U.S. stock futures were much lower Thursday, indicating a tough start for Wall Street today -- the seventh anniversary of the 9/11 attacks. Investors sentiment was mired by concerns over the financial sector as Lehman and WaMu continue to have difficulties and braced themselves for a slew of economic reports including weekly initial claims, trade deficit for July and inflation figures for international trade for August. Meanwhile, oil declined as Saudi Arabia broke ranks on OPEC.
Lehman Brothers Holdings Inc. (NYSE: LEH) tried to calm investors Wednesday when it presented its rescue plan including the sale of its investment arm. But investors don't seem convinced and are frustrated with the company and its CEO, the longest serving CEO on Wall Street. Too much planning and intent, not enough action. After plunging 45% Tuesday, LEH stock was down another 7% or so Wednesday to $7.25 on Wednesday. They are shedding another 14.5% in pre-market trading at 7:32 am. [Update 9:00 a.m.: Following the several downgrades, Lehman shares are plunging over 40% in pre-market trading. Stock futures are drastically lower as well, indicating stock will likely open much lower.]
Washington Mutual (NYSE: WM) shares have been sharing the same fate as Lehman's lately, as they plunged to their lowest point in nearly two decades Wednesday, diving 29.7% to close at $2.32 - a 17-year low. As of 7:33 a.m., shares are declining another 2.6% in pre-market trading. WaMu is expected to have losses in its mortgage portfolio expected of $19 billion, and some believe it could be Wall Street's next casualty.
And as if that wasn't enough, The Wall Street Journalreports that there will be hearings on alleged tax shelters provided to hedge funds by investment banks including Citigroup (NYSE: C) and Merrill Lynch (NYSE: MER).
Two days before its second-quarter earnings report, lululemon athletica inc. (NASDAQ: LULU) was hit this morning with a steep price-target cut. RBC slashed its price target on LULU from $47 to $30, noting "a 200 basis-point increase in our cost of equity assumption." The analysts tempered their bearish note by reiterating an Outperform rating on the shares.
The brokerage firm's downwardly revised target represents a 64% premium to the stock's closing price Monday. By contrast, the average 12-month price target on LULU is $39.72, according to Thomson Financial. This consensus estimate is 117% higher than yesterday's close, which seems to indicate that further price-target cuts could be in the offing, particularly if second-quarter earnings fail to impress.
During the past four quarters, First Call reports that lululemon has met or exceeded analysts' per-share profit expectations every time. However, it's safe to say that nobody on Wall Street was particularly impressed by LULU's last quarterly earnings report. Since the company announced inline earnings of 12 cents per share on June 2, its shares have shed 43% of their value. Even more compelling, institutional investors have reduced their stake in LULU by a net total of 5% since last quarter.
In last week's preview we took a peek at expectations for Campbell Soup earnings, but now the company is scheduled to report fiscal fourth quarter results this coming Thursday. With Krispy Kreme also among the handful of companies scheduled to report this week, we may yet see whether consumers are turning to comfort foods in these uncertain times.
Campbell Soup Co. (NYSE: CPB), the world's biggest soup maker, is still expected by analysts surveyed by Thomson Financial to post net income of 25 cents per share (up 44.0% from a year ago) on revenue of $1.7 billion (up 7.4%). The Camden, N.J.-based company has just missed earnings estimates in the past few quarters. Its long-term EPS growth forecast is 7.9%, which is less than the industry average, but about the same as rivals Kraft Foods (NYSE: KFT) and HJ Heinz (NYSE: HNZ). The analysts' consensus recommendation is currently to buy Campbell.
Hip, Canadian apparel retailer Lululemon Athletica Inc. (NASDAQ: LULU) is also anticipated to be a big earnings gainer when it reports this week. Net income is expected to come in at 13 cents per share (up 46.2% from a year ago) on revenue of $88.2 million (up 50.3%). Lululemon met expectations when it reported 12 cents per share in the previous quarter. Its long-term EPS growth forecast is a healthy 40.2%, which is better than the industry average and that of rival Under Armour Inc. (NYSE: UA). The analysts' consensus recommendation is currently to buy Lululemon.
Citigroup upgraded shares of Amgen Inc. (NASDAQ: AMGN) to Buy from Hold and raised the target price to $70 from $50 following AMGN's better-than-expected Q2 results and positive Dmab results.
Credit Suisse upgraded Electronic Data Systems (NYSE: EDS) to Neutral from Underperform and expects the Hewlett-Packard (NYSE: HPQ) transaction to close at the $25/share price.
Analyst downgrades:
JP Morgan downgraded OmniVision (NASDAQ: OVTI) to Neutral from Overweight citing slowing growth and increased competition, as well as the impact on margins.
KeyBanc said Visa's (NYSE: V) strengths are its recurring revenue model, significant pricing power, no consumer credit risk, operating leverage, expense flexibility, and considerable free cash flow, among other reasons. The firm initiated shares with a Buy rating and $94 target.
Regal Entertainment (NYSE: RGC) was assumed at Caris with an Average rating and $18 target. The firm sees tough comps ahead for the company and does not expect any meaningful price increases.
Caris also initiated Marvel Entertainment (NYSE: MVL), as they are positive on the company's new financing vehicle. Shares were initiated with a Buy rating and $45 target.
Here's a peek at what analysts surveyed by Thomson Financial are expecting from companies scheduled to report quarterly results in the first week of June, 2008.
The following companies are expected to post earnings growth, compared to the same period in the previous year:
Take-Two Interactive (NASDAQ: TTWO) up 136.6% (from a loss) to $1.12 per share, on $499.1 million in revenue
I know, I know, with the economy sputtering, why would you ever want to be invested in an apparel company that produces expensive jeans? Let alone have it recommended by a typically short-selling trader like me! But before I tell you the name of this stock that despite the obvious economic problems -- strong oil, weak housing and the dollar, mounting foreclosure, etc -- is sitting right near all-time highs, looking to break out, let's do a quick rundown of its competitors in the apparel retail space.
MOST NOTEWORTHY: Lululemon, National City and Devon Energy were today's noteworthy upgrades:
Thomas Weisel upgraded shares of Lululemon (NASDAQ:LULU) to Overweight from Market Weight as they believe the company's momentum continues following the strong results; the firm maintains a $43 target on shares.
Bear upgraded National City (NYSE:NCC) to Outperform from Underperform citing favorable risk/reward following reports is is considering a transaction with KeyCorp (NYSE:KEY).
JP Morgan raised Devon Energy (NYSE:DVN) to Overweight from Neutral citing solid organic growth with high rates of returns.
OTHER UPGRADES:
Micron (NYSE:MU) was upgraded at Goldman to Neutral from Sell.
Merrill raised eBay (NASDAQ:EBAY) to Buy from Neutral.
Today's trading activity and major market move can be attributed to one thing and one thing only: The Federal reserve added another $100 billion to the monetary system. What made it so powerful is that the Fed also is allowing AAA/Aaa rated "private label" mortgages rather than just conforming loans to tap the funds and it included all primary dealers rather than just member banks.
What's even more amazing is that the market actually strengthened through the end of the day. The market cheered with huge gains as seen below:
DJIA 12,156.81 (+416.66; +3.55%)
S&P500 1,320.65 (+47.28; +3.71%)
NASDAQ 2,255.76 (+86.42; +3.98%)
10YR-T-BOND 3.596% (+0.158%)
Of the Money Center banks, Wachovia Corp. (NYSE: WB) rose the most of all with a gain of 13.7% to $29.78. lululemon athletica Inc. (NASDAQ: LULU) shares soared a monster 20% to $25.15 after the stock was raised to Outperform at Credit Suisse. Imagine how well it could do if they'd properly capitalize their name (see TOP 10 Pre-Market Calls).
A small company called Access Integrated Technologies, Inc. (NASDAQ: AIXD) saw shares surge by almost 17%, after being up almost 30%, with a $2.92 close after it announced a major deal with four of the major studios for in-theater upgrades over the next 3-years.
Despite a strong day, there were several stocks that rode into 52-week lows. Of the DJIA components, Boeing Co. (NYSE: BA) was the only one of the 30 components that saw shares close down for the day. Maybe protesting that huge air fuel tanker contract wasn't the best choice.
Watch out for World Wrestling Entertainment Inc. (NYSE: WWE) as Jim Cramer will host CEO Linda McMahon on CNBC's MAD MONEY tonight. Will she give him a smack-down?
MOST NOTEWORTHY: DiamondRock Hospitality, Pzena Investment and Vodafone were today's noteworthy upgrades:
DiamondRock Hospitality (NYSE: DRH) was upgraded to Outperform from Neutral at Baird, citing the newly-announced 4.8M repurchase plan, strong balance sheet and valuation.
Keefe Bruyette upgraded shares of Pzena Investment (NYSE: PZN) to Market Perform from Underperform after the company announced February ending AUM.
Goldman added Vodafone (NYSE: VOD) to its Conviction Buy List following the recent weakness as they expect the company to benefit from growth in wireless data.
Ford Motor Co. (NYSE: F) shares are down over 3.5% in premarket trading after the carmaker shares were downgraded by Citigroup from Hold to Sell.
Also, today car manufacturers will release February auto sales figures. A a large decline is expected for the month when compares to year ago sales due to consumers scaling back on discretionary spending as a result of economic conditions. Analysts expect total U.S. auto market is expected to fall some 7% from a year ago. General Motors Corp. (NYSE: GM) sales may decline 14%, Ford's could decline as much as 16% and Chrysler should post 19% lower sales, according to a Goldman Sachs analyst.
Ars Technica surveyed stores across the U.S. over the weekend and found that supplies of Apple (NASDAQ: AAPL)'s recently released MacBook Air is thin to nonexistent. Even shipping times for models bought on Apple's website are 5-7 days with some markets like Boston, Chicago and New York City, San Francisco and Los Angeles store are out of stock. Could it be that the MacBook Air will surprise investors with much higher sales? [Via Fortune].
Meanwhile Bank of America lowered Apple's price target from $180 to $160, keeping its Buy rating on the stock.
One of the first things you learn in economics is that incentives matter -- and that if you get the incentives wrong, the results can be, well, interesting. Exhibit A: the subprime mess.
In an interesting column in this weekend's Wall Street Journal, Herb Greenberg writes (subscription required) about Lululemon (NASDAQ: LULU), where the terms surrounding options grants put top executives in a position to serve the private equity backers rather than other minority shareholders who bought the shares during or after the IPO -- at a much higher price.
In the case of Lululemon, CEO Robert Meers saw some of his options vest based on when the private equity backers cashed out. According to Greenberg, "The vested amount would immediately leap to as much as 40% if private-equity investors sold; the actual amount was based on a sliding scale tied to how much they actually made."
Options that vest based on some sort of performance are great. But I'm skeptical of options that vest based on when private equity backers who paid a tiny fraction of what other investors paid for their stake in the company cash out.
I'm wary of companies taken public by private equity firms in general. The buyout shops are masters of the art of "buy cheap and sell dear," and "buying dear" tends to be a great way to lose money in the stock market.
"While this has been an ugly period for equities, we believe an above-average risk/reward opportunity presently exists for the small-cap growth market," says Jim Oberweis, Jr., monoey manager and editor of The Oberweis Report.
He adds, "P/E valuations of our universe of high growth companies are now substantially below average. Most important, our research indicates that such periods are also opportune times to buy." Here, he offers a pair of retail ideas -- Guess? (NYSE: GES) and Lululemon athletica (NASDAQ: LULU).
"While it can be difficult to seize such an opportunity in the face of overwhelming pessimism, those who unemotionally understand the math of historical valuations should reap the rewards of seeing opportunity in the current difficulty.
"In each case, uncertainty at the time led to a large market decline that resulted in stock valuations substantially below historical averages. In virtually every period in which average P/E's for high growth stocks have dropped sharply below the mean, the economic outlook was bleak. It is exactly that pessimism and uncertainty that causes investors to relentlessly sell, creating cheap valuations.
I don't care to try to predict if we're heading into recession or how bad that recession will be. I have no idea where the market will bottom or how long it will take to get there; the one thing I do know is that stocks are going to continue to get wrecked, whether or not we have a short-term bounce. Amazingly, it's been just eighteen days since I warned investors the market would drop 10% in 2008 and now we're already there. I've considered buying quality growth stocks like Mosaic (NYSE: MOS), Monsanto (NYSE: MON), Sigma Designs (NYSE: SIGM), Priceline (NASDAQ: PCLN), BE Aerospace (NASDAQ: BEAV), Vistaprint (NASDAQ: VPRT) and Lululemon (NASDAQ: LULU) on weakness, but their continued downtrending has made them falling knives, aka, too unpredictable for me.
My fellow blogger Lita Epstein has talked about picking up bargains on beaten stocks with strong fundamentals. I disagree with her. While maybe her statement applies to a precious few like Apple (NASDAQ: AAPL) and Amazon.com (NASDAQ: AMZN), I don't care how great those companies are, we're looking at a housing collapse and a massive slowdown in consumer spending which will hurt even the best of companies. For now, forget about stock picks; this is not the time for speculation. If foreign stock markets have tanked this hard on U.S. recession fears, imagine how hard U.S. stocks will get hit -- why not protect yourself and respect the downside for once?
Update: See the latest posts about stocks to buy from BloggingStocks.
After nailing the top in Apple (NASDAQ: AAPL) and warning investors this would be a painful year, I've been getting hundreds of emails from people asking me what to do next? As if suddenly after two correct predictions, I'm Nostradamus or David Blaine!
Make no mistake, I'm neither a forecaster nor a magician, I'm just a trader who bases his decisions around these key elements: a distrust of everyone and every company on Wall Street (made easier by the likes of MBIA (NYSE: MBI), E*Trade (NASDAQ: ETFC) and Countrywide Financial (NYSE: CFC); a respect, bordering on religion, for charts and a quick trigger finger if the charts turn against me. I know people want longer term predictions, but I believe those to be 100% guessing games and potentially hazard to your investment health. Pregnant women should avoid them at all costs. Just kidding, it's fine for some people, but I like to make my predictions and cash out, so I can enjoy stress-free weekends if you catch my drift.
So, here's what I see right now: two weeks in and we're already halfway to my 10%-down market prediction, and Apple is down 15% (take that you stereotypical cheerleaders, go date some football players)! The markets are definitely rolling over, and while it's usually a long, drawn-out process, the charts seem to have little concern for what's normal as all the major indices have formed perfect head-and-shoulders patterns (a very bearish sign) and investors are rightfully freaking out.
U.S. stock futures were much lower Thursday, indicating a tough start for Wall Street today -- the seventh anniversary of the 9/11 attacks. Investors sentiment was mired by concerns over the financial sector as Lehman and WaMu continue to have difficulties and braced themselves for a slew of economic reports including weekly initial claims, trade deficit for July and inflation figures for international trade for August. Meanwhile, oil declined as Saudi Arabia broke ranks on OPEC.
Two days before its second-quarter earnings report, 
In 
.gif){kind=logo}
I know, I know, with the economy sputtering, why would you ever want to be invested in an apparel company that produces expensive jeans? Let alone have it recommended by a typically .gif){kind=logo}
.gif){kind=logo}
I don't care to try to predict if we're heading into recession or how bad that recession will be. I have no idea where the market will bottom or how long it will take to get there; the one thing I do know is that stocks are going to continue to get wrecked, whether or not we have a short-term bounce. Amazingly, it's been just eighteen days since I warned investors the market would drop 10% in 2008 and now we're already there. I've considered buying quality growth stocks like 
Update: See the latest posts about 
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)
