies will remain rosy due to moderately growing US economy and hot economies in the emerging market. As such, I continue to feel that this selling will be short-lived and investors should use this as a buying opportunity, not an event to liquidate their position.
US economy outlined by benign unemployment picture, reasonable wage growth, as well as decent ISM service number is showing no signs of entering into recession. Although the consumers are pinched with higher energy prices, they are not drastically curbing their spending habits. If the housing and a few other sectors such as auto are not in doldrums, the growth of the economy could be too hot, forcing Fed to adopt more aggressive rate tightening measures. However, these lagging sectors are offsetting the growth in the other sectors and keeping the inflationary pressure largely in check. This continues to support bullish scenario and although there will be no rate cut for a while, I believe Fed will stay on the sideline for the remaining of this year.
In the first half of this year, the market was led by energy, commodity, industrial, as well as defense industries. Although the indices advances a lot, if you were in the sectors like airline, financials, housing, auto, as well as healthcare that lagged the market, your gain may have been limited as these sector lagged the market. Due to uncertainty in the direction of the interest rate and economy, investors are hesitant on placing their bets on the interest sensitive sectors such as financials and housing. Rather, they are putting their bets on what has been working in the past: energy, industrials, commodity, and emerging market. Direction of the consumer sentiment is largely in debate. As such, the retail names and tech names with consumer exposure has been relatively weak overall.
I believe when the market resumes advances after a brief period of consolidation, the leadership group may change. Second half of the year is usually great times for tech in the economy that is expanding. While techs have been weak upto this point, they may come alive in the second half. Energy stocks have done great due to record level crack spread between the crude and refined oil. They also account for many of the political and weather related uncertainties. Heading into summer driving season and hurricane season, energy traders are betting the oil to shoot higher. As we exit summer driving season and hurricane period, I see oil price trading lower from current level in high 60's.
Also interest rate is continuing to rise in the emerging and many of the European nations, this will control economic expansion, keeping a lid on the oil demand. Also because the market is now adjusting to the higher rate scenario, mortgage rate will go even higher and home sales in the US will remain anemic. Housing downturn is here to stay for a while. These factors could ultimately weigh on the oil demand and after the season where the gasoline demand is the highest during this summer, the oil price could head lower. The money could rotate of energy and may find places in battered down techs, biotechs as well as some financial names. Also should the oil price fall, airline could once again see some buying interest.
I continue to see the market is a good shape to make a further gain and I think current volatility in the market is a good opportunity to add to holdings.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
Despite temporary weakness that may last until the next earning season, I remain bullish about the market outlook in 07. I believe that although the rate cut is now being kicked out of most investor' expectation and the market premium associated with the rate cut could evaporate, forcing the market consolidate for next a few weeks, long term fundamentals continue to remain solid for the US economy. Earning picture for many US companies will remain rosy due to moderately growing US economy and hot economies in the emerging market. As such, I continue to feel that this selling will be short-lived and investors should use this as a buying opportunity, not an event to liquidate their position.
US economy outlined by benign unemployment picture, reasonable wage growth, as well as decent ISM service number is showing no signs of entering into recession. Although the consumers are pinched with higher energy prices, they are not drastically curbing their spending habits. If the housing and a few other sectors such as auto are not in doldrums, the growth of the economy could be too hot, forcing Fed to adopt more aggressive rate tightening measures. However, these lagging sectors are offsetting the growth in the other sectors and keeping the inflationary pressure largely in check. This continues to support bullish scenario and although there will be no rate cut for a while, I believe Fed will stay on the sideline for the remaining of this year.
In the first half of this year, the market was led by energy, commodity, industrial, as well as defense industries. Although the indices advances a lot, if you were in the sectors like airline, financials, housing, auto, as well as healthcare that lagged the market, your gain may have been limited as these sector lagged the market. Due to uncertainty in the direction of the interest rate and economy, investors are hesitant on placing their bets on the interest sensitive sectors such as financials and housing. Rather, they are putting their bets on what has been working in the past: energy, industrials, commodity, and emerging market. Direction of the consumer sentiment is largely in debate. As such, the retail names and tech names with consumer exposure has been relatively weak overall.
I believe when the market resumes advances after a brief period of consolidation, the leadership group may change. Second half of the year is usually great times for tech in the economy that is expanding. While techs have been weak upto this point, they may come alive in the second half. Energy stocks have done great due to record level crack spread between the crude and refined oil. They also account for many of the political and weather related uncertainties. Heading into summer driving season and hurricane season, energy traders are betting the oil to shoot higher. As we exit summer driving season and hurricane period, I see oil price trading lower from current level in high 60's.
Also interest rate is continuing to rise in the emerging and many of the European nations, this will control economic expansion, keeping a lid on the oil demand. Also because the market is now adjusting to the higher rate scenario, mortgage rate will go even higher and home sales in the US will remain anemic. Housing downturn is here to stay for a while. These factors could ultimately weigh on the oil demand and after the season where the gasoline demand is the highest during this summer, the oil price could head lower. The money could rotate of energy and may find places in battered down techs, biotechs as well as some financial names. Also should the oil price fall, airline could once again see some buying interest.
I continue to see the market is a good shape to make a further gain and I think current volatility in the market is a good opportunity to add to holdings.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
Tuesday, May 22, 2007
JPM, GS: Upside continues to exist.
Two of our financial names, GS and JPM, have been stagnant a bit lately but I think these two companies are poised to deliver healthy earning surprise for the next earning period. As a result, I continue to see a healthy upside in the stock price.
GS is a pure play on this hot equity environment. Everyone thought that the bull run in the stock market is over in 06 and 07 will be a more challenging year; many economists predicted slowing economy that will limit GDP growth rate below 1 to 2 % level. Earning growth rate of GS has been perceived to flatten out and consequently, investors have been very stingy with awarding correct market multiple for GS. GS is now trading with PE of about 10. Because I think there is substantial EPS revision for 07 and 08, I believe that real PE of this company is less than 9. In my opinion, GS could deliver blow-out Q in June again. EPS estimate of GS for 07 could be as high as $25 to $26 level, outstanding 25% upside from what the current consensus number predicts. With stingy PE multiple, this stock is still worth $260. But if the market multiple expands as I anticipate, then GS could trade to the level near $300 a share. While the stock has been a bit stagnant, I think earning in June will be a great catalyst for this stock to win investor recognition. The equity market environment is simply too vibrant, far beyond what the market was expecting. Private equity is taking the companies out of the market left and right. The companies are buying back shares, reducing the overall float of the overall shares. Yet there are still plenty of cash sitting on the side line to push share price higher. GS's trading business is generating incredible return from hot commodity and emerging markets, which GS has a heavy exposure. Private equity side of GS has been on a roll as well. I expect continued strength in the market in 07 and GS still has plenty of fuel left to make additional advances. I really like the stock at a current level.
JPM also has been a bit stagnant. The bank sectors are still perceived negatively given the possible fallout from the sub-prime mortgage sector. While JPM is not without the exposure to this sector, it has a manageable sub-prime loan exposure. While other investors feel that bank¡¯s story of improving the overall operational efficiency is over, I believe that there are still room for the company to make further improvements especially in the retail side. Others feel that JPM will make a large acquisition and hence sees stock unattractive, given that JPM is trading with higher stock multiple compared to other banks such as C and BAC. I continue to believe that Jamie Dimon will make deals that are accreditive and he will focus more on generating higher return for investors. After all, high stock price is extremely attractive currency to use if he decides on future acquisitions to grow the bank to another level. Also roughly half of JPM revenue comes from Investment Banking and this sector has been tremendous for JPM. I see current EPS estimate is too low for the bank and sees bank making nearly $5 in 08. If yield spread between long and short term yield continues to steepen as it has been in recent times, there is also an upside in the retail business. Given this vibrant stock market, I don't see the economy heading into the recession. I also expect energy price to stabilize after this summer driving season, supporting consumer spending trend. I strongly feel that JPM has solid upside at least to $60 level. Recent Smith Barney upped the bank TP to $62 and I have seen some analyst TP bumped upto low $70 level. I think if you stay patient with this company, you will be richly rewarded.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
GS is a pure play on this hot equity environment. Everyone thought that the bull run in the stock market is over in 06 and 07 will be a more challenging year; many economists predicted slowing economy that will limit GDP growth rate below 1 to 2 % level. Earning growth rate of GS has been perceived to flatten out and consequently, investors have been very stingy with awarding correct market multiple for GS. GS is now trading with PE of about 10. Because I think there is substantial EPS revision for 07 and 08, I believe that real PE of this company is less than 9. In my opinion, GS could deliver blow-out Q in June again. EPS estimate of GS for 07 could be as high as $25 to $26 level, outstanding 25% upside from what the current consensus number predicts. With stingy PE multiple, this stock is still worth $260. But if the market multiple expands as I anticipate, then GS could trade to the level near $300 a share. While the stock has been a bit stagnant, I think earning in June will be a great catalyst for this stock to win investor recognition. The equity market environment is simply too vibrant, far beyond what the market was expecting. Private equity is taking the companies out of the market left and right. The companies are buying back shares, reducing the overall float of the overall shares. Yet there are still plenty of cash sitting on the side line to push share price higher. GS's trading business is generating incredible return from hot commodity and emerging markets, which GS has a heavy exposure. Private equity side of GS has been on a roll as well. I expect continued strength in the market in 07 and GS still has plenty of fuel left to make additional advances. I really like the stock at a current level.
JPM also has been a bit stagnant. The bank sectors are still perceived negatively given the possible fallout from the sub-prime mortgage sector. While JPM is not without the exposure to this sector, it has a manageable sub-prime loan exposure. While other investors feel that bank¡¯s story of improving the overall operational efficiency is over, I believe that there are still room for the company to make further improvements especially in the retail side. Others feel that JPM will make a large acquisition and hence sees stock unattractive, given that JPM is trading with higher stock multiple compared to other banks such as C and BAC. I continue to believe that Jamie Dimon will make deals that are accreditive and he will focus more on generating higher return for investors. After all, high stock price is extremely attractive currency to use if he decides on future acquisitions to grow the bank to another level. Also roughly half of JPM revenue comes from Investment Banking and this sector has been tremendous for JPM. I see current EPS estimate is too low for the bank and sees bank making nearly $5 in 08. If yield spread between long and short term yield continues to steepen as it has been in recent times, there is also an upside in the retail business. Given this vibrant stock market, I don't see the economy heading into the recession. I also expect energy price to stabilize after this summer driving season, supporting consumer spending trend. I strongly feel that JPM has solid upside at least to $60 level. Recent Smith Barney upped the bank TP to $62 and I have seen some analyst TP bumped upto low $70 level. I think if you stay patient with this company, you will be richly rewarded.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
Thursday, May 17, 2007
CTRP: another solid Q, 08 estimate now in play.
CTRP is an online travel consolidator in China. We have initiated this stock in March of 06 at the price of $39.5. At today's closing price of $78.07, the stock is posting a great return of roughly 100% gain in 14 months. As you recall, this stock is the top pick for our group for 07. And in every ways, I am very pleased with its performance.
Previous investment comment on CTRP is available in these articles. http://www.investorhives.com...
http://www.investorhives.com...
http://www.investorhives.com...
http://www.investorhives.com...
http://www.investorhives.com...
http://www.investorhives.com...
Essentially our investment thesis on CTRP is the rapidly growing Chinese travel market. Currently online travel consolidators are getting less than 5% of the travel market in China. As the market grows and as online travel consolidators start to command larger percentage of the overall market, we saw big opportunity in CTRP. As I have stated in above articles, I have been very bullish on the company with my last statement outlining possible $88 TP.
Yesterday's solid earning does nothing but to reinforce this belief. CTRP reported impressive revenue growth in all business lines. Considering that Q1 is a traditionally slower Q for CTRP, given the Chinese holidays shutdown, the company still generated 40% YOY growth in Hotel business. Hotel business is now heading into seasonally strong Q2 and Q3 so CTRP is likely to undergo brisk growth in this line of business. CTRP's air-ticketing business grew by eye popping 75% YOY and 6% QOQ growth. With transition to e-ticketing largely behind the company, this business segment growth could accelerate. Packaged tour business is currently a very small portion of the overall CTRP business, accounting for only 6% of the total revenue. But the growth is nevertheless at very healthy rate of 73%. Gross margin inched now to %79.1% from 79.9%. Over last 4 Q's, the gross margin seemed to have stabilized between 79 to 80% range.
It looks like CTRP is now growing at a rate between 35 to 40%. Thus, many analysts are starting to bump up the 08 revenue estimate to $180 to $190 mil range and EPS estimate to $2.2 to $2.4 level. As we are heading into the second half of 07, 08 estimates will be in play for CTRP for determining the proper stock valuation. Given that CTRP has duopoly in huge China online travel market and continues to gain market share from eLong, PE multiple of 35 appears to be reasonable. Based on the fact that revenue growth rate is expected to be in the range of 35% over next 2 to 3 years, this PE multiple assumes PEG ratio of roughly 1. This valuation model continues to point to the further upside of the stock price to near $90 level. I continue to stock with my most recent TP of $88. Smith Barney this morning bumped up its TP for CTRP to $84 from $62 after solid earning call yesterday.
I continue to believe in the business fundamentals for CTRP and I continue to see upside for CTRP despite stunning percentage rise in CTRP share price.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
Previous investment comment on CTRP is available in these articles. http://www.investorhives.com...
http://www.investorhives.com...
http://www.investorhives.com...
http://www.investorhives.com...
http://www.investorhives.com...
http://www.investorhives.com...
Essentially our investment thesis on CTRP is the rapidly growing Chinese travel market. Currently online travel consolidators are getting less than 5% of the travel market in China. As the market grows and as online travel consolidators start to command larger percentage of the overall market, we saw big opportunity in CTRP. As I have stated in above articles, I have been very bullish on the company with my last statement outlining possible $88 TP.
Yesterday's solid earning does nothing but to reinforce this belief. CTRP reported impressive revenue growth in all business lines. Considering that Q1 is a traditionally slower Q for CTRP, given the Chinese holidays shutdown, the company still generated 40% YOY growth in Hotel business. Hotel business is now heading into seasonally strong Q2 and Q3 so CTRP is likely to undergo brisk growth in this line of business. CTRP's air-ticketing business grew by eye popping 75% YOY and 6% QOQ growth. With transition to e-ticketing largely behind the company, this business segment growth could accelerate. Packaged tour business is currently a very small portion of the overall CTRP business, accounting for only 6% of the total revenue. But the growth is nevertheless at very healthy rate of 73%. Gross margin inched now to %79.1% from 79.9%. Over last 4 Q's, the gross margin seemed to have stabilized between 79 to 80% range.
It looks like CTRP is now growing at a rate between 35 to 40%. Thus, many analysts are starting to bump up the 08 revenue estimate to $180 to $190 mil range and EPS estimate to $2.2 to $2.4 level. As we are heading into the second half of 07, 08 estimates will be in play for CTRP for determining the proper stock valuation. Given that CTRP has duopoly in huge China online travel market and continues to gain market share from eLong, PE multiple of 35 appears to be reasonable. Based on the fact that revenue growth rate is expected to be in the range of 35% over next 2 to 3 years, this PE multiple assumes PEG ratio of roughly 1. This valuation model continues to point to the further upside of the stock price to near $90 level. I continue to stock with my most recent TP of $88. Smith Barney this morning bumped up its TP for CTRP to $84 from $62 after solid earning call yesterday.
I continue to believe in the business fundamentals for CTRP and I continue to see upside for CTRP despite stunning percentage rise in CTRP share price.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
Friday, May 11, 2007
Market: Bull run is not over.
The market has been hot lately. Dow has been setting record high, advancing 25 times out of last 28 trading sessions. It has been an incredible run led by many industrial, commodity, biotech, energy as well as multi-national conglomerates which have been benefiting from weak dollars. Lagging financials also have caught up with the rest of the market as well.
Traders are very nervous after this run-up. Pressure to sell has been building and today many use the weak consumer spending data as an excuse to sell. Some claim we are due for a correction with maginitude worse than the one that we saw in Feb. Many bears point out that weak housing, auto, and high energy price will weigh on the consumers. As they tighten their purse, the economy is in for a steep deceleration. The recession is imminent and the market is in for a nasty downside surprise.
I am very optimistic about 07. As I stated early this year, I see 07 as a very nice year for bulls. The economy was getting too hot last year. But it is now in check by the declining housing and auto sector. I believe that the economy is slowing but the growth will still be there. This moderation will allow Fed to ease towards the end of this year. At worst, Fed will stay with rate policy unchanged as the economy continues to pour our mixed batch of economic data. Fed is unlikely to be a negative catalyst in 07. As the economy makes transition from an expansion mode into a moderate growth mode, there will be a moment when people may perceive the weak incoming economic data as looming sign that the recession is around the corner. This is precisely why the current market sentiment incorporates plenty of pessimism that can serve as fuel to sustain further rally.
Currently there are massive amount of infrastructure investment by the emerging economies such as China, India, Brazil, Russia, other Pacific Rim nations. This phenomena still has legs and the economic growth in these nations is likely to persist for next a few years. Major US multinational companies will continue to show steady earning growth. This earning growth will continue to surprise the market as many traders expect slowing earning growth momentum in the US. I think with plenty of the cash sitting aside and with many bears pleading for possible recession, the market will trend higher as it climbs a wall of worry.
We may see a short pullback in the market as the selling pressure has been building and people are seeking excuses to sell. However, I think if there is a sell-off, it will be much short-lived than the correction that we saw in middle of March. I think sell-off presents a good buying opportunity for our group.
I continue to recommend buying financials which will eventually benefit from fed easing. JPM and GS shouod be the names to focus. I see JPM bleaching above $60 long term. I am sticking with my TP at $270 for GS. I like China names. CTRP and FMCN should be bought upon weakness. My TP for CTRP and FMCN is $80 and $50 respectively. I also like AMR which has been lagging the market and its earning power is underestimated and underappreciated by the market. When the sentiment improves in the aieline sector, AMR should trade in mid $40's. Biotechs are good because its earning growth is less dependent. GENZ, PDLI, and CELG should be good names. AMGN has seen so much selling. But I stand by my convinction that it will see light at the end of the tunnel. IBM is a great multinational company to focus on. RIMM has been killing us because it is defying gravity. I have been wrong about this company and the company could go even higher from this level and even I am getting more bullish on the company but have not yet decide to change my view yet.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
Traders are very nervous after this run-up. Pressure to sell has been building and today many use the weak consumer spending data as an excuse to sell. Some claim we are due for a correction with maginitude worse than the one that we saw in Feb. Many bears point out that weak housing, auto, and high energy price will weigh on the consumers. As they tighten their purse, the economy is in for a steep deceleration. The recession is imminent and the market is in for a nasty downside surprise.
I am very optimistic about 07. As I stated early this year, I see 07 as a very nice year for bulls. The economy was getting too hot last year. But it is now in check by the declining housing and auto sector. I believe that the economy is slowing but the growth will still be there. This moderation will allow Fed to ease towards the end of this year. At worst, Fed will stay with rate policy unchanged as the economy continues to pour our mixed batch of economic data. Fed is unlikely to be a negative catalyst in 07. As the economy makes transition from an expansion mode into a moderate growth mode, there will be a moment when people may perceive the weak incoming economic data as looming sign that the recession is around the corner. This is precisely why the current market sentiment incorporates plenty of pessimism that can serve as fuel to sustain further rally.
Currently there are massive amount of infrastructure investment by the emerging economies such as China, India, Brazil, Russia, other Pacific Rim nations. This phenomena still has legs and the economic growth in these nations is likely to persist for next a few years. Major US multinational companies will continue to show steady earning growth. This earning growth will continue to surprise the market as many traders expect slowing earning growth momentum in the US. I think with plenty of the cash sitting aside and with many bears pleading for possible recession, the market will trend higher as it climbs a wall of worry.
We may see a short pullback in the market as the selling pressure has been building and people are seeking excuses to sell. However, I think if there is a sell-off, it will be much short-lived than the correction that we saw in middle of March. I think sell-off presents a good buying opportunity for our group.
I continue to recommend buying financials which will eventually benefit from fed easing. JPM and GS shouod be the names to focus. I see JPM bleaching above $60 long term. I am sticking with my TP at $270 for GS. I like China names. CTRP and FMCN should be bought upon weakness. My TP for CTRP and FMCN is $80 and $50 respectively. I also like AMR which has been lagging the market and its earning power is underestimated and underappreciated by the market. When the sentiment improves in the aieline sector, AMR should trade in mid $40's. Biotechs are good because its earning growth is less dependent. GENZ, PDLI, and CELG should be good names. AMGN has seen so much selling. But I stand by my convinction that it will see light at the end of the tunnel. IBM is a great multinational company to focus on. RIMM has been killing us because it is defying gravity. I have been wrong about this company and the company could go even higher from this level and even I am getting more bullish on the company but have not yet decide to change my view yet.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
Wednesday, May 02, 2007
AMR: Technical support chart
With recent decline in the share price, the share has broke down below 200 DMA long term support. With everything broken down (20, 50 as well as 200 DMA), long term support can be found by considering 2 to 5 year stock price trend line. I have attached simple 5 year Yahoo chart on AMR. If you draw the bottom out levels for last 5 years and draw the support line, you will find that the current stock price has reached near long term downside support line. Doing the same for the uptrend line shows that the stock can trade to near $50 level if the fundamentals improve.
Chart: http://www.investorhives.com/big_pic.php?fname=uploaded_files2%2Fjongyoo269.png&caption=AMR%205%20year%20trend%20line&msgid=451
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
Chart: http://www.investorhives.com/big_pic.php?fname=uploaded_files2%2Fjongyoo269.png&caption=AMR%205%20year%20trend%20line&msgid=451
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
Tuesday, May 01, 2007
AMR: Negativities baked into the share price.
American Airline (AMR) has seen huge selling pressure in recent weeks. When Dow is hitting all time high level every other day, seeing its share plunge by more than 30% from the high achieved in early Feb (low $40) has frustrated many long term share holders. FilthyRich hive initiated AMR into our core holding last Nov at the price of around $32 a share. The shares soon hit low $40 level in matter of a few months but since Feb of this year, share price has seen steady and at times fast decline to reach today closing price just below $27 level.
I believe current share price is a great buying opportunity. I believe patient investors could see the stock double from this level and I think current share price represents a great entry price for risk tolerant investors.
Let us look at what has been pressuring AMR to the downside. Single most important negative catalyst for the stock is the high fuel price (refined oil). Crude oil was trading at high $40 range in the beginning of this year. However, the crude has gone upto $65 to $66 level today. To make the problem worse, the refining capacity of the crude oil is undergoing temporary reduction due to several outages at various refinery locations. Political uncertainty surrounding Iran, Nigeria, and Venezuela is creating perception that crude oil supply will remain tight. In addition, with summer driving season approaching, oil traders are betting the price higher. Second negative catalyst is coming from Delta Air that will exit its bankruptcy this Thursday. Delta's exit from bankruptcy is seen to increase supply of airline stocks for the investors. Finally the economy is seen to slow down, reducing prospect of airline traffic among retail and business travelers. In summary, higher fuel price, slowing economy that leads to lower air traffic, and increased number of airline stocks are decreasing investor appetite for AMR shares. Multiple downgrades from analysts have occurred this week. With these events behind us, I believe AMR current share price has effectively is accounting for most of the negativity and downside is limited due to very low PE valuations.
So why am I bullish on AMR? I believe that high oil price is temporary and will come to level below $60 after the summer driving season. The fact is that oil inventory has been increasing (we will hear more on this tomorrow). Refining capacity shortage is short term in nature and is likely to abate after the summer driving season. If the economy is truly slowing as bears contend, then demand for oil is likely to be lower. It is granted that oil price this year has been a lot higher than my expectation. I expected that the oil would stay in the range between $45 to $55 in 07. But it is looking more likely to be in-between $55 and $65 but AMR can still make a plenty of profit even at these oil prices.
Economy is slowing but I expect slowdown will be gradual, still supporting healthy airline traffic volume. Housing and auto sectors will likely to show weakness for prolonged period. But the employment and industrial data looks still reasonably good. In addition, wage picture continues to look benign, supporting reasonable consumer spending pattern. Airline traffic volume will look reasonable as the economy will achieve soft-landing. While domestic air traffic may stall, international traffic could deliver healthy surprises. Weak dollar could encourage more foreign people traveling into the US and recent open sky pact between the US and Europe could spur healthy traffic volume for AMR in 07 and 08. Furthermore, 08 Chinese Olympic can also be a huge travel volume boost for AMR as it is likely to lead to increased travel volume among business travelers.
The fact of the matter is AMR continues to improve its operational efficiency. It is upgrading its plane fleet to new Boeing 737 from old MD-80 with the money raised from secondary offering in early this year. The cost saving initiatives are making the company lean and mean for generating nice cash flow from the operation. In fact, the company has cut its debt level by 2 billion to $17.5 billion. This reduction in debt level is likely to accelerate in 07 as the company now has the better cash generation model after so much business streamlining efforts.
Last April, the company has reported quarterly profit of 30 cents. This was first quarterly profit in 7 years. The company also hedged its 34% of fuel need for 07 at $65 and 27% of the fuel need at $63. According to some analysts estimate, AMR EPS estimate is seen to be about $4.5 with fuel price trading around mid $60 level. Should this oil price dip to low 60 to high 50 level, the EPS estimate can be hiked to $5.5 level. If more aggressive increase in RASM ( revenue per available seat miles) applied with oil price in the range of low $50, then EPS could skyrocket to the level exceeding $8 level.
Thus, AMR is trading with very low valuation. It is currently trading with PE of 6 based on 07 EPS estimate and lower than 5 on 08 estimate. Should more favorable oil price is seen towards late this year, this multiple could expand to 10, causing the share price to trade well above $55 level. I see possibly another 10% downside but see more than 100% upside. This is definitely favorable risk to award ratio.
In summary, AMR shares took most of the negativities into the share price and it represents great buying opportunity at the current price. I would be an aggressive buyer of the AMR share. Last week, I took some call option positions to reflect my belief that AMR stock has seen the bottom although recovery may not fast until investors become more confident that the economy is not heading into recession and the oil price will not skyrocket above $80 level.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
I believe current share price is a great buying opportunity. I believe patient investors could see the stock double from this level and I think current share price represents a great entry price for risk tolerant investors.
Let us look at what has been pressuring AMR to the downside. Single most important negative catalyst for the stock is the high fuel price (refined oil). Crude oil was trading at high $40 range in the beginning of this year. However, the crude has gone upto $65 to $66 level today. To make the problem worse, the refining capacity of the crude oil is undergoing temporary reduction due to several outages at various refinery locations. Political uncertainty surrounding Iran, Nigeria, and Venezuela is creating perception that crude oil supply will remain tight. In addition, with summer driving season approaching, oil traders are betting the price higher. Second negative catalyst is coming from Delta Air that will exit its bankruptcy this Thursday. Delta's exit from bankruptcy is seen to increase supply of airline stocks for the investors. Finally the economy is seen to slow down, reducing prospect of airline traffic among retail and business travelers. In summary, higher fuel price, slowing economy that leads to lower air traffic, and increased number of airline stocks are decreasing investor appetite for AMR shares. Multiple downgrades from analysts have occurred this week. With these events behind us, I believe AMR current share price has effectively is accounting for most of the negativity and downside is limited due to very low PE valuations.
So why am I bullish on AMR? I believe that high oil price is temporary and will come to level below $60 after the summer driving season. The fact is that oil inventory has been increasing (we will hear more on this tomorrow). Refining capacity shortage is short term in nature and is likely to abate after the summer driving season. If the economy is truly slowing as bears contend, then demand for oil is likely to be lower. It is granted that oil price this year has been a lot higher than my expectation. I expected that the oil would stay in the range between $45 to $55 in 07. But it is looking more likely to be in-between $55 and $65 but AMR can still make a plenty of profit even at these oil prices.
Economy is slowing but I expect slowdown will be gradual, still supporting healthy airline traffic volume. Housing and auto sectors will likely to show weakness for prolonged period. But the employment and industrial data looks still reasonably good. In addition, wage picture continues to look benign, supporting reasonable consumer spending pattern. Airline traffic volume will look reasonable as the economy will achieve soft-landing. While domestic air traffic may stall, international traffic could deliver healthy surprises. Weak dollar could encourage more foreign people traveling into the US and recent open sky pact between the US and Europe could spur healthy traffic volume for AMR in 07 and 08. Furthermore, 08 Chinese Olympic can also be a huge travel volume boost for AMR as it is likely to lead to increased travel volume among business travelers.
The fact of the matter is AMR continues to improve its operational efficiency. It is upgrading its plane fleet to new Boeing 737 from old MD-80 with the money raised from secondary offering in early this year. The cost saving initiatives are making the company lean and mean for generating nice cash flow from the operation. In fact, the company has cut its debt level by 2 billion to $17.5 billion. This reduction in debt level is likely to accelerate in 07 as the company now has the better cash generation model after so much business streamlining efforts.
Last April, the company has reported quarterly profit of 30 cents. This was first quarterly profit in 7 years. The company also hedged its 34% of fuel need for 07 at $65 and 27% of the fuel need at $63. According to some analysts estimate, AMR EPS estimate is seen to be about $4.5 with fuel price trading around mid $60 level. Should this oil price dip to low 60 to high 50 level, the EPS estimate can be hiked to $5.5 level. If more aggressive increase in RASM ( revenue per available seat miles) applied with oil price in the range of low $50, then EPS could skyrocket to the level exceeding $8 level.
Thus, AMR is trading with very low valuation. It is currently trading with PE of 6 based on 07 EPS estimate and lower than 5 on 08 estimate. Should more favorable oil price is seen towards late this year, this multiple could expand to 10, causing the share price to trade well above $55 level. I see possibly another 10% downside but see more than 100% upside. This is definitely favorable risk to award ratio.
In summary, AMR shares took most of the negativities into the share price and it represents great buying opportunity at the current price. I would be an aggressive buyer of the AMR share. Last week, I took some call option positions to reflect my belief that AMR stock has seen the bottom although recovery may not fast until investors become more confident that the economy is not heading into recession and the oil price will not skyrocket above $80 level.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
Tuesday, April 24, 2007
GS: another all time high: expect continued strength.
Financials after lagging the market since beginning of this year are now coming alive. Now I believe that they are poised to outperform the market in the near term as they play catch up game with the rest of the market.
Goldman Sachs (GS) set all time high level today by breaking above $220. I continue to believe that my target of $250 is not only reachable in 07, but it may turn out to be very conservative. I expect the equity market will have another stellar year in 07. The liquidity into the stock market remains still very favorable. The valuation of the stock market also remains reasonable. The bears continue to see economy in trouble as the housing and auto sectors will take the economy into recession. Also spillover effects from the sub-prime mortgage was claimed to severely affect the consumer buying power. However, so far earning reports from the industrial and financial companies reveal sub-prime effects are largely contained and spillover effects are negligible. Also in the face of favorable employment rate and wage growth trend, consumers are able to cope with rising energy cost as well as possible negative effects from tightening credit. Thus, the economy appears to be still in a good shape.
Because there are many shortsellers who betted on the market decline, the market is not awarding GS much multiple. Many expect GS cannot sustain the earning momentum in 07. EPS estimate have come down and PE multiple are at just above 10. I believe that the market is grossly underestimating the earning power of GS in 07. The private equity and M&A activities are rampant. Oversee markets especially in Pacific Rim where GS has a strong presence is exploding. The economies in Asian countries are outpacing the growth in the US and GS is seen to be primary beneficiary of rapid growth in the Asian nations such as China, India, Korea, Japan, Taiwan as well as Singapore.
I continue to believe that hot commodity and energy market coupled with boom in the private equity and M&A activities will help GS to beat the earning estimate by a wide margin. I see May estimate of roughly $4.8 can be beat easily by as much as 50 cents. I see the market finally awarding higher multiple for GS once this happens. If the market multiple expands to 12 from lowly 10 level. GS may trade to $270 based on $22.50 EPS estimate that I think is reasonable for the company in 07.
The news of GS underwriting $2.5 Billion TSMC ADR along with JP Morgan hit the news wire after the market close today. Last two months, I don't recall a day without hearing some news of M&A, underwriting, private equity, etc. This market has been nightmares for shortsellers. The fact that there are so much shortsellers out there and so much put buying may continue to fuel this market to the upside as the shortsellers scrambled to cover to minimize their loss.
For this reason, I see sustained short term rally and I especially like financials at this point. Among the brokerage names, I like GS the best and among the bank names, JP Morgan seems to be the one to have.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
Goldman Sachs (GS) set all time high level today by breaking above $220. I continue to believe that my target of $250 is not only reachable in 07, but it may turn out to be very conservative. I expect the equity market will have another stellar year in 07. The liquidity into the stock market remains still very favorable. The valuation of the stock market also remains reasonable. The bears continue to see economy in trouble as the housing and auto sectors will take the economy into recession. Also spillover effects from the sub-prime mortgage was claimed to severely affect the consumer buying power. However, so far earning reports from the industrial and financial companies reveal sub-prime effects are largely contained and spillover effects are negligible. Also in the face of favorable employment rate and wage growth trend, consumers are able to cope with rising energy cost as well as possible negative effects from tightening credit. Thus, the economy appears to be still in a good shape.
Because there are many shortsellers who betted on the market decline, the market is not awarding GS much multiple. Many expect GS cannot sustain the earning momentum in 07. EPS estimate have come down and PE multiple are at just above 10. I believe that the market is grossly underestimating the earning power of GS in 07. The private equity and M&A activities are rampant. Oversee markets especially in Pacific Rim where GS has a strong presence is exploding. The economies in Asian countries are outpacing the growth in the US and GS is seen to be primary beneficiary of rapid growth in the Asian nations such as China, India, Korea, Japan, Taiwan as well as Singapore.
I continue to believe that hot commodity and energy market coupled with boom in the private equity and M&A activities will help GS to beat the earning estimate by a wide margin. I see May estimate of roughly $4.8 can be beat easily by as much as 50 cents. I see the market finally awarding higher multiple for GS once this happens. If the market multiple expands to 12 from lowly 10 level. GS may trade to $270 based on $22.50 EPS estimate that I think is reasonable for the company in 07.
The news of GS underwriting $2.5 Billion TSMC ADR along with JP Morgan hit the news wire after the market close today. Last two months, I don't recall a day without hearing some news of M&A, underwriting, private equity, etc. This market has been nightmares for shortsellers. The fact that there are so much shortsellers out there and so much put buying may continue to fuel this market to the upside as the shortsellers scrambled to cover to minimize their loss.
For this reason, I see sustained short term rally and I especially like financials at this point. Among the brokerage names, I like GS the best and among the bank names, JP Morgan seems to be the one to have.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
Tuesday, April 17, 2007
JPM: it will be a shining star in a cloudy market.
With Dow’s advance this morning, DOW is now 15 points below record close. When the market corrected in late Feb/early March, people sold everything in sight. However, all emerging markets that include China have not only recovered but are trading at a record level. The US DOW now sees record close in sight. Heading into the April earning, I expressed my opinion that the market bottomed and asked you to start buying back shares more agressively.
see http://investorhives.com...)
JPM amid the concern over the sub-prime loans fell during the corrective period. Also the banking sector in general has lagged this recovery. With Citi beating the consensus estimate yesterday and giving some support to the theory that financials earning outlook is not as grim as it is feared, I believe the financials will finally catch up with the rest of the market. I emphasize that not all financials are created equal. I do believe that sub-prime loan is a serious earning concern for specialty names in mortgage loan business. However, large integrated bank/ brokerage names will continue to see modest growth environment. As the street has discounted the steep earning drop into the share price, these names can surrpise/comfort the street by simply coming inline and the share price can rally thereafter. This is what happened to Citi yesterday.
JPM will report its earning before the market open tomorrow. I continue to love JPM's outlook. The consensus number for JPM tomorrow is $1.02. I expect JPM is one of only a few numbers that will actually beat the consensus estimate meaningfully. I expect the company to deliver 3 to 4 cents above the estimate. I believe that this performance will force several firms to hike 07 and 08 estimate despite difficult business environment of the financial sector. This is likely to lead to TP revision by analysts and the stock could be set to show nice buying interest.
Why am I bullish on the firm? JPM's earning leverage is just unfolding from many ROE metric improvement initiatives that have been implemented under the leadership of Jamie Dimon. JPM in my opinion will grow the revenue and EPS will grow faster than the revenue due to much improved bottom-line structure just after Bank One acquisition period.
Investment Bank is likely to deliver another exceptional Q for JPM. C, GS, Morgan Stanley and UBS earning all supports robust environment in the IB sector and I see no reason why it should not be the case for JPM. Furthermore, JPM has been emphasizing trading investment opportunities in energy/commodity. As oil and commodity price once again soared this Q, JPM IB business could deliver elements of surprise from trading revenue.
Retail banking segment of JPM is heading into Q with much lower expectation. Last Q. JPM sold large portion of sub-prime loans, taking some loss. This action was smart as it has lowered the exposure to the sub-prime market and stabilizing the business outlook in this sector. JPM has one of the lowest sub-prime exposures of all large/mid size banks and given the bad sub-prime market hangover, the bank is poised to outperform others.
The firm has bought back 21 mil shares in last Q and currently has authorized cash to buy additional 107 mil shares (3% of outstanding). I expect JPM will work this cash continuously throughout the Q shrinking share count basis and accelerating EPS performance. In addition, better performance in generating cash is likely to result in hike in dividend and I believe this may be imminent any day.
In conclusion, JPM has another 30 to 40% upside from here. I think the stock is headed to mid-60 level towards the year end. As people continue to worry about the mortgage and sub-prime market and as the market continue to climb a wall of worries, JPM is poised to ser new highs throughout 07 and love the stock at current level.
I would be a buyer heading into the earning tomorrow morning.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
see http://investorhives.com...)
JPM amid the concern over the sub-prime loans fell during the corrective period. Also the banking sector in general has lagged this recovery. With Citi beating the consensus estimate yesterday and giving some support to the theory that financials earning outlook is not as grim as it is feared, I believe the financials will finally catch up with the rest of the market. I emphasize that not all financials are created equal. I do believe that sub-prime loan is a serious earning concern for specialty names in mortgage loan business. However, large integrated bank/ brokerage names will continue to see modest growth environment. As the street has discounted the steep earning drop into the share price, these names can surrpise/comfort the street by simply coming inline and the share price can rally thereafter. This is what happened to Citi yesterday.
JPM will report its earning before the market open tomorrow. I continue to love JPM's outlook. The consensus number for JPM tomorrow is $1.02. I expect JPM is one of only a few numbers that will actually beat the consensus estimate meaningfully. I expect the company to deliver 3 to 4 cents above the estimate. I believe that this performance will force several firms to hike 07 and 08 estimate despite difficult business environment of the financial sector. This is likely to lead to TP revision by analysts and the stock could be set to show nice buying interest.
Why am I bullish on the firm? JPM's earning leverage is just unfolding from many ROE metric improvement initiatives that have been implemented under the leadership of Jamie Dimon. JPM in my opinion will grow the revenue and EPS will grow faster than the revenue due to much improved bottom-line structure just after Bank One acquisition period.
Investment Bank is likely to deliver another exceptional Q for JPM. C, GS, Morgan Stanley and UBS earning all supports robust environment in the IB sector and I see no reason why it should not be the case for JPM. Furthermore, JPM has been emphasizing trading investment opportunities in energy/commodity. As oil and commodity price once again soared this Q, JPM IB business could deliver elements of surprise from trading revenue.
Retail banking segment of JPM is heading into Q with much lower expectation. Last Q. JPM sold large portion of sub-prime loans, taking some loss. This action was smart as it has lowered the exposure to the sub-prime market and stabilizing the business outlook in this sector. JPM has one of the lowest sub-prime exposures of all large/mid size banks and given the bad sub-prime market hangover, the bank is poised to outperform others.
The firm has bought back 21 mil shares in last Q and currently has authorized cash to buy additional 107 mil shares (3% of outstanding). I expect JPM will work this cash continuously throughout the Q shrinking share count basis and accelerating EPS performance. In addition, better performance in generating cash is likely to result in hike in dividend and I believe this may be imminent any day.
In conclusion, JPM has another 30 to 40% upside from here. I think the stock is headed to mid-60 level towards the year end. As people continue to worry about the mortgage and sub-prime market and as the market continue to climb a wall of worries, JPM is poised to ser new highs throughout 07 and love the stock at current level.
I would be a buyer heading into the earning tomorrow morning.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
Thursday, April 12, 2007
RIMM: summary of analysts' comment on earning
Notablecalls are out with a nice summary on analysts comment on RIMM. As I outlined in my previous message on RIMM, several buy side analysts are defending the stock, claiming that the stock is a good buy on the pullback.
(see http://www.investorhives.com...)
Buy-side analysts continue to stick with their aggressive estimate (possibly raising some in their future forecast). The stock will continue to have the burden of beating the estimate as the expectation builds up again heading into the next Q. The psychology and enthusiasm has broken down somewhat after the disappointing current Q result. The stock could be in a real trouble if RIMM fails to surpass the once again getting lofty expectation next Q. The company is executing well on growing the revenue and sub add fronts. However, the investors continues to expect this trend and this caps the share price upside potential as all the good news will be a once again built-in. Any slight negative news will serve as a catalyst to push share price lower. I don't like the risk to award ratio here and continue to recommend the playing the stock on the short side.
Bee below for the notablecalls summary.
http://notablecalls.blogspot.co...
Research In Motion (NASDAQ:RIMM) getting plenty of comments following quarterly report.
Merrill Lynch notes that Feb Q sales were up 66% YoY to $930.4mn, shy of their $942mn forecast, as ~100K handset shipments were delayed. EPS of $1.01 was inline with strong gross margin of 53.5%, offset by increased spending on stock options investigation. Firm estimates these temporary effects cost RIM about $33mn in lost sales (100K handsets at $336 ASP) or 4-7c in EPS. While inline results could disappoint short-term investors, firm believes long-term trends remain solid.
May Q outlook on sales ($1.05bn), subscribers (1.14mn), handsets (>2.25mn) and EPS ($1.05) was largely inline with their recently raised estimates. However, pent-up demand for RIM's new product launches (Verizon Worldphone, T-Mobile WiFi Blackberry) could drive meaningful EPS upside (+4c to10c) during the May quarter. New applications/partner launches during RIM's analyst day (May 7 - coincides with WES Conference) could also create positive headlines, in firm's view.
CIBC says that while RIMM came in a bit below their aggressive expectations, they see growth opportunities and a strong foundation for the company. But with the stock priced for perfection, the in line quarter and outlook are likely to weigh on investor enthusiasm and question the possibility of near-term upside.
Firm expects a modest pullback in the share price and remain comfortable with their SP rating. This reflects the strong outlook, but is balanced by the opex increase and changing mix and risk profile. Depending on the magnitude of the pullback, a buying opportunity could arise.
With respect to stock options review, ThinkEquity notes that they previously interpreted the company's no "intentional misconduct" language in conjunction with the lack of high-level employee departures as a sign that the future impact from ongoing regulatory investigations would likely be benign. The SEC's escalation to a formal investigation suggests that things on the stock option pricing front will likely get worse before they get better.
Firm says that senior management's handling of the pricing investigation expenses, while well-meaning, is one of the strangest things they have seen on the management/governance front. It appears to us more an admission of guilt than a good faith gesture and it has an aftertaste of "too little too late."
Cowen notes that guidance for the May ending quarter is somewhat uninspired, capturing standing GAAP EPS consensus of $1.04 (new range os $0.99-$1.07). Lower GMs, higher legal & administrative costs associated with the ongoing OSC/SEC inquiries and a higher tax rate keep a lid on earnings forecasts for a second straight quarter. Higher revenue is driven by sub guidance (1.125-1.15MM) , hardware units.
Firm's EPS estimates are essentially unchanged despite a much higher top-line. At ~34X their standing C08 EPS estimates - and little upward movement to numbers - firm sees RIMM's multiple coming in a bit.
Notablecalls: RIMM's in-line results and guidance were disappointment for the buy-side. Looks like there's more of the same to come as higher opex and options overhang push out the margin expansion. Add higher risk associated with the options investigation and you can see why the stock is trading at the lower multiples today than it was yesterday. See no reason to hold the shares at the current pre-market levels of around $136.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
(see http://www.investorhives.com...)
Buy-side analysts continue to stick with their aggressive estimate (possibly raising some in their future forecast). The stock will continue to have the burden of beating the estimate as the expectation builds up again heading into the next Q. The psychology and enthusiasm has broken down somewhat after the disappointing current Q result. The stock could be in a real trouble if RIMM fails to surpass the once again getting lofty expectation next Q. The company is executing well on growing the revenue and sub add fronts. However, the investors continues to expect this trend and this caps the share price upside potential as all the good news will be a once again built-in. Any slight negative news will serve as a catalyst to push share price lower. I don't like the risk to award ratio here and continue to recommend the playing the stock on the short side.
Bee below for the notablecalls summary.
http://notablecalls.blogspot.co...
Research In Motion (NASDAQ:RIMM) getting plenty of comments following quarterly report.
Merrill Lynch notes that Feb Q sales were up 66% YoY to $930.4mn, shy of their $942mn forecast, as ~100K handset shipments were delayed. EPS of $1.01 was inline with strong gross margin of 53.5%, offset by increased spending on stock options investigation. Firm estimates these temporary effects cost RIM about $33mn in lost sales (100K handsets at $336 ASP) or 4-7c in EPS. While inline results could disappoint short-term investors, firm believes long-term trends remain solid.
May Q outlook on sales ($1.05bn), subscribers (1.14mn), handsets (>2.25mn) and EPS ($1.05) was largely inline with their recently raised estimates. However, pent-up demand for RIM's new product launches (Verizon Worldphone, T-Mobile WiFi Blackberry) could drive meaningful EPS upside (+4c to10c) during the May quarter. New applications/partner launches during RIM's analyst day (May 7 - coincides with WES Conference) could also create positive headlines, in firm's view.
CIBC says that while RIMM came in a bit below their aggressive expectations, they see growth opportunities and a strong foundation for the company. But with the stock priced for perfection, the in line quarter and outlook are likely to weigh on investor enthusiasm and question the possibility of near-term upside.
Firm expects a modest pullback in the share price and remain comfortable with their SP rating. This reflects the strong outlook, but is balanced by the opex increase and changing mix and risk profile. Depending on the magnitude of the pullback, a buying opportunity could arise.
With respect to stock options review, ThinkEquity notes that they previously interpreted the company's no "intentional misconduct" language in conjunction with the lack of high-level employee departures as a sign that the future impact from ongoing regulatory investigations would likely be benign. The SEC's escalation to a formal investigation suggests that things on the stock option pricing front will likely get worse before they get better.
Firm says that senior management's handling of the pricing investigation expenses, while well-meaning, is one of the strangest things they have seen on the management/governance front. It appears to us more an admission of guilt than a good faith gesture and it has an aftertaste of "too little too late."
Cowen notes that guidance for the May ending quarter is somewhat uninspired, capturing standing GAAP EPS consensus of $1.04 (new range os $0.99-$1.07). Lower GMs, higher legal & administrative costs associated with the ongoing OSC/SEC inquiries and a higher tax rate keep a lid on earnings forecasts for a second straight quarter. Higher revenue is driven by sub guidance (1.125-1.15MM) , hardware units.
Firm's EPS estimates are essentially unchanged despite a much higher top-line. At ~34X their standing C08 EPS estimates - and little upward movement to numbers - firm sees RIMM's multiple coming in a bit.
Notablecalls: RIMM's in-line results and guidance were disappointment for the buy-side. Looks like there's more of the same to come as higher opex and options overhang push out the margin expansion. Add higher risk associated with the options investigation and you can see why the stock is trading at the lower multiples today than it was yesterday. See no reason to hold the shares at the current pre-market levels of around $136.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
RIMM: investor expectation too high for the stock
It has been a while since I was able to post message. I am having a bit of break from torrid day time job work load.
RIMM has reported its April Q earning result after the market close today. RIMM (Research in Motion) is a famous blackberry handheld email/phone maker that all business men are supposed to be addicted to. We have initiated RIMM last Nov into filthyrich core list as a short candidate.
Previous posts on RIMM:
http://www.investorhives.com...
http://www.investorhives.com...
http://www.investorhives.com...
http://www.investorhives.com...
The initiated price was $133.61 with TP at $95 a share. Since the coverage in our universe, the stock price has remained extremely volatile. The stock traded anywhere between high 110's to mid- 140's. Ahead of the earning, investors were anticipating another blowout Q and bid its share price to the another all time high level just below $150. Analysts were raising TP and the earning estimates prior to the earning date revised higher. The stock was heading into the earning with very lofty expectation on the revenue, EPS, as well as the sub add metrics. RIMM also needed to guide higher on all financial metrics in order to justify surreal PE that is approaching 32 based on 08 earning number. From a risk to award point of view, the stock had more downside than upside; most of the good story was baked into the share price and RIMM had to almost destroy all the consensus earning numbers to see further buying interest.
The stock is tanking hard after-market. RIMM has failed to exceed on most of the earning metrics. The company reported 930 mil in revenue, a little shy of the consensus number of 935 mil. Some folks were actually talking about company delivering above 1 billion. EPS of 99 cents was just a penny shy of $1 expected. The company essentially came in line with the bottom line number. The sub adds number was 1.02 mil, lower than the company guidance of 1.12 to 1.15 mil. Some estimate called for this number to be as high as 1.2 mil. So this is a disappointing result. The company continues to paint bullish pictures for the coming Q with 1.12 to 1.15 mil sub adds and the revenue number of 1.02 to 1.07 billion. Since there are so many bullish analysts out there, I believe that they will focus on these slightly better than expected guidance number and give defensive remarks tomorrow. This may serve to limit the downside somewhat. However, current Q earning was unimpressive nevertheless and I expect to see a lot of selling pressure tomorrow.
Other than the earning metrics number, I also saw some additional areas of concern for RIMM. Notably, there were signs of inventory build with the channel inventory rising by 250K in Q4. Although RIMM released additional new products this Q, new products failed to improve gross margin which has been steadily declining over last two Q. GM is now below 52% versus 56%. Pearl with lower ASP has a lower gross margin than other RIMM legacy product lines and as Pearl ramps and replaces some older RIMM products, GM continues to erode.
The heart of the argument for higher PE multiple for RIMM lies in the company's ability to go after highly lucrative recurring data plan revenue, especially that associated with corporate customers. However, although RIMM is growing its revenue nicely, high margin revenue may be harder to come by for the company. For instance, the company's hottest selling product Pearl is only seeing 20 to 30% data plan sign up at T-mobile. As RIMM penetrates consumer market, the company could rely too much on the one time hardware sale for growing the revenue. The pitfall of this situation is that hardware is never a high margin business. And as competition hits up with Apple entering the smartphone market in June, it becomes harder and harder to justify the premium multiple that RIMM is getting compared to its competitors such as Nokia, Motorola, Palm, LG, and Samsung.
As a last point, informal SEC investigation in option practice has turned into the formal status. This may also have near term negative impact on the share price.
In conclusion, RIMM has failed to deliver this Q and selling pressure is expected tomorrow. I see stock trading lower, possibly to high 120's before analysts come out and start defending the stock more aggressively. However, with slower seasonal period coming up for the company as well as with increasing hype on Apple iPhone entry, I see few catalysts to own RIMM shares given the disappointing earning performance this Q. RIMM will get the benefit of the doubt this Q from so many analysts who recommended this stock. However, if it repeats similar performance again next Q, it will raise some eye brows and more serious damage can occur to the share price. I continue to stand by my recommendation to take short position on the stock with TP of $95. TP of $95 is arrived by assigning general EPS estimate of $5 for 08 with PE multiple of 20 for the company, which are more appropriate for the well executing hardware tech company.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
RIMM has reported its April Q earning result after the market close today. RIMM (Research in Motion) is a famous blackberry handheld email/phone maker that all business men are supposed to be addicted to. We have initiated RIMM last Nov into filthyrich core list as a short candidate.
Previous posts on RIMM:
http://www.investorhives.com...
http://www.investorhives.com...
http://www.investorhives.com...
http://www.investorhives.com...
The initiated price was $133.61 with TP at $95 a share. Since the coverage in our universe, the stock price has remained extremely volatile. The stock traded anywhere between high 110's to mid- 140's. Ahead of the earning, investors were anticipating another blowout Q and bid its share price to the another all time high level just below $150. Analysts were raising TP and the earning estimates prior to the earning date revised higher. The stock was heading into the earning with very lofty expectation on the revenue, EPS, as well as the sub add metrics. RIMM also needed to guide higher on all financial metrics in order to justify surreal PE that is approaching 32 based on 08 earning number. From a risk to award point of view, the stock had more downside than upside; most of the good story was baked into the share price and RIMM had to almost destroy all the consensus earning numbers to see further buying interest.
The stock is tanking hard after-market. RIMM has failed to exceed on most of the earning metrics. The company reported 930 mil in revenue, a little shy of the consensus number of 935 mil. Some folks were actually talking about company delivering above 1 billion. EPS of 99 cents was just a penny shy of $1 expected. The company essentially came in line with the bottom line number. The sub adds number was 1.02 mil, lower than the company guidance of 1.12 to 1.15 mil. Some estimate called for this number to be as high as 1.2 mil. So this is a disappointing result. The company continues to paint bullish pictures for the coming Q with 1.12 to 1.15 mil sub adds and the revenue number of 1.02 to 1.07 billion. Since there are so many bullish analysts out there, I believe that they will focus on these slightly better than expected guidance number and give defensive remarks tomorrow. This may serve to limit the downside somewhat. However, current Q earning was unimpressive nevertheless and I expect to see a lot of selling pressure tomorrow.
Other than the earning metrics number, I also saw some additional areas of concern for RIMM. Notably, there were signs of inventory build with the channel inventory rising by 250K in Q4. Although RIMM released additional new products this Q, new products failed to improve gross margin which has been steadily declining over last two Q. GM is now below 52% versus 56%. Pearl with lower ASP has a lower gross margin than other RIMM legacy product lines and as Pearl ramps and replaces some older RIMM products, GM continues to erode.
The heart of the argument for higher PE multiple for RIMM lies in the company's ability to go after highly lucrative recurring data plan revenue, especially that associated with corporate customers. However, although RIMM is growing its revenue nicely, high margin revenue may be harder to come by for the company. For instance, the company's hottest selling product Pearl is only seeing 20 to 30% data plan sign up at T-mobile. As RIMM penetrates consumer market, the company could rely too much on the one time hardware sale for growing the revenue. The pitfall of this situation is that hardware is never a high margin business. And as competition hits up with Apple entering the smartphone market in June, it becomes harder and harder to justify the premium multiple that RIMM is getting compared to its competitors such as Nokia, Motorola, Palm, LG, and Samsung.
As a last point, informal SEC investigation in option practice has turned into the formal status. This may also have near term negative impact on the share price.
In conclusion, RIMM has failed to deliver this Q and selling pressure is expected tomorrow. I see stock trading lower, possibly to high 120's before analysts come out and start defending the stock more aggressively. However, with slower seasonal period coming up for the company as well as with increasing hype on Apple iPhone entry, I see few catalysts to own RIMM shares given the disappointing earning performance this Q. RIMM will get the benefit of the doubt this Q from so many analysts who recommended this stock. However, if it repeats similar performance again next Q, it will raise some eye brows and more serious damage can occur to the share price. I continue to stand by my recommendation to take short position on the stock with TP of $95. TP of $95 is arrived by assigning general EPS estimate of $5 for 08 with PE multiple of 20 for the company, which are more appropriate for the well executing hardware tech company.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
Wednesday, March 21, 2007
Correction nearing its end: redeploy your cash before April
The market had a fantastic rally after the Fed policy statement that was released 2:15 PM EST. The Fed continues to state that inflation is its primary concern but the tone had much more neutral bias. Fed further acknowledges the slowdown in the housing market.
Financial stocks performed terrific this afternoon. Both filthyrich financial ideas (JP Morgan and Goldman) saw significant buying interest. Both JPM and GS sold off in recent times amid general market correction, brought on by collapse of the China stock market and concern of sub-prime mortgage crisis. In my opinion, investors have unjustifiably thrown the baby out along with the bath water. Although sub-prime market is in trouble, its impact is relatively well-contained within the sub-prime segment. In fact, earning calls from GS, Morgan Stanley, Bear Stern as well as UBS reveals that given the right price, many well-run banks want to increase its exposure to sub-prime as they see additional opportunities within this segment.
GS had a fantastic earning this month. It continues to blow away the consensus earning estimate. It generates the piles of cash, which the company is using to buy back shares. While share counts decreases, the revenue continues to climb higher as the trading and other investment banking revenue remain strong. China exposure has been a concern for some investors but after the deep correction, China stock market has roared back to its old highs. The fact of the matter is that there are too much liquidity out there to depress the financial market worldwide. Real estate market is in doldrums and bond yield is shrinking. Where else the money would flow but into the stock market worldwide? I believe that GS earning story is not over and the firm is poised to generate EPS well above $24 a share in 07 and possibly higher in 08. The stock is grossly undervalued. I maintain my target price of $250 and would suggest that you take position in GS before April.
JPM also saw a lot of selling pressure due to sub-prime mortgage concern. JPM is the best positioned to show one of the best earning growth performance among integrated banking names. I expect in 07, the stock market will be driven by those select names with solid earning performance. The company also continues to buy back shares. Profit margin still has a room to improve and ROE metrics have improved significantly. The bank has the lowest sub-prime loan market exposure. Also look what has happened to the yield curve today. It is no longer inverted. As investors anticipate Fed rate cut sometime in the second half of this year, finally yield curve has become consistent with the market rate outlook. I expect the yield spread to become more favorable for banks over next several months. With this, JPM earning will likely to accelerate in 08. EPS in 08 could eclipse $5 and I believe the stock is headed higher above $60 by the end of 07. During this market correction, I have substantially increased my leap (call $50 08) position and if I am right about JPM earning story, JPM should make me mucho dinero.
I would start buying back china names aggressively. CTRP has weathered this correction exceptionally well. It is crushing its competitions such as elong and is likely to rule the Chinese online travel market. I am revising my target of CTRP to $85 from $70. I would be an aggressive buyer of CTRP once again. I will write a separate article on CTRP to justify my TP.
I would also start buying FMCN. I am upping my target of FMCN to $100 from $80. FMCN recent announced another acquisition of Allyes to get into internet ad area. This dominant company is becoming more dominant in China. It commands considerable market shares in all display and display related ads in first Tier and second Tier cities. Its valuation is attractive, trading at 18X 08 earning estimate. I believe that the market correction in the US and China is largely over. Although it may continue to consolidate for a while, I believe the market is likely to establish uptrend once again. I will also work on writing a separate article for FMCN to justify the TP adjustment to $100.
I would also consider looking into biotech names. I especially like CELG here. Celgene is waiting for European approval of Revlimid by the end of April. I see CELG’s Revlimid getting the approval in Europe for both MM and MDS applications. Many analysts see MM approval but have not reflected MDS approval in the earning estimate yet. This approval could serve as upside catalyst for the stock.
Finally, AMR and LUV have seen a lot of selling pressure. I also like them here. Temporary slowdown of the traffic has been weather related. As the economy cools, oil price is likely to moderate. Many expect the oil to head considerably higher towards summer driving season; I continue to believe that oil remains in the trading range between $45 to $55. The economy will grow but the growth rate will slowdown. This is truly bullish case for bulls. Inflation will remain under control. Fed will sit on the sideline and the earning will continue to head higher, although at slower rate.
In conclusion, I love where the market stands now. With correction largely behind us, I would be an aggressive buyer of our favorite names. Good luck to you all.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
Financial stocks performed terrific this afternoon. Both filthyrich financial ideas (JP Morgan and Goldman) saw significant buying interest. Both JPM and GS sold off in recent times amid general market correction, brought on by collapse of the China stock market and concern of sub-prime mortgage crisis. In my opinion, investors have unjustifiably thrown the baby out along with the bath water. Although sub-prime market is in trouble, its impact is relatively well-contained within the sub-prime segment. In fact, earning calls from GS, Morgan Stanley, Bear Stern as well as UBS reveals that given the right price, many well-run banks want to increase its exposure to sub-prime as they see additional opportunities within this segment.
GS had a fantastic earning this month. It continues to blow away the consensus earning estimate. It generates the piles of cash, which the company is using to buy back shares. While share counts decreases, the revenue continues to climb higher as the trading and other investment banking revenue remain strong. China exposure has been a concern for some investors but after the deep correction, China stock market has roared back to its old highs. The fact of the matter is that there are too much liquidity out there to depress the financial market worldwide. Real estate market is in doldrums and bond yield is shrinking. Where else the money would flow but into the stock market worldwide? I believe that GS earning story is not over and the firm is poised to generate EPS well above $24 a share in 07 and possibly higher in 08. The stock is grossly undervalued. I maintain my target price of $250 and would suggest that you take position in GS before April.
JPM also saw a lot of selling pressure due to sub-prime mortgage concern. JPM is the best positioned to show one of the best earning growth performance among integrated banking names. I expect in 07, the stock market will be driven by those select names with solid earning performance. The company also continues to buy back shares. Profit margin still has a room to improve and ROE metrics have improved significantly. The bank has the lowest sub-prime loan market exposure. Also look what has happened to the yield curve today. It is no longer inverted. As investors anticipate Fed rate cut sometime in the second half of this year, finally yield curve has become consistent with the market rate outlook. I expect the yield spread to become more favorable for banks over next several months. With this, JPM earning will likely to accelerate in 08. EPS in 08 could eclipse $5 and I believe the stock is headed higher above $60 by the end of 07. During this market correction, I have substantially increased my leap (call $50 08) position and if I am right about JPM earning story, JPM should make me mucho dinero.
I would start buying back china names aggressively. CTRP has weathered this correction exceptionally well. It is crushing its competitions such as elong and is likely to rule the Chinese online travel market. I am revising my target of CTRP to $85 from $70. I would be an aggressive buyer of CTRP once again. I will write a separate article on CTRP to justify my TP.
I would also start buying FMCN. I am upping my target of FMCN to $100 from $80. FMCN recent announced another acquisition of Allyes to get into internet ad area. This dominant company is becoming more dominant in China. It commands considerable market shares in all display and display related ads in first Tier and second Tier cities. Its valuation is attractive, trading at 18X 08 earning estimate. I believe that the market correction in the US and China is largely over. Although it may continue to consolidate for a while, I believe the market is likely to establish uptrend once again. I will also work on writing a separate article for FMCN to justify the TP adjustment to $100.
I would also consider looking into biotech names. I especially like CELG here. Celgene is waiting for European approval of Revlimid by the end of April. I see CELG’s Revlimid getting the approval in Europe for both MM and MDS applications. Many analysts see MM approval but have not reflected MDS approval in the earning estimate yet. This approval could serve as upside catalyst for the stock.
Finally, AMR and LUV have seen a lot of selling pressure. I also like them here. Temporary slowdown of the traffic has been weather related. As the economy cools, oil price is likely to moderate. Many expect the oil to head considerably higher towards summer driving season; I continue to believe that oil remains in the trading range between $45 to $55. The economy will grow but the growth rate will slowdown. This is truly bullish case for bulls. Inflation will remain under control. Fed will sit on the sideline and the earning will continue to head higher, although at slower rate.
In conclusion, I love where the market stands now. With correction largely behind us, I would be an aggressive buyer of our favorite names. Good luck to you all.
The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)
Please check out the archives for past posting on individual stocks. Also market commentary and weekly communication on the core holding list are available at www.investorhives.com on a membership basis. The membership is free for everyone. Simply apply for filthyrich hive membership at www.investorhives.com. Thank you for visiting my blog.
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