Today was light on the economic front as far as impact numbers. The June leading economic indicators were down at -0.1%, and the May gain of +0.1% was revised lower to -0.2%. This shows little argument for a strengthening economy. Oil showed how it can still rise as tropical storm Dolly is in the Gulf of Mexico and no deal was reached with Iran, with prices back above $131.00 per barrel. Today was looking like a gain at the start, but the market slid as the day went on.
Below are today's unofficial closing bell index levels:
DJIA 11.467.67 (-28.90) S&P 500 1259.72 (-0.96) NASDAQ 2279.69 (-3.09) 10 YR T-NOTE 4.067% (-0.014%) 52-WEEK LOWS Top Analyst Calls
Bank of America Corp. (NYSE: BAC) showed a more than 4.6% gain at $28.80 in today's final minutes after the earnings report this morning came in far above lowered expectations. This stock is now up over 50% in a few days.
Whole Foods Market (NASDAQ: WFMI) shares are trading higher today after an analyst at Morgan Stanley upgraded the stock to Equal-weight from Underweight, as noted by Eric Buscemi. If you agree with Morgan Stanley and think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on WFMI.
After hitting a one-year high of $53.65 in October, the stock hit a one-year low of $20.18 last week. WFMI opened this morning at $23.27. So far today the stock has hit a low of $22.37 and a high of $24.06. As of 12:45, WFMI is trading at $22.50, up $1.12 (5.2%). The chart for WFMI looks bearish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider an August bull-put credit spread below the $19 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 15.6% return in just four weeks as long as WFMI is above $19 at August expiration. Whole Foods would have to fall by more than 15% before we would start to lose money.
WFMI hasn't been below $20 at all in the past year and has shown support around $21 recently. This trade could be risky if the company's earnings (due out on 8/5) disappoint, but even if that happens, this position could be protected by the support the stock might find at its year low between $20 and $21.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in WFMI.
MOST NOTEWORTHY: Teva Pharmaceutical, Blue Coat Systems and American International Group were today's noteworthy upgrades:
Deutsche Bank upgraded shares of Teva Pharmaceutical (NASDAQ: TEVA) to Buy from Hold to reflect the company's greater growth prospects following the acquisition of Barr (NYSE: BRL). The firm raised the target to $56 from $47.
ThinkPanmure upgraded Blue Coat Systems (NASDAQ: BCSI) to Buy from Source of Funds based on the company's growth prospects following positive channel checks.
American International Group (NYSE: AIG) was raised to Buy from Neutral at Banc of America on valuation, as they find the risk/reward attractive at current levels.
OTHER UPGRADES:
Goldman upgraded the Semiconductor Production Equipment sector to Neutral from Cautious and added Verigy (NASDAQ: VRGY) to its Conviction Buy List.
Morgan Stanley upgraded Whole Foods (NASDAQ: WFMI) and Cintas (NASDAQ: CTAS) to Equal Weight from Underweight.
MOST NOTEWORTHY: Texas Industries, TransGlobe Energy and Level 3 Communications were today's noteworthy downgrades:
Stephens downgraded shares of Texas Industries (NYSE: TXI) to Equal Weight from Overweight as it believes higher energy costs will affect the company's ability to achieve its guidance. The firm lowered its target to $68 from $83.
Jefferies assumed coverage and downgraded shares of TransGlobe Energy (NYSE:TGA) to Hold from Buy as it sees limited upside until the company completes its seismic activity and can better quantify its exploratory reserve potential. The firm lowered its target to $5.25 from $6.50.
Citigroup downgraded Level 3 (NASDAQ: LVLT) to Sell from Hold as it believes the pullback in telecom valuations increases downside risk for the stock. Citigroup lowered their target price to $2.50 from $3.
Alcatel-Lucent (NYSE:ALU) was raised to "neutral" from "underperform" at Merrill Lynch, according to24/7 Wall St. The financial website also reports that Whole Foods Market (NASDAQ:WFMI) was cut to "neutral" from "buy" at UBS.
Citigroup added Google (NASDAQ:GOOG) to its Top Picks Live list, according toBriefing.com. The news service reports that Time Warner (NYSE:TWX) was also added to the list.
Societe Generale raised its rating on BP (NYSE:BP) to "hold" from "sell" according toMarketWatch.
Whole Foods Market (NASDAQ: WFMI) CEO John Mackey nearly derailed his company's acquisition of Wild Oats with a series of blog entries and bizarre anonymous message board posting doing everything from trashing competitors to complimenting his own hairstyle.
The SEC opened an investigation that was recently closed without any action and now Mackey is back to blogging on the Whole Foods site. In a rambling post, Mackey explained the reasoning behind his postings and thanked his board of directors and the SEC for their support. He strongly denied that his postings critical of Wild Oats were designed to beat down that company's stock price, and also said that he had not intended to inflate this price of Whole Foods Market stock with his enthusiastic posts on that message board.
He added that "I wish to apologize to all the stakeholders of Whole Foods Market-customers, Team Members, investors, suppliers, and our communities."
Great. Now if he could just lower the prices so us poor folks could afford a 12 ounce bottle of organic carrot juice.
Today's inflation report was the main reason for the rally as it looks like prices nominally are not getting much worse. But as I noted, that's true if you don't go to the gas station or grocery store. Home foreclosures rose yet again, and that may be something to get used to. Oil prices were down down $1.86 to $123.94 per barrel in after-hours trading. Here are the unofficial closing index levels:
China Architectural Engineering, Inc. (AMEX: RCH) saw another massive rise today based upon the Chinese earthquake. Shares were up 40% at $8.38 at the end of the day. Architecture, engineering, China, earthquake... what more did traders need to hear?
Deere & Co. (NYSE: DE) saw a sharp drop in shares after reporting earnings, and it pulled down other ag-stocks. The company said it was being impacted by tight part supplies and rising materials costs, and that sent shares tumbling 10% to $81.10 in the final minutes today.
Whole Foods Market (NASDAQ: WFMI) shares are falling after the company posted a second-quarter profit of $40 million, or 29 cents a share, below analysts' estimates of 30 cents per share. Growth has slowed for WFMI, which company executives are blaming on the slowing economy. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on WFMI.
After hitting a one-year high of $53.65 in October, the stock has hit a new one-year low today. This morning, WFMI opened at $30.17. So far today the stock has hit a low of $28.96 and a high of $30.21. As of 12:10, WFMI is trading at $29.37, down $4.27 (-12.7%). The chart for WFMI looks neutral and improving, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bearish hedged play on this stock, I would consider an August bear-call credit spread above the $37 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 7.1% return in three months as long as WFMI is below $37 at August expiration. Whole Foods would have to rise by more than 26% before we would start to lose money. Learn more about this type of trade here.
Macy's (NYSE: M), which was forecast to report a loss of a penny a share in the first quarter, said the difficult retail environment hurt sales and it incurred costs from a restructuring. The loss came to $59 million, or 14 cents a share, compared with a profit of $36 million, or 8 cents a share, a year earlier. (As the numbers are quite fresh, it's possible they include one-time item not yet sorted out and not comparable to analyst expectations.)
John Deere (NYSE: DE) said its second-quarter profit rose 22%. Deere experienced increased demand for its farm equipment, as crop prices kept rising, posting an 18% increase in sales. Profit for the quarter jumped to $763.5 million, or $1.74 per share, a penny below analyst estimates. From premarket early action, it seems shares of DE might start much lower.
Freddie Mac (NYSE: FRE) also reported this morning, saying its first quarter loss widened to $151 million as the U.S. housing market worsened. Somehow, though, the results were not as poor as expected and FRE's loss of 66 cents a share beat estimates of a 92 cents a share loss. FRE's shares are up over 6% in premarket trading.
Still on earnings, last night Whole Foods (NASDAQ: WFMI) and Electronic Arts (NASDAQ: ERTS) reported results. Shares of WFMI are plunging nearly 9% in premarket trading as the organic grocery chain reported a worse-than-forecast 13% profit fall.
Electronic Arts (NASDAQ: ERTS) shares are also declining over 2.8% in premarket trading after the suitor of Take-Two Interactive (NASDAQ: TTWO) reported a widening quarterly loss and a disappointing outlook.
On Tuesday, microchip equipment maker Applied Materials Inc. (NASDAQ: AMAT) reported a drop in its fiscal second quarter earnings due in part to a glut of flash memory chips, and organic and natural food retailer Whole Foods Market Inc. (NASDAQ: WFMI) also said second quarter profits fell, due to integrating its Wild Oats acquisition.
Applied Materials posted earnings of $302.5 million, or 22 cents per share, for the quarter ended April 27, compared with a profit of $411.4 million or 29 cents per share in the same period a year ago. Its adjusted net income came to 24 cents per share, beating the average analyst forecast of 22 cents, according to Reuters estimates.
Second-quarter revenue fell to $2.15 billion from $2.53 billion in the previous year. Analysts on average had expected revenue of $2.13 billion.
Shares fell 1.3% after the news but rose 2.7% in after-hours trading to $20.40.
Whole Foods reported that sales surged 28% in the second quarter to $1.87 billion, from $1.4 billion in the previous year. But net income fell 13% to $40 million, or 29 cents per share, in the quarter ended April 13; the acquisition of rival Wild Oats cost it 6 cents per share.
Analysts polled by Thomson Financial had predicted a profit of 30 cents per share on revenue of $1.89 billion.
Shares of Whole Foods fell $2.94, or 8.7%, to $30.70 in after-hours trading.
The earnings party of last week was full of fun and frolic. For the most part, if you followed my list of recommendations, you would have had your very own "Fiesta de Finance." (See Week in Preview – May 5)
The earnings season is still in full swing and should provide a great deal of action for the companies that will be reporting. But these companies will have to fight through a few new economic barriers. With oil pushing past historic levels and questions beginning to surface concerning the ability of the investor to continue to support a market that has so many headwinds, the mood is likely to shift moving forward. It is time for discipline, short and simple. Now, more than ever investors need a plan. I cover this strategy in my book, The Disciplined Investor.
In the last installment of The Week in Preview, I was looking for party opportunities in honor of Cinco de Mayo. This week, Misery is the theme. That is the only word that comes to mind with oil at a level that you would have never expected, a massive and unrelenting credit and housing crisis and a banking system that is defunct.
Monday - May 12
We start the week with a report from IndyMac Bancorp (NYSE: IMB). This bank is smack in the middle of the housing problem. It is primarily a lending company that facilitates loans for single-family homes. It's also involved in the origination and trading of mortgages. How does that sound to you as an investment? Shares have slid from $23 in October 2007 to an unbelievable level of $3.50 recently. Ouch... If you are a shareholder still holding on with hope and a prayer for something...anything, keep on dreaming. The good news is that the stock is sporting a yield of 29%. But, if you think that yield is going to be maintained, I have a bridge for sale. Estimates are for a loss of $1.92 per share for the quarter.
Recently, the Environmental Working Group stated that celery is one of the so-called "Dirty Dozen," the twelve most contaminated fruits and vegetables on the market. As I was chewing on a piece of celery at the time, I began to notice the bitter overtones of what I assumed was a nasty chemical fertilizer. I began to wonder if it might be sarin or perhaps some dioxin derivative. Completely unable to enjoy my snack any longer, I resolved to find some organic celery.
After a long and fruitless (vegetable-less?) search, I finally broke down and decided to go to Whole Foods (NASDAQ: WFMI) . There, tucked into an extensive and impressive collection of colorful veggies, I found what I was looking for: fresh, organic celery. The price? $4.99.
To be honest, if I'm paying $4.99 for a vegetable, I expect it to pick my daughter up from daycare and maybe help out with the rent. I'm used to paying between $1 and $1.25 for a bunch of celery, which made Whole Foods' prices seem like a particularly tasteless joke. However, rather than throw the celery to the ground and loudly denounce Whole Foods as a bunch of money-grubbing ripoff artists, I politely returned the bunch to the counter and left.
There were two reasons for my restrained response: first, I'm saving up my first arrest for something special, like picketing Anne Coulter's funeral, and there's no way I'm getting carted off for yelling at a bunch of celery opportunists. The second reason is that I wasn't really all that surprised. You see, I've gotten used to Whole Foods' massively inflated prices and somewhat snotty attitude.
In a sign that you can't keep a good man down, the SEC has dropped its investigation into message board postings by Whole Foods (NASDAQ: WFMI) CEO John Mackey.
Reuters writes that the agency as "concluded a probe into its chief executive's anonymous Web chat room messages about then-rival Wild Oats Markets and recommended no action be taken."
Mackey can now go back to posting on other subjects but will have to come up with a new name to disguise his real identify. The old one, Rahodeb, has already been taken.
Douglas A. McIntyre is an editor at 247wallst.com.
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The earnings party of last week was full of fun and frolic. For the most part, if you followed my list of recommendations, you would have had your very own "Fiesta de Finance." (
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