U.S. futures were mixed to lower early Friday morning, a day after stock markets sold off, ending at their lowest level in nearly two years. Still, with oil prices reaching another record in Asia, it's questionable whether stocks could indeed stage a recovery.
On Thursday, U.S. stocks sank to lows not seen in nearly two years after Goldman Sachs (NYSE: GS) downgraded investment banks including Citigroup (NYSE: C) and General Motors Corp. (NYSE: GM) to Sell and as Wall Street was also worried about the outlook for tech stocks as both RIM (NASDAQ: RIMM) and Oracle (NASDAQ: ORCL) reported quarterly results Wednesday, giving a tepid outlook. Topping it all were oil prices reaching $140 a barrel. The Dow Jones Industrial Average fell 358 points, or 3.03%, the S&P 500 lost 38 points, or 2.94%, and the Nasdaq Composite dropped 79 points, or 3.33%.
Usually, a day after such a selloff, buyers tend to come in, this morning we also woke up to news that oil prices climbed to a record above $141 a barrel in Asian trading, which may dampen the mood on Wall Street again. Light, sweet crude for August delivery rose as high as $141.71 a barrel before pulling back to $141.10. The previous trading record for a front-month contract was $139.89, set on June 16.
Minyanville Professor Adam Katz dares to share the kind of keen insight and actionable information you won't find in any prospectus. For more original thought, visit www.minyanville.com.
I've said it before: the second quarter is going to be the inverse of the first. Expectations going in were simply too high.
What I find interesting is that Oracle (NASDAQ: ORCL), Red Hat (NYSE: RHT) and Research In Motion (NASDAQ: RIMM) have all taken down guidance due to the sluggishness they're starting to see in their businesses.
What the Street seems to be ignoring is that the dollar has been crushed for over a year now, which means that the currency tailwind is only getting weaker as the year drags on. If one uses $1.55 euro per dollar as a benchmark, the second-quarter effect was a 14% year-over-year currency tailwind.
In the third quarter, that drops to 10%; in the fourth, it will drop to 5%. Add in macroeconomic headwinds -- along with the fact that credit markets have been pushed back into a state of mild panic -- and it's a surefire recipe for a very tumultuous back half of the year.
I'm looking hard for reasons to be optimistic, but they seem to be thin on the ground. In the information technology (IT) sector, at least, we'll likely see a meaningful budget flush at the end of the year - if only because they'll be cut in a big way starting in 2009. This means that IT managers, if they even think they might need anything over the next year or so, need to use or lose whatever's left in their 2008 budgets come the fourth quarter.
This will create an environment where people will be calling the bottom for IT in the fourth quarter - but it's more likely to be the last hurrah before the bottom drops out.
No sooner than we got used to the huge writeoffs and thought most of the fallout is behind us, that Goldman came today and whacked us on the head. "Over?" it laughed, "you wish!" It then proceeded to downgrade investment banks from Attractive to Neutral. Specifically, it downgraded Citigroup (NYSE: C) to Sell, urging investors to short sell it!
Citigroup will have another $8.9 billion in writedowns, William Tanona, the Goldman analyst said, and added Citigroup to Goldman's "Americas conviction sell" list, cutting his price target on the stock to $16 from $20. Citi shares are down 5.5%.
Merrill Lynch (NYSE: MER) has already been subject to rumors last week it would have to write down more assets. Today, the same Goldman analyst said it will likely incur $4.2 billion of write-downs in the second quarter. MER stock is down 4.5%.
At least Goldman shares have not been immune and are declining nearly 2.7% along with the rest of the investment banks and the market.
U.S. stock futures were lower early Thursday, a day after the Federal Reserve announced rates will be kept steady. Investors this morning are mostly concerned about financials following Goldman Sachs downgrades of several banks. Wall Street is also worried about the outlook for tech stocks after both RIM and Oracle reported quarterly results Wednesday and gave a tepid outlook.
On Wednesday, U.S. stocks managed to end the session with moderate gains as oil prices declined. The Federal Reserve held interest rates at 2%, saying inflation has become a higher risk to U.S. economy. The Dow industrials rose 4 points, or 0.04%, the S&P 500 added 7 points, or 0.58%, and the Nasdaq Composite rose nearly 33 points, or 1.39%.
In economic news, final first quarter GDP will be reported at 8:30 a.m. EDT, with economists expecting a slight revision upward. At the same time, weekly jobless claims is due out. Finally, at 10:00 a.m., May existing home sales figures will be released, and economists expect a small growth in sales.
Meanwhile, oil prices rose Thursday after a steep decline Wednesday following a report showing increase in U.S. inventories. Crude is back above $135 a barrel this morning as buyers came back to the market.
Yup, that pretty much sums up Oracle Corp. (NASDAQ: ORCL)'s recently delivered quarterly results. Strong. So strong, one could forget there is a slowdown in economic activity. So strong, no one remembers now Oracle's previous quarter scare (that the weak economy indeed would affect it and tech stocks). So strong, it has surpassed International Business Machines (NYSE: IBM) to become the second-largest software company in sales. It is no wonder then that the stock climbed 1.86% in after-hours trading to $22.97. It closed at $22.55.
By the numbers, Oracle's profit jumped 27% to $2.04 billion, or 39 cents a share, but excluding acquisition costs and some other expenses, profit rose to 47 cents a share. Revenue rose 24% to $7.28 billion. Oracle beat analysts' estimates on both counts. And this is just the tip of the iceberg; the results showed strength and improvement in many areas:
New software sales in the U.S. grew 22% and overall sales in the Americas, where the U.S. dominates, grew 18% after declining last quarter. Doesn't look like companies are cutting too much spending on software, does it? Keep in mind, growth in the region was indeed slower.
The segment that competes with SAP jumped 36% - a good example of Oracle's ability to bounce back.
Sales of new software licenses climbed 27% - it's amazing how Oracle managed to turn the trend on this number that concerned investors so much in the previous quarter. If that's not a good sign for future sales, what is? And if that doesn't give confidence in management and strategy, what does?
Operating margin for the quarter was 48% - better than Microsoft (NASDAQ: MSFT)'s, and that says it all.
The company, known for its acquisition strategy, closed its $8.5 billion purchase of BEA Systems Inc. in April. The acquisitions didn't just allow Oracle to grow to its second place, but gave it a diversity of products that helps it with sales and crossover sales.
One caveat: This quarter has always been known to be Oracle's best one. Still, the numbers don't lie, and this is one company that has been more than consistent.
Reporting today are the agrichemicals firm Monsanto (NYSE: MON) -- AP Preview, and after the close, software giant Oracle (NASDAQ: ORCL) and Nike (NYSE: NKE).
Reported Tuesday:
Jabil Circuit (NYSE: JBL) shares are up nearly 11% in premarket trading after the company reported its profit soared as revenue grew and costs declined, topping third-quarter earnings estimates. Merrill Lynch upgraded Jabil from Neutral to Buy.
Red Lobster operator Darden Restaurants (NYSE: DRI) shares are up 1.9% in premarket trading after it also topped quarterly earnings estimates, postinga higher quarterly profit, boosted by the Olive Garden chain, and lower costs that helped raise operating profit at its Red Lobster chain.
Meanwhile Pier 1 Imports (NYSE: PIR) shares were also nearly 5% higher in after-hours trading Tuesday after the retailer said it abandoned plans to take over rival home furnishings retailer Cost Plus (NASDAQ: CPWM) for $88 million.
Oracle (NASDAQ: ORCL) is scheduled to report Q4 EPS on June 25.
Friedman Billings says: "Our checks suggest ORCL benefited from strong seasonal trends that enabled the database business to put together strong results and the applications business to bounce back nicely."
ORCL July option implied volatility of 38 is near its 26-week average according to Track Data, suggesting non-directional price movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Oracle (NASDAQ: ORCL) shares are falling today after the company announced it has agreed to buy Skywire Software, a software business that helps insurers manage policy sales and processing. Terms of the deal were undisclosed. 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 ORCL.
After hitting a one-year low of $18.18 in February, the stock hit a one-year high of $23.57 earlier this month. This morning, ORCL opened at $22.31. So far today the stock has hit a low of $21.83 and a high of $22.41. As of 12:45, ORCL is trading at $21.90, down 0.20 (-0.9%). The chart for ORCL looks bullish and steady, while S&P gives the stock its highest 5 Stars (out of 5) Strong Buy rating.
For a bearish hedged play on this stock, I would consider a September bear-call credit spread above the $25 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 a 7.5% return in three months as long as ORCL is below $25 at September expiration. Oracle would have to rise by more than 13% before we would start to lose money. Learn more about this type of trade here.
ORCL hasn't been above $23 at all in the past year and has shown resistance around $23.50 recently. This trade could be risky if the company's earnings (due out on 6/25) are a positive surprise, but even if that happens, this position could be protected by resistance ORCL might find around $23 where the stock topped out earlier this month.
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 ORCL.
Not many software companies can survive 30 years. But, that's what Oracle (NASDAQ: ORCL) has been able to do.
In fact, according to a cover piece in Barron's [a paid publication], it looks like the company may be poised for continued success.
The company's CEO and co-founder, Larry Ellison, is a legend in the software business. He has battled with biggies like IBM (NYSE: IBM), SAP (NYSE: SAP) and Microsoft (NASDAQ: MSFT). He has also conquered a variety of database operators.
But, Ellison has also been bulking up his company with savvy acquisitions, such as PeopleSoft, Siebel and BEA Systems (spending over $30 billion on dealmaking since 2005). Basically, he believes that business software is a fairly mature business and needs consolidation. What's more, the business is highly sticky. That is, once you implement an ERP system or database platform, it's pretty tough to make a change.
So far, the results have been solid. Over the past year, operating margins have gone from 36% to 42%. Then again, Oracle has benefited from economies of scale, such as with R&D, sales, customer support, and so on.
What's more, Oracle has lots of cross-sale opportunities. In fact, software licenses are up 29% to $4.4 billion. Keep in mind that this will be a source of future growth because of the ongoing maintenance fees.
Several years ago, Oracle (NASDAQ: ORCL)'s CEO, Larry Ellison, said there were too many software companies, and that as a result, there would be a trend towards consolidation.
However, with the credit crunch – and the slowing economy – things have gone off track somewhat. But now we may see more dealmaking.
Take a look at NetManage (NASDAQ: NETM). The company has been "in play" for a while. Last year, Rocket Software tried to buy the company for $69 million, but the deal fell-through because of difficulties with obtaining financing.
Well, NetManage was able to find a new suitor, Micro Focus International, and both parties recently agreed to a $73.3 million buyout deal.
NetManage has a strong set of technologies that deal with integration and web services. The company has also been revamping its platform. In Q4, the company posted a 27% increase in revenues to $10.9 million and net income came to $1.7 million, or $0.17 per share.
Micro Focus, though, is probably more interested in NetManage's customer base, which is about 10,000 or so. The company cranks out about $22 million in maintenance fees, which are fairly reliable and high margin.
And despite the recent improvement with NetManage, the company still faces tough competition. So, selling out -- especially at its 70%+ premium -- makes a lot of sense.
It is always interesting to see the changes in short interest, particularly when you are right in the middle of earnings season. It seems the short sellers have gotten a little less confident on the "digital four" of the NASDAQ. In fact, the only one of the four that saw an increase was only a tiny increase.
As you will see below, the major components of the NASDAQ top digital companies saw real short covering ahead of earnings. Keeping conviction against stocks is frequent, but the lessons of eternal pessimism have historically shown to not be a winning strategy.
Microsoft Corp. (NASDAQ: MSFT) Short Interest Change Avg, Day Vol. Days to Cover 04/15/2008 109,056,265 (7.88%) 48,450,376 2.25 03/31/2008 118,383,897 (3.82%) 57,762,166 2.05
Google Inc. (NASDAQ: GOOG) Short Interest Change Avg, Day Vol. Days to Cover 04/15/2008 4,905,775 (5.84%) 5,368,787 1.00 03/31/2008 5,210,156 7.07% 6,382,427 1.00
Yahoo! Inc. (NASDAQ: YHOO) Short Interest Change Avg, Day Vol. Days to Cover 04/15/2008 36,104,797 (12.54%) 22,789,737 1.58 03/31/2008 41,280,401 (17.13%) 25,874,919 1.60
Oracle Corp. (NASDAQ: ORCL) Short Interest Change Avg, Day Vol. Days to Cover 04/15/2008 42,655,256 2.94% 34,868,017 1.22 03/31/2008 41,436,043 6.57% 51,966,613 1.00
As Oracle's earnings are still a ways out, the need for traders to cover there probably wasn't as critical as it was otherwise.
Jon Ogg is an editor and producer of the "10 Stocks Under $10" weekly newsletter for 247WallSt.com.
TheStreet.com's Jim Cramer says the good stuff out there -- and there's a lot of it -- will keep us going up.
How high can we go? That's pretty much the only question worth asking after you put in a bottom, as we did after the Bear Stearns (NYSE: BSC) (Cramer's Take) collapse.
Nobody's talking about a new bull market. But let me give you some thoughts about what has happened in the past few weeks to make it so that you could become more positive.
First, we went down so much because the systemic risk in the biggest part of the S&P, the financials, was overwhelming. It is why we "overcorrected" because the market feared -- and shorts pressed their bets -- that the following institutions could go under: Bear Stearns, Washington Mutual (WM) (Cramer's Take), Wachovia (WB) (Cramer's Take) -- yes, Wachovia, because of the miserable buy of what turned out to be a really reckless lender, Golden West -- Lehman Brothers (LEH) (Cramer's Take), Merrill Lynch (MER) (Cramer's Take), Citigroup (C) (Cramer's Take), National City (NCC) (Cramer's Take), Capital One (COF) (Cramer's Take) and even Wells Fargo (WFC) (Cramer's Take). Fannie (FNM) (Cramer's Take) and Freddie (FRE) (Cramer's Take), too.
U.S. futures were mixed to lower early Friday morning, a day after stock markets sold off, ending at their lowest level in nearly two years. Still, with oil prices reaching another record in Asia, it's questionable whether stocks could indeed stage a recovery.
Minyanville Professor Adam Katz dares to share the kind of keen insight and actionable information you won't find in any prospectus. For more original thought, visit 
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TheStreet.com's Jim Cramer says the good stuff out there -- and there's a lot of it -- will keep us going up.
Alcoa's Q2 2008 earnings transcript
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Wal-Mart might help your portfolio during the recession
