After the implosion of IndyMac Bancorp (NYSE: IMB) and news of the deterioration of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) last week, there's bound to be a certain level of trepidation as the earnings crunch begins this coming week and many big financial companies report. Here's a look at what Wall Street was expecting (see The week in preview: Expectations as the earnings crunch begins for expectations of other reporting companies.)
Analysts surveyed by Thomson Financial are expecting the following of companies to report lower earnings when compared to the same period of the previous year.
Dragged down by the challenging market conditions, many stocks have fallen under $10 lately. CNBC's Cindy Perman suggests that some of these stocks could be become good investments for traders. However, not everything that is cheap could be such a good bargain, Perman reminds us. You must always do your homework on potential investment before buying.
For example, Ford Motor (NYSE: F) fell down to around $6 compared with $38 nine years ago -- is it a good investment? Well, while the automaker revealed its plans to shift production from trucks to cars and give a boost to its turnaround plan, it also warned it won't be profitable until 2010 at the earliest.
Perman quotes several investment specialists on the matter. John Schloegel, vice president of investment strategies at Capital Cities Asset Management says, "An investment in Ford today feels like being in the wrong place at the wrong time." And Greg Womack, president of Womack Investment Advisers, advices to stay away from the sector, which doesn't look promising now, for the next three to five years to find out the "winner."
About a year ago, CIT Group Inc. (NYSE: CIT)'s shares were trading at about $61. Now, the stock price is at a lowly $8.33. In fact, in today's trading, the stock price is down about 28%.
CIT is a commercial finance company, handling such things as asset based loans, secured lines of credit, leveraged leases and so on. But with the credit crunch and the ailing economy, the business is under lots of pressure. Actually, Moody's Investors Service and Standard & Poor's downgraded CIT's debt.
The upshot: it's becoming tougher to manage short-term financings (within the commercial paper market). What's more, the credit-default swap market is much more expensive.
To deal with this, CIT has drawn down its $7.3 billion credit line. No doubt, this is a red flag. Also, the company is exploring the sale of assets.
In light of the Bear Stearns Cos. (NYSE: BSC) meltdown, investors are certainly not asking many questions. Instead, it seems the thing to do is just to dump stock.
There is some good news, though with the Dow holding up quite nicely. Perhaps it's a sign that markets are beginning to stabilize and getting out of the panic mode.
TheStreet.com's Jim Cramer tells you he wants to own companies that make stuff that gets bought no matter what and that don't have outrageous raw costs.
We are holding by the strikes, so typical of expiration week. You get a floor on Intel (NASDAQ: INTC) (Cramer's Take) for certain, maybe catch a bounce. Obviously, people listened to Intel last night when it said PCs weren't a problem, but it traded at $42 last night and I fear that it could trade lower and would be trading lower if it weren't for the $45 tug.
Here's what I am watching, though: Coke (NYSE: KO) (Cramer's Take), MO (NYSE: MO) (Cramer's Take) and the Drug Index, the DRG. As soon as everyone knows we are in a recession, then these will be bought again. I pick those because they have the least inflationary pressures. Allergan (NYSE: AGN) (Cramer's Take) holds up and Schering-Plough's (NYSE: SGP) (Cramer's Take) trying to bottom; good signs, again.
TheStreet.com's Jim Cramer says enough is enough when it comes to a company issuing stock just to cover its preferred dividends.
Someone of some responsibility has to say, "Enough."
I mean, how is it possible that CIT (NYSE: CIT) (Cramer's Take) is going to be able to issue common stock shares to pay preferred stock dividends and interest? But they will get away with it. After all, companies come public because they have too much debt and then use the common stock proceeds to pay down the debt.
So CIT will be "able" to do it. But here's a question: would you ever want to own the stock of a company that does that? How bad can it be there that they can't pay the dividends on recently issued paper?
Of course, though, the goal is to stay alive, to play for another day, because no one ever merges -- other than that pathetic deal that Bank of America (NYSE: BAC) (Cramer's Take) made because it had to and was on the hook. I call it pathetic because, ask yourself, if you didn't have any money "in" Countrywide (NYSE: CFC) (Cramer's Take) or had lent to them wouldn't you just want them to go under?
That's what this CIT move looks like. Desperation.
TheStreet.com's Jim Cramer explains why "purchased HELOC" is the next phrase to fear.
Purchased HELOC.
Get that term into your head. Home equity loans that were purchased from other originators are the scourge of the system. Any piece of paper backed by these second liens that were issued by pure mortgage originators is just a goner.
This is the paper that was generated by Fremont General (NYSE: FMT) (Cramer's Take) and NovaStar (NYSE: NFI) (Cramer's Take) and New Century Financial and American Home Mortgage and so many of the other bankrupt and walking-dead companies. It was mostly no-documentation loans paper and served as another way to tap money that was meant to be paid back when you flipped a home. It was predicated on the continued increase in value of your home.
MOST NOTEWORTHY: American Eagle, CVS/Caremark, Office Depot, WPP Group and Pixelworks were today's noteworthy upgrades:
American Eagle Outfitters Inc (NYSE: AEO) was upgraded to Outperform from Market Perform at Wachovia, as the firm believes momentum from a strong Spring/Summer can carry into the fall/Holiday seasons.
JP Morgan views CVS/Caremark Corporation (NYSE: CVS) as the most sophisticated healthcare offering, the largest PBM, and has first mover advantage. The firm upgraded shares to Overweight from Neutral.
JP Morgan also upgraded shares of Office Depot Inc (NYSE: ODP) to Overweight from Neutral based on valuation and potential turnaround.
Morgan Stanley upgraded WPP Group (NASDAQ: WPPGY) to Overweight from Equal Weight as they believe the company can still meet its profit forecasts and margin goals in a slowing global economy.
Jefferies upgraded shares of Pixelworks Inc (NASDAQ: PXLW) to Hold from Underperform on valuation as they no longer believe the risk/reward favors shorting at these levels.
Sovereign (NYSE: SOV) - September volatility Elevated at 55; above 26-week average of 28. SOV, a $90 billion financial institution with nearly 800 community banking offices, is recently down $1.20 to $17.47. SOV September option implied volatility of 55 is above its 26-week average of 28 according to Track Data, suggesting larger price risks.
CIT Group (NYSE: CIT) - September volatility of 65 above 26-week average of 29. CIT, a commercial & consumer finance company, is recently down $1.78 to $36.77. CIT September option implied volatility is at 65; above its 26-week average of 28 according to Track Data, suggesting larger risk.
Genworth Financial (NYSE: GNW) - September volatility of 38 above 26-week average of 26. GNW is a financial security company meeting the retirement, longevity and lifestyle protection, investment and mortgage insurance needs of 15 million customers. GNW is recently down .97 to $29.01. GNW September option implied volatility of 38 is above its 26-week average of 26 according to Track Data, suggesting larger risk.
Volatility Index S&P 500 Options-VIX up 4.11 to 25.33.
Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
I estimate that General Electric Company's (NYSE: GE) Commercial Finance segment is worth between $43.5 billion and $64.1 billion.
GE's Commercial Finance segment, which constituted 14.6%, 14.0%, and 14.5% of GE's consolidated revenues in 2006, 2005, and 2004, respectively, offers loans, leases, and other financial services to manufacturers, distributors, and end-users for a variety of equipment and major capital assets. These assets include industrial-related facilities and equipment; commercial and residential real estate; vehicles; corporate aircraft; and equipment used in the construction, manufacturing, telecommunications, and health care industries.
GE Commercial Finance looks to me like it's benefiting from the surge in orders for GE Infrastructure.commercial finance profits were up 18% in the second quarter. While developing countries use GE Commercial Finance to purchase capital equipment, the risk in this business is in lending to commercial and residential real estate which seems far from bottoming out.
Assuming that GE Commercial Finance generates net income of $4.5 billion in 2007, here are the range of valuations based on the Price/Earnings ratios of the following peer companies:
The New York Post has learned that Heather Pech, a senior Jones Apparel Group Inc (NYSE: JNY) executive that headed the Nine West retail chain, has left the company.
After the implosion of IndyMac Bancorp (NYSE: IMB) and news of the deterioration of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) last week, there's bound to be a certain level of trepidation as the earnings crunch begins this coming week and many big financial companies report. Here's a look at what Wall Street was expecting (see The week in preview: Expectations as the earnings crunch begins for expectations of other reporting companies.)
Dragged down by the challenging market conditions, 
About a year ago, 
and 
. He also operates 
CIT Group
TheStreet.com's Jim Cramer tells you he wants to own companies that make stuff that gets bought no matter what and that don't have outrageous raw costs.
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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)
