Corporate earnings aren't that bad and are surprising analysts. Oil prices are falling just as quickly as they rose. If you are a contrarian investor, you must have a big grin on your face.
Common wisdom had it that markets were going to keep dropping, that the price of crude would hit $200 a barrel, and that bank after bank would go bankrupt. But what's happened? The opposite. Bank earnings aren't as bad a feared, crude has fallen to under $130 and suddenly investors are a bit more optimistic.
Even when we get bad news, like earnings from Apple (NASDAQ: AAPL), Texas Instruments (NYSE: TXN) and others, the market is able to hold up. Industries that just a week ago were being left for dead suddenly came roaring back to life. For investors who like to dabble in out of favor stocks, this market is a dream come true. Battered sectors such as financials, airlines, and even autos have surged over the last week. Who would have dreamed that airline stocks would actually stage a rally? What's interesting is that even with their recent move these sectors are all still trading significantly off their highs, meaning that potentially we have much more room to run.
Semiconductor company Texas Instruments (NYSE: TXN) reported results for the second quarter, and the stock sold off during the after-hours session on Monday. At one point shares were down 11%.
I can sort of see why this happened. It wasn't an exciting earnings release at all, especially in a bad market. First, the top line decreased by about 2% to $3.35 billion. Earnings from continuing operations on a diluted basis grew by only 5% to 42 cents per share. Operational cash flow declined by 42% to $520 million. Nope, not my kind of earnings release, let me tell you. Texas Instruments doesn't seem to have the right stuff in terms of bottom-line growth. Management pointed out that the challenging economy has led to weak demand. Also, let me add that, according to this article, the results missed estimates by two pennies.
I don't really want to own Texas Instruments here. If I had to buy a tech stock, I'd be more inclined to look at a Microsoft (NASDAQ: MSFT) or an Apple (NASDAQ: AAPL). Apple also reported earnings on Monday and saw its shares slide after delivering a much stronger quarter than the one delivered by Texas Instruments. That about says it all, doesn't it?
Disclosure: I don't own any company mentioned; positions can change at any time.
Again this week, in a list of earnings expectations for some prominent companies in a variety of sectors, we see an apparent optimism. That is, analysts are anticipating more earnings growth than earnings declines.
Analysts surveyed by Thomson Financial expect the following companies to report a rise in earnings when compared to the same period of the previous year.
After hitting a one-year high of $38.99 last July, the stock hit a one-year low of $26.48 on Tuesday. TXN opened this morning at $28.72. So far today the stock has hit a low of $28.03 and a high of $29.18. As of 1:05, TXN is trading at $28.65, up 0.59 (1.6%). The chart for TXN looks bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider an August bull-put credit spread below the $25 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 an 8.7% return in just one month as long as TXN is above $25 at August expiration. TI would have to fall by more than 12% before we would start to lose money. Learn more about this type of trade here.
TXN hasn't been below $26 at all in the past year and has shown support around $27 recently. This trade could be risky if the company's earnings (due out on 7/21) disappoint, but even if that happens, this position could be protected by the support the stock might find just below $27, where it bottomed over the past 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 TXN nor NOK.
"Wall Street has recently been very negative about Texas Instruments (NYSE: TXN)," notes wireless sector expert Nikhil Hutheesing. In his Forbes Wireless Stock Watch, the advisor explains, "But things may not be as dire as they sounded last month and I think that with expectations down, the company will end up exceeding expectations in the second half of this year."
"One reason Wall Street has been negiative is that TXN's biggest wireless customer, Nokia, announced a fundamental shift, stating it would no longer depend mostly on Texas Instruments for its chips. Ericsson also said it had shifted to a multi-supplier strategy.
"Besides that, in April, at TXN's earnings conference, CEO Rich Templeton talked of a cloudy economy and said that his company had become become more conservative with its outlook for the second quarter.
"Meanwhile, I've spoken with a number of experts in the wireless area who tell me that orders for TI's chips are significantly higher for the second half of this year than they have been in previous years. These orders are even coming from Nokia. (So far, Nokia's muti-supplier strategy has not had an impact on Texas Instruments.)
After hitting a one-year high of $39.63 in July, the stock hit a one-year low of $27.51 in March. This morning, TXN opened at $30.75. So far today the stock has hit a low of $30.40 and a high of $30.95. As of 12:30, TXN is trading at $30.72, down $0.61 (-2.0%). The chart for TXN looks bullish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would consider an October bear-call credit spread above the $37.50 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 four and a half weeks as long as TXN is below $37.50 at May expiration. TI would have to rise by more than 21% before we would start to lose money. Learn more about this type of trade here.
Once upon a time, there was a computer brand called Compaq. It was one of the largest sellers of PCs in the entire world in the 1980s and 1990s. Then 2002 comes and Hewlett-Packard Corp. (NYSE: HPQ) merges with the company. The end.
Well, sounds like a short-lived story, and in actuality, it was. Compaq existed for only 20 years (1982 - 2002) before being gobbled up by then-CEO Carly Fiorina of HP to make HP's market share as large as possible. Compaq was mostly thought of as a quality brand from many system administrators I talked to back in the late 1990s, although I heard more horror stories from consumers that owned Compaq PCs. Apparently, the "compatibility" and "quality" that made up the Compaq name wasn't jiving with many consumers who bought its machines.
Compaq, formed on a few dinner napkins in Houston by three former Texas Instruments (NASDAQ: TXN) executives, and became a force to be dealt with in the market for consumer PCs in the 1990s. In fact, it was one of the first manufacturers to dip its toe into making sub-$1,000 PCs, which are now commonplace with every PC manufacturer. The Deskpro, Systempro and Presario were all Compaq brand names, all the way until it merged with HP. HP still markets a few desktop and laptop systems as "Compaq" brands to this day, probably due to just having a few more flavors on the candy shelf for customers to choose over.
But, the name is all that remains from Compaq's 20-year history. Do you miss the company? If you owned one of Compaq's real machines (to this day), sound off below and let us know what you like and don't like about this vanished brand.
Let us know in the comments what you miss about Compaq. And be sure to check out other Companies That Have Vanished.
The Pediatric Ethics Subcommittee of the Pediatric Advisory Committee will meet at 8:30 am to discuss the application of 21 CFR 50.52 (Clinical investigations involving greater than minimal risk but presenting the prospect of direct benefit to individual subjects) to FDA-regulated research. The discussion will be illustrated with hypothetical case examples of research involving HIV vaccines in adolescents and controlled trials of inhaled corticosteroids in children with asthma.
The Pediatric Ethics Subcommittee will meet at 8:00 am to discuss the application of 21 CFR 50.52 to FDA-regulated research illustrated with a hypothetical case example of research using stem cells for treating periventricular white matter injury in children.
Cisco Systems (NASDAQ: CSCO) to hold conference call at 11:00 am to discuss business video innovation.
Texas Instruments (NYSE: TXN) shares are trading higher after Nokia (NYSE: NOK) reported that its single-chip plan is still on track despite Infineon (NYSE: IFX), a supplier for NOK, announcing yesterday that it is seeing some delays. TXN is supplying NOK with GSM single chips for its mobile handsets and may be called upon to pick up the slack during this delay. 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 TXN.
After hitting a one-year high of $39.63 in July, the stock hit a one-year low of $27.51 in March. TXN opened this morning at $32.36. So far today the stock has hit a low of $32.32 and a high of $33.00. As of 1:17, TXN is trading at $32.73, up 0.24 (0.7%). The chart for TXN looks bullish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $27.50 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 13.6% return in just five months as long as TXN is above $27.50 at October expiration. TXN would have to fall by more than 16% before we would start to lose money. Learn more about this type of trade here.
TXN hasn't been below $27.50 at all in the past year and has shown support around $32 recently. This trade could be risky if the company's earnings (due out in mid-July) disappoint, but even if that happens, this position could be protected by the support the stock might find around $28, where it found support over the past two months.
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 TXN, NOK, or IFX.
MOST NOTEWORTHY: U.S. semiconductors, Teekay Offshore and Oplink Communications were today's noteworthy upgrades:
Goldman upgraded the U.S. Semiconductor Sector, including Intel (NASDAQ: INTC) and SanDisk (NASDAQ: SNDK) to Attractive from Neutral. The firm believes semi fundamentals are poised to improve in 2H08 and that valuations are reasonable.
Wachovia upgraded Teekay Offshore (NYSE: TOO) to Outperform from Market Perform based on valuation and increased distribution growth outlook following the acquisition of an additional 25% ownership interest in Teekay Offshore Operating, L.P.
Merriman upgraded shares of Oplink Communications (NASDAQ: OPLK) to Buy from Neutral as it believes the company is an attractive takeover target following the Finisar (NASDAQ: FNSR) and Optium (NASDAQ: OPTM) merger, given its low-cost Chinese manufacturing capacity and attractive $140M cash balance.
OTHER UPGRADES:
Goldman upgraded Amazon.com (NASDAQ: AMZN) to Buy from Neutral and added shares to its Conviction Buy List.
William Blair raised Interpublic Group (NYSE: IPG) to Outperform from Market Perform.
Texas Instruments (NYSE: TXN) reported Q1 numbers Monday after the bell, and I have to say that the report was OK in a relative sense -- nothing in it compelled me to want to do much of anything about the stock. The stock was off a little less than 2% in after-hours trading.
What drove the stock lower? Revenues didn't jump too high, rising 3% to $3.3 billion. Earnings per share, however, did rise by a pretty respectable amount -- they increased 40% to $0.49 per diluted share. It should be noted, though, that this figure included a $0.06 per share tax benefit.
In terms of expectations, Texas Instruments merely met them, according to Briefing.com, plus the company's outlook for the second quarter wasn't particularly robust -- the press release indicates a cautious tone in terms of its guidance on the part of management. Apparently, Texas Instruments believes the soft economy might keep growth potential firmly in check. Taken together, these stats seemed to have added up to a lower stock price. There were, however, some positive things to note in terms of the margins -- the gross and operating margins were up on a year-over-year basis.
Texas Instruments, which competes with Qualcomm (NASDAQ: QCOM), may not have really bombed with its Q1 report, but again, I don't think there's any reason for me to buy or short the company's stock. I think there are better ideas out there in the tech sector; I continue, for instance, to find Microsoft (NASDAQ: MSFT) a stock worth some due diligence.
Disclosure: I don't own shares in any of the companies mentioned; positions can change at any time.
Here are some highlights from this past week's earnings coverage from BloggingStocks: 
So the sky isn't falling. 
This post is part of a series on some of the most memorable .gif){kind=logo}
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Here are some highlights from this past week's 
Stocks have their worst week in six years
Why haven't the Republicans said much about the economy?
Chasing Value: Are you watching WaMu?
