CNNMoney reports that General Electric Co. (NYSE: GE) is selling its appliance business. Goldman Sachs Group (NYSE: GS) is running the auction for this maker of refrigerators, microwaves and dishwashers and expects to receive between $5 billion and $8 billion for this $7 billion division of GE's $17.7 billion (2007 revenues) Industrial business unit.
I have been advocating that GE shed its ancillary businesses and this is one that makes sense to sell. I have taught several cases on the appliance industry and one of them highlights the many problems that GE's Appliance business suffered from in the 1990s thanks to the growing bargaining power of mass merchandisers, significant competition from Chinese manufacturers, and some internally inflicted wounds.
If GE Appliances was valued at the same Price/Sales ratio as Whirlpool (NYSE: WHR) -- 0.3 -- it would fetch $3.5 billion. The appliance industry average price/sales ratio is 0.7 -- which would yield GE $4.9 billion. So it looks like GE believes its appliance business is worth well more than the average appliance industry competitor. I applaud the idea of selling GE Appliances but the real gem of GE is its infrastructure business which is capitalizing on the growth of developing countries like China and India.
TheStreet.com's Jim Cramer says they won't fail, but they can't be bought yet.
What do the words "we have enough capital" mean? It means get ready for an offering. Merrill (NYSE: MER) (Cramer's Take) last week said they had enough capital. So did Citigroup (NYSE: C) (Cramer's Take). Of course they left themselves some sort of out. Merrill said it had enough "equity" capital, so it did a huge preferred deal. Citigroup stressed that it had more than it needed, but they just made you look like a moron if you bought stock the other day at $27.
But if you did buy, I have no sympathy for you, none whatsoever. I have no sympathy for you because I have said over and over again that as bank stocks go up, they must issue equity until housing stops going down. Every uptick must be met by equity if the downcycle is elongated.
TheStreet.com's Jim Cramer says they can't be profitable with this huge cost – it's time to move on.
Here's a revelation. The airline industry is disappearing right before our eyes. And it doesn't even matter. They can merge all they want, they can try to cut costs through synergy, but the business can't survive $120 oil. The variable cost is 35% of their expense. That's not tenable and it is going higher. Fares have to double to make it up. That's just not tenable. The Dreamliner's a nice savings, but this American industry won't get there in time to be saved by it.
Last week we saw the big give-up, the departure of even the longest-term investors. The stocks are signaling that most of them will have to restructure through bankruptcy. They have done it before, but this time it doesn't matter. The fare increases have to occur, and they are such that the airline structures can't be profitable. It is one of those industries that can't stay afloat without massive federal subsidies, and that can't happen.
I have hated the airline stocks ever since 1985 when I recommended Delta (NYSE: DAL) (Cramer's Take) and my clients promptly dropped 50%. I reiterate that after the tremendous declines these stocks have, they are still worth avoiding. Don't be tempted to pick up these stocks if oil "swoons" down to $115. The airlines will rally, but they will need to do every bit of financing possible if a rally occurs.
Goldman Sachs Group Inc. (NYSE: GS) shares are trading higher after Citigroup (NYSE: C) posted a first-quarter loss that managed to encourage investors. Though C lost $1.02 per share, below estimates of 95 cents per share, revenues came in ahead of targets and investors seemed to be relieved that C's report did not contain any bad surprises. This could mean that the worst effects of the credit crunch may be behind investment banks like GS and C. If you 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 GS.
After hitting a one-year high of $250.70 in October, the stock hit a one-year low of $140.27 in March. GS opened this morning at $176.91. So far today the stock has hit a low of $176.91 and a high of $181.8. As of 12:00, GS is trading at $181.12, up $9.02 (5.2%). The chart for GS looks neutral and improving slightly, 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 a July bull-put credit spread below the $130 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 4.2% return in just three months as long as GS is above $130 at July expiration. Evergreen would have to fall by more than 28% before we would start to lose money. Learn more about this type of trade here.
GS hasn't been below $140 at all in the past year and has shown support around $160 recently. This trade could be risky if the company's earnings (due out in early June) disappoint, but even if that happens, this position could be protected by the support the stock might find around $140, where it bottomed out in March. Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in GS or C.
Goldman Sachs (NYSE: GS) sure is a downer. I was starting to feel a little better about the market when it decided to say some bad things about the upcoming earnings season. Thanks a lot, Goldman! According to this Bloomberg article, Goldman believes that earnings for companies will be, overall, very bad, and that the broad market will be brought down by them. Already, reports by General Electric (NYSE: GE) and Alcoa (NYSE: AA) have rocked Wall Street -- and not in a good way, let me tell you. Goldman's David Kostin is, in fact, disagreeing with other analysts who believe that the quarter won't be so terrible; he also thinks the S&P 500 will be lower by the end of the year by perhaps 6%.
So, what does this tells us as investors? First of all, let me say that I think the guy has a point -- when you see GE miss like it did on 4/11, you've got to take notice and be on your guard. In other words, if you're planning on doing some cute buy-a-stock-just-before-it's-about-to-report trading, be extra careful! Now is not the time to take ridiculous chances with investment capital. If you are going to do it, make sure you do it with extra-safe stocks -- then again, if GE wasn't a worthwhile trade in the category I just described, what the heck qualifies for "extra-safe" this quarter? Probably not much. All of us have to realize that the recession is, most likely, real, and that stocks are going to be difficult equities to own.
Shareholders of Goldman Sachs (NYSE: GS) defeated (subscription required) a proposal to give themselves a non-binding advisory vote on executive compensation.
Here's my commentary: What the heck were they thinking? They decided that they didn't want to be allowed to say what they think about executive compensation so that the company's board of directors could take it under advisement.
CEO Lloyd Blankfein earned $68.5 million in 2007. Was that excessive? I don't know, but the company's shareholders should have their opinion heard on this matter.
At the annual meeting, Blankfein argued against the say on pay proposal, saying that it might cast "a cloud, a limitation, a restraint" over a decision that is traditionally made by the company's compensation committee -- and the high-priced consultants they hire who would likely not be rehired if they don't return with a package that the CEO is happy with.
Blankfein's argument is silly. It's a little bit like saying "There's no need to hold elections! Giving the unclean masses a voice would only confuse them. We know what's best!" And remember, the vote would have non-binding. The board could have completely ignored it.
Shame on Mr. Blankfein and shame on Goldman Sachs, but mostly shame on the big institutional shareholders who abstained and/or voted against the proposal.
Troubled savings and loan giant Washington Mutual Incorporated (NYSE: WM) will receive a $5B investment from private equity firm TPG and other investors, the Wall Street Journal reported. For now, this eliminates the possibility that it will be acquired by another financial institution such as J.P. Morgan Chase & Co (NYSE: JPM).
People close to the situation said that Delta Air Lines Inc (NYSE: DAL) and Northwest Airlines Corporation (NYSE: NWA) have revived merger talks. It is speculated, the Financial Times reported, that weak demand and high fuel costs are urging the airliners back to the table to work out a merger arrangement.
OTHER PAPERS:
Evergreen Solar Inc (NASDAQ: ESLR) is expected to announce today that it will double the size of its manufacturing facility in Massachusetts and add about 350 new jobs as part of its ongoing expansion, according to the Boston Globe.
WEB SITES:
Bloomberg reported that The Goldman Sachs Group Inc (NYSE: GS) has been the only major investment bank that has refused to reduce its leverage. In fact, Goldman's adjusted leverage ratio of assets rose to 18.6 at the end of February, from 17.5 at the end of November.
As investors, we've been bombarded over the past couple of months with negative news coming from Wall Street banks that either underwrote, invested in, or had clients who invested in bad mortgages or some derivative of them. While these firms have written down billions in assets on their balance sheets, investors like Joe Lewis, the Australian billionaire who put $1 billion into Bear Stearns (NYSE: BSC) and promptly saw his investment drop almost 100%, have been left holding the bag.
Bloomberg is out this morning with an article which details some of the fallout from this process. According to Bloomberg, after the Internet bubble burst, 39,800 jobs at big banking firms were eliminated during the same period. The number climbed to 90,000 in the next two years, according to the Securities Industry and Financial Markets Association.
While not everyone cries over millionaire bankers losing their jobs, there is certainly fallout that hurts everyone dependent on a healthy economy. One recruiter interviewed by Bloomberg predicted that the total headcount reduction could be more than 100,000 in a few years. Lawyers, realtors, and mortgage brokers are feeling the heat.
According to Bloomberg, the biggest cutters have been:
Citigroup 6,200
Lehman Brothers 4,990
Bank of America 3,650
I tend to think that from a cycle point of view, Wall Street cuts harshly only to rehire when things pick up.
Zack Miller is the managing editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund.
Morgan Stanley (NYSE: MS) reported earnings this morning that while dropped significantly, still beat Wall Streett's expectations. Citing strong equity sales and trading profits, the large investment bank impressed analysts with better-than-expected performance. Net revenues dropped 17% but things weren't quite as bad as analysts were forecasting.
In spite of fourth quarter results deemed "embarassing" by CEO John Mack, MS joins the ranks of Goldman Sachs (NYSE: GS) and Lehman Brothers (NYSE: LEH), two investment banks whose relatively benign performance in the face of very strong headwinds, has helped allay some concerns about a liquidity traffic jam for financial firms.
Bloomberg ran a story on Morgan's performance here. The same story quoted an asset manager as saying "Any business that Bear Stearns had probably has gone to someone else." At least that's some good news for the walking wounded.
Zack Miller is the managing editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund.
MOST NOTEWORTHY: Goldman Sachs, Alexza Pharma and SAP AG were today's noteworthy upgrades:
Wachovia upgraded Goldman Sachs (NYSE: GS) to Outperform from Market Perform, as they believe Goldman has a superior capital position relative to competitors and will likely benefit more than any firm from Bear Stearns' (NYSE: BSC) collapse. They have a $180-$185 target range for the stock.
Following Alexza Pharma's (NASDAQ: ALXA) Q4 report, JMP Securities said they have reduced concerns regarding Loxapine timelines and risks. The firm raised Alexza to Outperform from Market Perform.
SAP AG (NYSE: SAP) was upgraded to Outperform from Market Perform at Bernstein on valuation and a positive view on fundamentals.
OTHER UPGRADES:
Tyson Foods (NYSE: TSN) was raised to Overweight from Equal Weight at Stephens.
Citigroup upgraded Teekay Shipping (NYSE: TK) and General Maritime (GMR) to Buy from Hold.
RiskMetrics (NYSE: RMG) was upgraded to Buy from Neutral at Banc of America.
I have done these earnings previews for commercial banks and I found that most of the earnings expectations were wildly optimistic. But here goes:
Lehman: -63% from 2007's Q1 to $0.72 on March 18. First-quarter estimates have been falling on Lehman. Given Friday's announcement about The Bear Stearns Companies (NYSE: BSC) liquidity problems, Lehman's financial status will be more important than its earnings announcement.
Goldman: -61% from 2007's Q1 to $2,58 on March 18. First-quarter estimates have been falling on Goldman which has not missed earnings expectations since 2005, though the trend in estimate revisions suggests this streak is at risk of being broken.
Morgan Stanley: -55% from 2007's Q1 to $1.03 on March 20. Morgan Stanley has missed earnings expectations for two consecutive quarters. Forecasts for its fiscal first-quarter have fallen 31 cents over the past 30 days to $1.13 per share, reflecting downward revisions by more than half of the covering brokerage analysts.
Of these three, I believe Goldman is a great long-term holding. However, if it disappoints investors tomorrow, it could be available at a much lower price in the near future. If it beats expectations, however, today's close of $150 will look like a great entry point.
MOST NOTEWORTHY: Goldman Sachs, Lehman and TD AmeriTrade were today's noteworthy downgrades:
UBS downgraded Goldman Sachs (NYSE: GS) to Neutral from Buy. The firm believes liquidity problems and de-leveraging in the capital markets will get worst before they get better; UBS also downgraded Bank of New York (NYSE: BK), State Street (NYSE: STT) and Invesco (NYSE: IVZ) to Neutral from Buy.
Following Bear Stearns' (NYSE: BSC) downfall, UBS also downgraded Lehman Brothers (NYSE: LEH) to Neutral from Buy and said the company could be the "next on the list" for the confidence/liquidity crisis by some investors.
TD AmeriTrade (NASDAQ: AMTD) was downgraded to Neutral from buy at UBS and to Market Perform from Outperform at Friedman Billings. Friedman Billings downgraded TD Ameritrade citing slowing client activity as well as margin compression.
OTHER DOWNGRADES:
JP Morgan cut Portugal Telecom (NYSE: PT) to Underweight from Neutral.
Goldman downgraded Marathon Oil (NYSE: MRO) and Holly Corp (NYSE: HOC) to Neutral from Buy and removed Frontier Oil (NYSE: FTO) from its Conviction Buy List.
The Wall Street Journal reported that Siemens AG (NYSE: SI) estimated that its earnings this quarter would be dragged down by about $1.4B on weaker-than-expected performance in major business prospects.
According to the Financial Times, Bristol-Myers Squibb Company (NYSE: BMY) has reportedly made informal approaches to several potential bidders for its baby formula business, Mead Johnson, which is believed to be worth between $7B and $9B.
OTHER PAPERS:
The Telegraph reported that The Goldman Sachs Group Inc (NYSE: GS) is expected to announce a $3B writedown this week, part of which is attributable to their stake in Industrial & Commercial Bank of China. Goldman will also have writedowns of about $1.6B in its leveraged loan business.
Several union leaders are accusing General Motors Corporation (NYSE: GM) of trying to lower the wages of more positions than the company and union had agreed to under their labor contract, the Detroit News reported.
There has been plenty of banter back and forth as to whether the Federal Reserve had lost some of its gusto. Can it have a significant impact given the massive scale of the global economy? Measured by the reaction of Wall Street investors today, the answer is a resounding yes.
Wall Street has finally found a reason for a big rally. The Federal Reserve plans to pump $200 billion into the financial markets to help ease the strain from the credit crisis. The Dow Jones industrial average is up about 416 points at the 12,156 level. That's the index's biggest one-day point gain since July 24, 2002. The NASDAQ closed up 86.42 to 2,255.76 and the S&P 500 finished the day at 1,320.65 gaining 47.28.
Among some of our more closely watched stocks Google Inc. (NASDAQ: GOOG) rallied to 439.85+26.23 (+6.34%), Apple Inc. (NASDAQ: AAPL) climbed 127.39+7.70 (+6.43%)Microsoft was up 29.30+1.25 (+4.46%), Amazon.com (NASDAQ: AMZN) rose 67.15+3.68 (+5.80%), Goldman Sachs (NYSE: GS) moved up to 163.07+7.49 (+4.81%), eBay (NASDAQ: EBAY) grew to 26.41+0.69 (+2.68%), and General Electric (NYSE: GE) was up to 33.40+1.70 (+5.36%).
Todays move by the Fed implies they had seen enough data, and stories like Dow below 12,000 -- do I hear 11,000? Yes I do! to be spooked into action. No one knows what tomorrow will bring but at least for today the Fed was Big Time again!
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own EBAY and do not own any of the other stocks discussed.
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As investors, we've been bombarded over the past couple of months with negative news coming from Wall Street banks that either underwrote, invested in, or had clients who invested in bad mortgages or some derivative of them. While these firms have written down billions in assets on their balance sheets, investors like .gif){kind=logo}
There has been plenty of banter back and forth as to whether the Federal Reserve had lost some of its gusto. Can it have a significant impact given the massive scale of the global economy? Measured by the reaction of Wall Street investors today, the answer is a resounding yes.
Oil hits record $127.43 on supply concerns, raised Goldman forecast
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