On a day when many telecom stocks were hit with downgrades, China Mobile Limited (NYSE: CHL) distinguished itself this morning by scoring an upgrade. Goldman Sachs raised its rating on CHL from "sell" to "neutral," while simultaneously trimming the stock's price target from HK$95 to HK$90. The price-target cut echoes a similar move made by Citigroup on Sunday; the brokerage firm cut its target on CHL from HK$120 to HK$100.
In response to today's mixed analyst comment, CHL is down more than 7% at midday. The equity has shed about 42% year-to-date, and its lengthy decline could prompt additional price-target cuts during the short term. According to Thomson Financial, China Mobile shares are trading about 60% south of their average 12-month price target of USD $81.01.
Today's upgrade from Goldman comes as CHL is approaching former support at the $44 level. This region buoyed the stock in early 2007 and earlier this month, which suggests that it could once again provide a floor for the shares. Unfortunately, though, the stock is also looking up at stiff technical resistance from its 10-week moving average, which means China Mobile might find itself bouncing sideways in the weeks to come. Or -- even more troubling -- a continued drop in the share price could spark an unwinding of widespread optimistic sentiment.
Apple, Inc.'s (NASDAQ: AAPL) iPhone 3G continues to sell like gangbusters even with multiple issues and some furious customers. But, if Apple really is bent on selling over 10 million of the now-iconic, do-everything handset, it may need to beef up its sales as best it can. Enter China Mobile.
That's right -- the wireless company that has more subscribers than there are U.S. citizens may be selling the iPhone 3G soon, according to reports. And we're not talking gray market handsets, but an actual partnership between Apple and China Mobile. Talks between the two companies, according to the 21st Century Business Herald, are in "final stages."
China Mobile CEO Wang Jianzhou stated this week at the ITU Telecom Asia 2008 exhibition in Bangkok that "Steve Jobs and I hope the iPhone will enter China as soon as possible ... we are discussing this issue, but we do not have an agreement." If Apple can get its do-everything handset into China Mobile, we've not seen anything yet in terms of iPhone 3G sales.
IPod sales may be on the decline in the near future -- but can the iPhone 3G make up for that? We'll see.
"Growth investors can hitch their portfolio to any number of Asian stars; I think one big winner is going to be China Mobile (NYSE: CHL)," says Tony Sagami in his specialized Asia Stock Alert.
"Mobile phones are much, much more than telephones to Asians. If you travel to Asia, one of the first things you'll notice is how most locals walking down the street have mobile phones glued to their ears.
"It would be a big mistake to think of China Mobile as simply a mobile phone provider. In addition to traditional calling services, the company offers value-added services such as voice mail, conference calling, instant messaging, text messaging, as well as accessing the Internet.
"Even though the price of computers has fallen dramatically in the last few years, a personal computer (PC) is still out of financial reach for the average Chinese. Meanwhile, mobile phones are both cheap and capable of many of the same functions as PCs.
"Look, $500 to $1,000 dollars for a PC may seem reasonable to you and me, but that is a small fortune for the typical Chinese consumer, who makes less than $3,000 a year.
Deutsche Bank cut Anheuser-Busch Companies Inc (NYSE: BUD) to Hold from Buy on valuation following the recent rally spurred by takeover speculation. The firm believes the reported $65/share cash takeover offer by Inbev requires aggressive cost reduction and could harm the brands.
Morgan Stanley downgraded shares of GlaxoSmithKline Plc (NYSE: GSK) to Underweight from Equal Weight as they see risk to Street expectations for a U.S. Cervarix approval in 2009.
As China continues its massive economic expansion, the country is in a continuous state of flux. According to the New York Times, China has requested its six telecommunication firms to consolidate their assets, effectively paving the way for fixed-line operators to get into the mobile arena.
According to the same Times article, "the parent of China Telecom will buy a mobile phone network from the parent of China Unicom (NYSE: CHU), which in turn will merge with the company that controls the China Netcom Group (NYSE: CN) ... China will issue three third-generation wireless licenses after the overhaul is completed."
The big short-term loser of this directive appears to be China Mobile (NYSE: CHL). The stock was down about 7% Monday off the news. The firm's stronghold on the mobile telecom market in China is now effectively weakened as China Telecom and Netcom can gear up to compete against China Mobile.
Why should this interest investors? Again, according to the Times, China had almost 600 million mobile phone users at the end of April, exceeding the combined populations of the United States and Japan. In the world's largest mobile market in terms of users, the $100 billion market is poised to ramp up given that just over half of all Chinese own mobile phones and a lot less than that have Internet connections.
Zack Miller is the lead equity analyst for America Israel Investment Associates, LLC., the managing editor of IsraelNewsletter.com an d a former equity analyst for a leading multinational hedge fund.
MOST NOTEWORTHY: Vodafone, AstraZeneca and Forest Oil were today's noteworthy upgrades:
Bear Stearns upgraded shares of Vodafone (NYSE: VOD) to Outperform from Peer Perform on valuation, as they believe the stock trades at a discount to peers.
AstraZeneca (NYSE: AZN) was raised to Buy from Hold at Citigroup to reflect the potential for higher sales of the company's Crestor cholesterol pill.
Jefferies upgraded shares of Forest Oil (NYSE: FST) to Buy from Hold and raised their target to $63 from $50 following the company's "bullish" analyst conference.
OTHER UPGRADES:
Pharmasset (NASDAQ: VRUS) was raised to Buy from Neutral at UBS.
Deutsche Bank upgraded China Mobile (NYSE: CHL) to Buy from Hold.
Morgan Keegan upgraded RadNet (NASDAQ: RDNT) to Outperform from Market Perform.
The Wall Street Journal reported that analysts are looking to assess the significance of a new accounting problem at American International Group Inc (NYSE: AIG) which includes "material weakness" the company's auditor found that relates to subprime exposure.
China Mobile Limited (NYSE: CHL) is expected to announce its support today for Long Term Evolution, a wireless broadband standard gaining strong momentum as the next-generation wireless technology for providing super-fast web surfing on cellular phones, the Financial Times reported.
OTHER PAPERS:
According to the Associated Press, Petroleos de Venezuela SA said it has stopped selling crude oil to Exxon Mobil Corporation (NYSE: XOM). The decision, made "as an act of reciprocity" for Exxon's "judicial-economic harassment," will also include the suspension of commercial relations with the U.S. company.
WEB SITES:
Reuters reported that The Walt Disney Company (NYSE: DIS) signed a deal to buy 20% of Net TV, a digital television company controlled by Spanish media company Vocento.
"Our latest buy is Matthews Asian Technology Fund (MATFX), which has been added to our Global Core and Asia-Pacific Portfolios. While there's plenty of uncertainty in global markets at the outset of 2008, the tech sector and Asia's economies both look well-positioned to weather the storm.
"The Matthews Asian Technology Fund gives you the best of both worlds. With $245 million in assets, the fund has delivered annualized returns in excess of 25% over the past five years. It invests in a mixture of both large-cap and small-cap companies, with varying degrees of exposure to 'technology.'
"Some holdings, like Chinese search engine Baidu.com and the Japanese social networking site Mixi, are pure technology plays, whereas Korea's Samsung Electronics and Japan's Sony fall into the more mature camp of consumer electronics.
"Telecom is also among the fund's biggest holdings, with China Mobile and India's Bharti Airtel among the top 10 holdings. That means the fund won't always deliver eye-popping returns, but it offers a bit more protection on the downside."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
According to the Wall Street Journal's "Heard on the Street," bears believe it may be too early to bargain hunt among financial stocks, as they think there may be more bad news to come after Citigroup Incorporated (NYSE: C) announced it took an $18B write down in Q4.
MiningMx.com reported that BHP Billiton has reached an "impasse" with South Africa's government over the conversion of the company's exploration leases to new order mining rights.
According to management at the world's largest cellular carrier, China Mobile (NYSE: CHL), talks to sell the Apple (NASDAQ: AAPL) iPhone have ended. Reuters reports, "News that the two telecom giants were in talks over the device's potential launch in the world's largest telecoms arena helped Apple's stock climb more than 10 percent on November 13."
It would be easy to say that the iPhone will not be in China soon because Apple wants revenue-sharing agreements that the Chinese think are too one-sided in Apple's favor. Or, the phone's $500 price is too high for an emerging market. China does have a large middle class, so that excuse may be thin.
What is probably more accurate is that China Mobile does not need the iPhone and can afford to walk away from a partnership. Unlike cellular carriers in the U.S. and Europe that are facing market saturation, China Mobile has over 350 million subscribers. But that is not a large number compared with the country's overall population. It does not need one "hot" phone to keep growing.
Douglas A. McIntyre is an editor at 247wallst.com.
Google (NASDAQ: GOOG) is not making the kind of headway it would like to in China. It still runs far behind local search engine Baidu (NASDAQ: BIDU) in market share. Reuters thinks it has the road-map for the US company and it involves Google "linking up with local partners, navigating draconian regulations and understanding Chinese tastes."
Easily said.
Google is not allowed to bring in its Google News product and use it to any effect due to censorship regulations. In the meantime, Baidu has been allowed to start its own news service. Local copyright rules do not allow the US company to offer its free music search function.
Companies like China Mobile (NYSE: CHL) are controlled by government regulators and the large cellular provider can pick which search functions it allows on its handsets. It can also set fees for software providers like Google and set them very high.
Reuters points out that the Microsoft (NASDAQ: MSFT) MSN product in China is part of a joint venture that is run by the son of a former Chinese president.
All of this seems a bit sordid, and perhaps it is. Google, however, has to decide if it is willing to go to extraordinary lengths to move into the big market, or keep some of its dignity and take what market share it can get through normal business practices.
Douglas A. McIntyre is an editor at 247wallst.com.
The head of China Mobile (NYSE: CHL), by far the largest cellular carrier in the world, indicated that he is talking with Apple (NASDAQ: AAPL) about marketing the iPhone. MarketWatch reports that the two companies "would have to iron out differences over revenue sharing."
China Mobile currently has about 350 million subscribers, so a deal with Apple could boost the consumer electronics company's stock to even higher levels than its recent record peak. But a deal with China Mobile might bear very different results from those in the U.S. and Europe.
With the iPhone priced at just below $400, it may be an item that users in the West can afford. It remains to be seen whether the expensive handset's appeal would be strong in China. But there is a large middle class in the country, and that could drive demand.
Apple will open its first retail store in China soon. It does have modest sales for iPods and Macs there. One of the things that could undercut the company's effort to sell iPhones is that counterfeiters have already created their own versions, which are much less expensive than the real thing.
But, knowing Apple, the financial onus for selling the handset will be on China Mobile, with the U.S. company getting a cut of the calling plan revenue. So Apple has very little to lose.
Douglas A. McIntyre is an editor at 247wallst.com.
Markets in Asia took a beating as the Hong Kong Hang Seng fell 5%. Key China stocks moved down sharply. China Mobile (NYSE:CHL) fell 7%. China Petroleum (NYSE:SNP) fell over 10%.
The Shanghai Composite fell 2.5%.
Douglas A. McIntyre is an editor at 247wallst.com.
MOST NOTEWORTHY: Penske Automotive, CarMax, Towerstream, Solera and Northstar were today's noteworthy initiations:
Kevin Dann initiated shares of Penske Automotive Group Inc (NYSE: PAG) with a Buy rating and $25 target. The firm believes shares deserve a higher multiple given the company's reduced exposure to slower growing domestic brands combined with the increased penetration o luxury as a percentage of industry sales.
CarMax Inc (NYSE: KMX) was also initiated at Kevin Dann with a Buy rating and $28 target, as they expect the multiple expansion to continue as confidence builds in the company's sales and expense strategy.
Think Equities started shares of Towerstream Corporation (NASDAQ: TWER) with a Buy rating and $5 target and said the company is rapidly growing given robust demand fro high bandwidth services, market expansion, sales force growth, and higher ARPU services.
Barrington believes Solera Holdings Inc (NYSE: SLH) is positioned to capture growth through technology adoption in claims processing by insurance companies, starting shares off with an Outperform rating and $27 target.
Jefferies resumed coverage of Northstar Neuroscience Inc (NASDAQ: NSTR) with a Buy rating and $21 target, as they expect the company's Phase III EVEREST trial to yield positive positives, setting the stage for an FDA approval by Q109.
OTHER INITIATIONS:
Friedman Billings started shares of IPG Photonics Corporation (NASDAQ: IPGP) with an Outperform rating and $28 target and added shares to its Top Picks List.
FXI rallied 6% to a record. FXI is an index fund that seeks investment results that correspond generally to the price and yield performance of the FTSE/Xinhua China 25 Index. FXI was recently up $10.29 to $153.94. FXI September option implied volatility was at 53 above its 26-week average of 30 according to Track Data, suggesting larger risk.
CHL, a global wireless carrier with 301 million subscribers, was recently up $3.77 to $67.65. CHL September option implied volatility of 47 was above its 26-week average of 33 according to Track Data, suggesting larger price risk.
Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
.gif){kind=logo}
.gif){kind=logo}
.gif){kind=logo}
.gif){kind=logo}
According to management at the world's largest cellular carrier, .gif){kind=logo}
iShares Trust FTSE/Xinhua China 25 Fund
Before the bell: Wall Street headed higher; automakers, retailers in focus
Waiting for the other shoe to drop: The looming credit crisis
Bet on T&A with J&J (JNJ)
