TheStreet.com's Jim Cramer says you just can't be as negative as you were before the latest actions.
It's been right to be more than the average bear for months now. But if you believe that housing played some role in the downturn, then you have to believe that the latest moves are very meaningful for that trashed market.
We have had two major problems in housing: affordability and the ease and cost of mortgage money. We got news this week that ameliorated both difficulties, and we cannot sniff at them as much as it has paid to sniff at everything else that has been done.
First, the government's buy of GSE paper revives a moribund market and ends a lot of federal indecision. If you recall when the government confiscated the Fannie (NYSE: FNM) (Cramer's Take) and Freddie (NYSE: FRE) (Cramer's Take) preferreds and therefore made FNM paper more dangerous, the government at the same time said that it would make mortgage rates come down, presumably by buying a ton of Fannie/Freddie paper. Instead it made a half-hearted effort by buying about $25 billion in paper and then disappeared!
Stocks staged a comeback late in the day after swinging up this morning and then down in the afternoon. What is odd is that it was another one of those days where if you were not watching the actual index readings tick by tick, you might not know if the market was up or down because of a lack of enthusiasm. Confidence did come in a tad higher than expected. Here are today's unofficial closing bell levels:
Cisco Systems, Inc. (NASDAQ: CSCO) was down on word that it was closing most of its headquarter offices for four days around the Christmas and New Years periods as part of its cost containment. The interpretation is that there is no magic growth when there shouldn't be any reason to expect it anyway. Shares were down almost 6% at $15.47 right before the close.
Google Inc. (NASDAQ: GOOG) rose sharply on word that it is cutting many contract worker positions, but said it is not laying off full-time workers. Oddly enough, the search giant used to be measured by its headcount growth for a means of forward growth, so this rally is a bit odd even in a cost containment world. Shares were up 10% at $284.95 right before the close.
Merrill downgraded Campbell Soup (NYSE: CPB) to Neutral from Buy and expects marketing and promotional spending to limit earnings growth in 2009 and 2010. The firm lowered their target to $35 from $42.
Mechel Steel (NYSE: MTL) was cut to Underweight from Equal Weight at Morgan Stanley to reflect declining coal demand.
Friedman Billings downgraded shares of Legg Mason (NYSE: LM) to Underperform from Market Perform on liquidity concerns given the Legg Mason's leveraged balance sheet and falling EBITDA. The firm lowered their target to $7 from $11.
BHP Billiton (NYSE: BHP)dropped its $66 billionRio Tinto (NYSE: RTP) takeover bid after a year-long pursuit, citing the deteriorating economy, the rout in commodities prices and the credit-market squeeze for derailing the biggest hostile takeover. Rio Tinto shares dropped 34.6%, while BHP rose over 13.7% in premarket trading (8:04 am). At around 11:00 am, BHP stock gained about 18%, while RTP's declined over 32%.
Hewlett-Packard Co. (NYSE: HPQ) posted impressive, better-than-expected results Monday afternoon thanks to its diversified business. These included 21% growth in laptop sales, and a totoal revenue growth of 19%. Still, Wall Street doesn't have confidence in how the computer company will do as the economy worsens, and some think it will do worse than management believes. HPQ shares declined 1.3% in premarket trading (8:03 am). HPQ shares declined 6.2% as of 11 am.
Starbucks (NASDAQ: SBUX) warned yet again late Monday of an "extremely challenging" fiscal year as it forecast slumping sales. It seems that selling high-end coffee during a recession is a tricky business. For fiscal 2009, which began Sept. 29, Starbucks said it expects to see a drop in sales at coffee shops that it opened at least a year ago, extending a trend already evident in 2008. While warning of another round of restructuring, SBUX also said October store traffic has actually improved. SBUX shares declined over 5% in after-hours trading Monday. SBUX shares declined about 1% as of 11 am.
TheStreet.com's Jim Cramer says tons of stocks look like good buys, and they go down all the time.
All weekend I heard it. Stocks have gotten too cheap. Put 'em away cheap. Don't worry about 'em cheap. To which I say, stocks are only cheap if the companies make it. Stocks are only cheap if the bondholders don't claim them.
KB Home (NYSE: KBH), whose colleagues include D.R. Horton, Inc. (NYSE: DHI) and Lennar Corporation (NYSE: LEN), reported earnings for the third quarter on Friday, and as one might have expected, they weren't the stuff of Wall Street dreams. This article gives a nice summary of the release. The loss per share worsened like crazy during the quarter compared to the year-ago data. The loss this year was $1.87 per share, and that was about four times the amount lost in the year-ago period. One thing to keep in mind, however, is that, on a non-GAAP basis in the previous year, the loss was $6.19 per share. The disparity here was caused by the addition of gains from discontinued operations in Q3 2007. No matter, expectations were for $1.22 per share for the current quarter, so KB Home nevertheless missed by a wide margin.
What fascinates me about KB Home is how the stock rebounded from its intraday low. I expected to see the shares in the dumps as I began to write this piece. Interestingly enough, as of this writing, shares are actually up over 1%! I wasn't the only one to notice this phenomenon. Dividend.com also mentioned how interesting the strong price action has been. In fact, at the time of this writing, AOL Finance says that KB Home's stock is up over 16% for the three-month period and up over 20% for the one-month period. What is this telling me? Does this mean I should buy the stock? I also should point out that the stock is not languishing at the 52-week low, either.
Well, it would have been pretty scary to buy KB Home at the 52-week low. But, I say it is kind of scary to buy KB Home now. If you think there is strength with this stock, then I say, at the very least, you've got to wait until it comes down before even thinking of buying. I just can't get myself to consider this homebuilder after seeing it miss estimates. Plus, we aren't out of the bad housing slump yet. The price action does give me pause, and I concede that you have to consider the effect of the discontinued operations on last year's earnings number. Still, it is my opinion that staying away from KB Home is best for now. The final decision, however, is yours.
Disclosure: I don't own any company mentioned; positions can change at any time.
Lennar (NYSE: LEN - option chain) shares are falling today after the company reported had significantly smaller losses in this year's third quarter this year than last. EPS missed estimates by four cents but revenues beat estimates as cost-cutting measures helped the bottom line. Even as revenues were less than half of last year's figure, the EPS went from a 3.25 loss to just 0.56 per share. 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 LEN or one of the other home-builders that has yet to report.
This morning, LEN opened at $13.60. So far today the stock has hit a low of $12.95 and a high of $14.30. As of 1:00, LEN is trading at $12.95, down $0.79 (-5.8%). The chart for LEN looks bullish and S&P gives LEN a neutral 3 STARS (out of 5) hold ranking.
For a bearish hedged play on this stock, I would consider a November bear-call credit spread above the $17.50 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 an 8.7% return in nine weeks as long as LEN is below $17.50 at November expiration. Lennar would have to rise by more than 34% before we would start to lose money. Learn more about this type of trade here.
Stock futures are somewhat lower this morning, indicating another possible down start on Wall Street as investors await to hear Bernanke and Paulson explain the details of the $700 billion bailout plan. Meanwhile, after oil's record one-day gain Monday, it fell below $108 a barrel Tuesday. And yet another group, this time the National Retail Federation, said holiday sales are expected to grow at the slowest pace in six years for the obvious reasons from housing to job concerns.
Circuit City Stores Inc. (NYSE: CC) CEO Philip J. Schoonover is finally stepping down, no doubt to many releif sighs around the Street. James A. Marcum will replace the resigning CEO and Allen B. King will become Circuit City's new chairman. Shares are actually shooting up over 11% in pre-market trading.
Lennar Corp. (NYSE: LEN) reported a narrower third-quarter loss as it cut costs, but revenue fell by more than half amid a prolonged housing slump. The homebuilder's earnings were below estimates, while revenue beat analysts' number.
Bristol-Myers Squibb Co. (NYSE: BMY) sweetened its offer for ImClone Inc. (NASDAQ: IMCL) to $62 per share. Almost two weeks ago, though, Icahn said he had a $70 per share offer from an undisclosed company. If it wasn't an imaginary bid, it's hard to see why IMCL would go with BMY's offer. In the meantime, however, as the unidetified pharma examines IMCL, the latter keeps delaying giving an answer to BMY. IMCL shares are up over 6.5% to $63.25 in pre-market trading, indicating investors expect BMY's offer to be sweetened again.
Earnings reports continue to dribble in as the quarter winds down. Much of the attention this week will be on homebuilders KB Home (NYSE: KBH) and Lennar Corp. (NYSE: LEN) as investors look for any sign that the housing sector has bottomed (home sales numbers are also due out this week; see below). Analysts surveyed by Thomson Financial anticipate that both companies will report that they narrowed their losses in the most recent quarter.
KB Home's expected $1.25 per share loss, on revenue of $725.5 million, compares to the previous quarter loss of $3.30 and to a year-ago loss of $6.19. However, KB Home's losses in the past few quarters have been deeper than expected. The Los Angeles-based homebuilder's long-range earnings growth forecast is 10.5%, less than the S&P 500. Analysts continue to recommend holding KB Home, and have for at least 120 days. Shares, however, reached a new 52-week high of $31.69 on Friday, and they are up 10.5% year to date.
Lennar is expected to post a loss of 52 cents per share, on revenue of $1.1 billion. That compares to the previous quarter's per-share loss of 76 cents and to a year-ago loss of $3.25. While Lennar also has tended in the past few quarters to miss expectations, the Miami-based company managed a positive surprise in the first quarter of 2008. Lennar's long-range earnings growth forecast is 10.3%, about the same as KB Home's. Analysts also recommend holding Lennar. Friday, shares of Lennar also reached a 52-week high, $27.75, but they are down 6.4% year to date.
Are you waiting for the malaise in the housing market to finally lift? Of course you are, who isn't? I can't wait for the day when headline news suddenly turns unambiguously positive. And I can't wait for the day when the market as a whole decides to anticipate it. For now, though, we've still got sour data to contend with. According to this article, famous luxury home-builder Toll Brothers (NYSE: TOL), whose competitors include Centex (NYSE: CTX) and Lennar (NYSE: LEN), reported preliminary results for the third quarter on Wednesday that showed a big decrease in home-building revenues. They decreased 34%, coming in at roughly $796 million. Seems par for the course, all things considered.
But there are more declines. Backlog orders decreased over 50%, and net signed contracts took a dive of 35% (both of these metrics are in dollar terms). The company is also issuing write-downs that will fall somewhere between $100 million and $200 million. Depressing stats, but according to the company press release, CEO Robert I. Toll believes that there is pent-up demand lurking out there in the marketplace for homes and he used the fact that total cancellations were down during the quarter as a tool for positive spin. Plus, the home-building revenue number did, in fact, beat estimates, according to Reuters. Does this make me want to run out and buy the stock?
No. Even though the stock has been strong in the last month, and even though it was up nearly 1% at the end of the trading session on Wednesday (a pretty nice showing on an otherwise overall downer of a day), I don't think I'm ready to initiate a position in Toll Brothers. I'd have to see a significant pullback in this one before my interest becomes piqued (some better economic news wouldn't hurt, either).
Disclosure: I don't own any company mentioned; positions can change at any time.
MOST NOTEWORTHY: CSG Systems, Bankrate and Intercontinental Exchange were today's noteworthy upgrades:
Citigroup upgraded shares of CSG Systems (NASDAQ: CSGS) following the company's Comcast (NASDAQ: CMCSA) contract renewal to reflect increased visibility and an attractive cash flow yield. The firm raised their target price to $18.50 from $15.
Roth Capital upgraded Bankrate (NASDAQ: RATE) to Buy from Hold citing valuation, the company's announced stock repurchase program, and expectations for some gross margin expansion in 2H08.
BMO Capital upgraded Intercontinental Exchange (NYSE: ICE) to Outperform from Market Perform as they believes the threat of negative legislation to ICE's business has declined sharply in recent days and that current valuation is factoring a much worse outcome than is likely.
OTHER UPGRADES:
Lennar (NYSE: LEN) was upgraded at UBS to Neutral from Sell.
eHealth (NASDAQ: EHTH) was raised to Perform from Underperform at Oppenheimer.
Nike (NYSE: NKE) was raised to Positive from Neutral at Susquehanna.
TheStreet.com's Jim Cramer says our problems are so widespread, he sees lots more IndyMacs before we're out.
You don't need me to tell you it's awful out there. You don't need me to tell you that there's no quick fix for any of these things. But what might help you understand why it feels so bad this time is that I have never, in my career, seen so many companies go off track at the same time. This is one unbelievable moment, and it is made more horrible by the day as companies' stocks just get pummeled, causing people to then question the very viability of the companies involved.
First, obviously, are Fannie Mae (NYSE: FNM) (Cramer's Take) and Freddie Mac (NYSE: FRE) (Cramer's Take). We don't know what will happen, but we do know that their futures are much darker than their pasts. Their best hope: a Democrat becomes president and shows the usual love to both. But as investments, they are pretty much perma-losers going forward. The losses are that heavy. Yes, it is true that two years from now they will be better, but will the government let them limp through to that? View them as calls on a Democratic win.
We all know that Citigroup (NYSE: C) (Cramer's Take), Wachovia (NYSE: WB) (Cramer's Take), Washington Mutual (NYSE: WM) (Cramer's Take) and National City (NYSE: NCC) (Cramer's Take) are in trouble. Bank of America (NYSE: BAC) (Cramer's Take) says it isn't in trouble, but obviously the market doesn't believe management because the stock failed to rally when it said its dividend was safe. Any short-selling hedge fund could hire 30 actors and have them line up at a Washington Mutual or two and get a bank run going. Then we would have to hear about a "hasty" Treasury department plan to bail out WM. Hasty? How can these guys not see it coming?
Genentech Inc. (NYSE: DNA) said Monday its profit rose 5% on sales of its blockbuster cancer drugs to $782 million, or 73 cents per share. Excluding charges, the company earned 82 cents per share. Revenue rose 8% to just under $3.24 billion. The results did not meet analysts expectations, according to Thomson Financial, expected profit of 86 cents per share on revenue of $3.23 billion. The biotechnology company raised its full-year outlook on expectations for additional sales gains, allowing shares to trade 1.4% higher in premarket action.
The downgrades in financials continue. While Wachovia itself has been hit with downgrades two days in a row now,it cut AIG (NYSE: AIG) stock to Market Perform from Outperform. AIG shares are declining over 6.3% in premarket trading.
Staying with financials, the faith of Lehman Brothers (NYSE: LEH) is all but certain these days. LEH shares plunged some 40% in the past five days alone (81% yea-to-date) following speculation about clients leaving and a reported search for new strategic options. But can Lehman find any bidders? With employees controlling around 30% of the stock this would be a more difficult deal than usual. But as Lehman is being compared lately to Bear Stearns, the brokerage firm may not have much choice. LEH shares are declining yet another 2.4% in premarket trading after sinking over 14% Monday.
For the quarter ended May 31, Los Angeles-based KB Home reported a loss of $255.9 million, or $3.30 per share, compared to a loss of $148.7 million, or $1.93 per share, in the same period of the previous year. This includes a charge of $176.5 million against unsold homes and to abandon some land option contracts.
Revenue tumbled 55% to $639.1 million, driven by lower housing and land sales. Analysts polled by Thomson Financial had expected a loss of 94 cents per share on revenue of $691.3 million.
As of May 31, KB Home's backlog of homes yet to be delivered was 6,233 units, down 54% percent from the same quarter last year. Unit deliveries, meanwhile, fell 41% to 2,810 as the company attempted to scale back its inventory of homes on the market.
KB Home said its cancellation rate was 27%, down from 34% in the year-ago period and 53% in the first quarter, but new orders during the quarter fell 42% from a year ago to 4,200.
Stocks staged a comeback late in the day after swinging up this morning and then down in the afternoon. What is odd is that it was another one of those days where if you were not watching the actual index readings tick by tick, you might not know if the market was up or down because of a lack of enthusiasm. Confidence did come in a tad higher than expected. Here are today's unofficial closing bell levels:
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Stock futures are somewhat lower this morning, indicating another possible down start on Wall Street as investors await to hear Bernanke and Paulson explain the details of the $700 billion bailout plan. Meanwhile, after oil's record one-day gain Monday, it 
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On Thursday, home builder 
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)
