Minyanville's top dog, Todd Harrison, dares to ask in public what Wall Street types quietly consider in private. For more insight and ideas, visit www.Minyanville.com.
If the next generation Apple (AAPL) iPhone is effectively a handheld computer, is the personal computer space a place to poke on the short side?
What's the franchise value for Sun Microsystems (SUNW, er, JAVA)?
Maybe that's the problem. In this ADD, immediate gratification world, perhaps folks don't remember that JAVA used to be SUNW?
In addition to the note that when I unwind my short crude I'm goning to sneak out of my long metal play, too?
While I grabbed some tertiary financial exposure this morning, why is "Good traders know how to make money while great traders know how to take a loss" repeating in my keppe as I watch the action and overhang in Lehman (LEH)?
Speaking of ticker symbols with G's in the front and I's behind, when do I revisit Gannett (GCI), which I pared nicely above $30 and kept some for the thesis?
Hewlett-Packard Co. (NYSE: HPQ) has just stolen a key global sales head from competitor Sun Microsystems Inc. (NASDAQ: JAVA). Don Grantham has joined HP as chief sales officer after resigning recently from Sun. Sun CEO Jonathan Schwartz indicated that Grantham went to HP to help that company secure a Sun Solaris license before HP's acquisition of EDS Corp. (NYSE: EDS) was completed. Schwartz was seen grinding his teeth shortly thereafter as well.
Sun, which continues to sell its servers and software quite well, but is also not growing like many of its competitors (mainly HP) is undergoing a shakeup in its DNA. The company is forming a new "Emerging Markets" sales territory to take advantage of the huge growth occurring in China, India and related countries. It's 2008 though -- this is something that should have happened a few years ago. Even Dell Inc.'s (NASDAQ: DELL) efforts last year to eke out more sales from that region have proved successful recently. Sun is just now figuring this out?
Meanwhile, Sun saw a loss in its most recent quarter, but did see growth in those regions where it is now forming a sales territory to concentrate on that area. Grantham will have ultimate responsibility for this, and if his lieutenants can implement Sun's free software model (running on Sun's servers with Sun's support) in India and China, then Sun may have some bright quarters soon. HP and Dell won't be sitting idly by though, both companies are already heavily invested in the region. Sun will have some catching up to do.
After hitting a one-year high of $25.04 in November, the stock has fallen and is trading near its year low today. This morning, JAVA opened at $12.63. So far today the stock has hit a low of $12.50 and a high of $12.85. As of 12:20, JAVA is trading at $12.66, down 48 cents(-3.6%). The chart for JAVA looks bearish and steady while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bearish hedged play on this stock, I would consider an October bear-call credit spread above the $15 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 15.6% return in five months as long as JAVA is below $15 at October expiration. Sun would have to rise by more than 15% before we would start to lose money. Learn more about this type of trade here.
JAVA hasn't been above $15 since it fell sharply in early May and has shown resistance around $12.50 recently. This trade could be risky if the company's earnings (due out in late July) are a positive surprise, but even if that happens, this position could be protected by resistance JAVA might find at its 50 day moving average, which is currently around $15 and falling.
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 JAVA.
Workers at U.S. auto parts maker American Axle & Manufacturing Holdings (NYSE: AXL) are set to return to work next week after approving a new four-year contract that contains steep pay cuts and other concessions. The three-months strike crippled crippled production at a General Motors (NYSE: GM) plant.
Six Flags Inc. (NYSE: SIX) said it will cut ticket prices by $10 at its St. Louis park as customers are cash strapped these days due to the tightening economic conditions and rising prices for everyday commodities. Meanwhile, Fitch Ratings downgraded some of Six Flags Inc.'s ratings and put them on Ratings Watch Negative due to a proposed notes exchange.
UAL Corp. (NYSE: UAUA) unit United Airlines and US Airlines Group (NYSE: LCC) are postponing the launch of new China routes because of high fuel costs after gaining approval for this coveted route only a few months ago.
Gawker reports that Ben Mezrich, a Harvard graduate and author of a 'non-fiction' account of MIT students making it big in Las Vegas, has received a million dollar contract to write a book about Facebook. Mezrich's book proposal claims that his source co-founder, Eduardo Saverin, anticipated a Fall 2008 IPO for Facebook. But Facebook denies the claim. To go public this fall, Facebook would have had to register by now.
Here are some other story elements from Gawker:
Founder Mark Zuckerberg and Severin started Facebook to help get into an exclusive Harvard Final club
They also thought Facebook would boost their social life
In high school, Zuckerberg got on an FBI list for accidentally hacking into a government site
Zuckerberg and Severin "ate koala on the yacht of the CEO of Sun Microsystems" (NASDAQ: JAVA)
Meanwhile Zuckerberg has sued Saverin, claiming "Saverin tried to hijack the company by freezing its bank account when Facebook desperately needed cash in its formative months." And Saverin countersued for a return on his initial investment.
MOST NOTEWORTHY: Staples, Evergreen Solar and Genzyme were today's noteworthy upgrades:
Jefferies upgraded shares of Staples (NASDAQ: SPLS) to Buy from Hold following the company's raised bid for Corporate Express based on the increased chance the deal gets deal done and SPLS achieves meaningful EPS accretion.
Jefferies also raised Evergreen Solar (NASDAQ: ESLR) to Buy from Hold on valuation, as they believe concerns regarding capital needs are now priced into the stock and that the company continues to take risk out of its growth story through execution.
Bernstein upgraded Genzyme (NASDAQ: GENZ) to Outperform from Market Perform citing increased confidence in GENZ's product portfolio, geographic and therapeutic diversification, improved outlook, and valuation.
OTHER UPGRADES:
Sun Microsystems (NASDAQ: JAVA) was raised to Outperform from Market Perform at Wachovia.
BearingPoint (NYSE: BE) was upgraded at Goldman to Neutral from Sell.
Lehman upgraded Nexen (NYSE: NXY) to Overweight from Equal Weight.
Oppenheimer & Co reiterated its "outperform" rating on STEC (NASDAQ: STEC) saying that "We remain bullish on STEC's unfolding solid state drive (SSD) story and see further room for shares to run," according to the AP.
Wachovia upgraded Sun Microsystems (NASDAQ: JAVA) from "market perform" to "outperform," according toBriefing.com The news service also writes that Bernstein has downgraded EDS (NYSE: EDS) to "market perform" to "outperform."
Cisco Systems (NASDAQ: CSCO) shares are falling after an analyst at Barron's expressed concern over CSCO's Q3 earnings (subscription required). In a column in Barron's, the analyst said that after considering disappointing earnings from competitor Sun Microsystems (NASDAQ: JAVA), he is worried that CSCO will not meet revenue growth expectations. CSCO reports Tuesday after market close. 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 CSCO.
After hitting a one-year high of $34.24 in November, the stock hit a one-year low of $21.77 in February. This morning, CSCO opened at $26.46. So far today the stock has hit a low of $26.15 and a high of $26.71. As of 12:35, CSCO is trading at $26.32, down $0.43 (-1.6%). The chart for CSCO 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 a July bear-call credit spread above the $30 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 4.6% return in eleven weeks as long as CSCO is below $30 at July expiration. Cisco would have to rise by more than 14% before we would start to lose money.
CSCO hasn't been above $30 since November and has shown resistance around $27 recently. This trade could be risky if the company's earnings (due out tomorrow after the close) are a positive surprise, but even if that happens, this position could be protected by resistance CSCO might find at its 200 day moving average, which is currently around $28 and falling.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in CSCO or JAVA.
Today started out as one of those positive days again as the investment climate appeared to be getting better. Then the unemployment data came out, and frankly it wasn't really as bad as one would expect. But shortly after 10:00 AM, we saw profit takers come into the market. In fact, even oil traders ran oil up after shorts covered after a good week of selling Texas Tea; oil closed up $3.82 at $116.34.
Below are the unofficial closing levels for major US index levels:
DJIA 13,051.36 (+41.36; +0.32%)
S&P500 1,413.96 (+4.62; +0.33%)
NASDAQ 2,476.14 (-4.57; -0.18%)
10YR-TBond 3.845% (+0.096)
Agrium Inc. (NYSE: AGU) was a winner with shares up almost 5% at $82.25 in the last minutes of the day. The agricultural nutrients supplier beat earnings, and this gave some pause to the selling in the potash and fertilizer stock selling that had been seen this week.
MOST NOTEWORTHY: Dynamic Materials, Allergan and Sun Micro were among today's noteworthy downgrades:
Dynamic Materials (NASDAQ: BOOM) was downgraded to Neutral from Overweight at J.P. Morgan following the Q1 report based on margin risk from steel costs and availability.
Allergan (NYSE: AGN) was downgraded to Hold from Buy at Jefferies ahead of the Q1 report on May 7 based on potential deceleration in Botox and breast implants, which could result in multiple contractions.
Sun Microsystems (NASDAQ: JAVA) was downgraded to Peer Perform from Outperform at Bear, citing the disappointing earnings report for the downgrade.
OTHER DOWNGRADES:
ManTech (NASDAQ: MANT) was downgraded to Neutral from Outperform at Cowen based on valuation and expectations for decelerating growth in 2H08.
Silver State Bancorp (NASDAQ: SSBX) was downgraded to Sell from Hold at Sandler O'Neil.
Sun Microsystems (NASDAQ:JAVA) has not done much right in the last few years. The company replaced founder Scott McNealy as CEO with Jonathan Schwartz who wears a ponytail and writes a blog.
The promised turnaround at Sun fell apart as the company announced lower sales and a loss. At the server firm, revenue for the third quarter of fiscal 2008 was $3.266 billion, a decrease of 0.5% as compared with $3.283 billion in the same quarter a year ago. Sun posted a net loss for the quarter of $34 million, or 4 cents per share, as compared with net income of $67 million, or 7 cents per share, last year.
Sun's plans to compete with the likes of IBM (NYSE:IBM) and other larger rivals have fallen apart. According to the company, the economy has not helped.
Sun may blame the economy, but it has run out of excuses. It will fire another 2,000 or so employees. Schwartz should be among them. The company's board should have difficulty viewing him as a viable leader, but it has made the great mistake of doing nothing.
Sun's shares traded below $14 after hours yesterday, which would put them under their 52-week low. The company's performance is humiliating and it is a sad fact that so many people have to pay for the inability of Schwartz to keep his promise of making the company a viable competitor.
The market hasn't seemed to have fully made up its mind yet regarding Wednesday's Federal Reserve announcement about its policy. While stocks shot up immediately after the announcement, markets finished the Wednesday in the red. Still, this morning stocks futures edged higher as investors not only continued to digest the news, but awaited several more economic reports. The Bank of England saying the worst of the credit crisis may be over, definitely helps boost sentiment this morning.
Indeed, stocks ended Wednesday's session lower despite the Dow topping 13,000 briefly after the Fed's statement. It seemed also investors were divided, some preferring the Fed to signal clearly a pause in rate cuts so the dollar would gain strength and halt the rise in commodity prices and hence inflationary pressures. Meanwhile others were more concerned about the economy and perhaps preferred either a more positive language regarding the economy or indications of further measure. Regardless, the Dow Jones Industrial Average fell 11.81 points, or 0.09%, and the S&P 500 index shed 5.35 points, or 0.38%. The Nasdaq dropped 13 points, or 0.55%.
On the economic calendar for Thursday are the March figures for personal income and spending, which includes a key inflation measure. The ISM index for manufacturing activity also is on tap as well as construction spending. The weekly jobless claims is due before the opening bell, but April jobs report is due tomorrow, and that will likely affect markets the most.
MOST NOTEWORTHY: Garmin, Thomson Reuters and Heritage-Crystal Clean were today's noteworthy initiations:
Garmin (NASDAQ: GRMN) was initiated with a Neutral rating at JP Morgan. The firm sees risk to 2008 Street estimates given the consumer slowdown in the U.S. and potential ASP and margin pressure as channel inventory is worked down.
Morgan Stanley assumed Thomson Reuters (NASDAQ: TRIN) with an Underweight rating and expects revenue growth in the company's financial business to slow sharply into 2009.
William Blair believes Heritage-Crystal Clean (NASDAQ: HCCI) has the opportunity to gain market share over the next several years as a result of its differentiated parts-cleaning programs, strong sales organization, and experienced management team. Shares were assumed with an Outperform rating.
OTHER INITIATIONS:
Lehman initiated Dell (NASDAQ: DELL) and Sun Microsystems (NASDAQ: JAVA) with Equal Weight ratings and targets of $20 and $17 and Apple (NASDAQ: AAPL), IBM Corp (NYSE: IBM) and Hewlett-Packard (NYSE: HPQ) with Overweight ratings and targets of $195, $144 and $59, respectively.
Pacific Growth started Spectranetics (NASDAQ: SPNC) with a Neutral rating.
Merrill reinstated Chevron (NYSE: CVX), ExxonMobil (NYSE: XOM) and Hess Corp (NYSE: HES) with Buy ratings and price targets of $110, $105 and $125, respectively.
Sun Microsystems Inc. (NASDAQ: JAVA) stock is declining with the rest of the tech sector as economic indicators today have investors worried once again that the economy is headed for a recession. The Commerce Department reported that retail sales dipped by 0.6% in February, below economists' predictions of a 0.2% gain. California research firm RealtyTrac Inc. also reported that home foreclosures in February rose 59.8% over the year-ago period. Plus, some pretty bad news came from the Carlyle Group, too. 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 JAVA.
After hitting a one-year high of $26.04 last March, the stock hit a one-year low of $14.20 in January. This morning, JAVA opened at $16.54. So far today the stock has hit a low of $16.35 and a high of $16.74. As of 12:35, JAVA is trading at $16.61, down %0.35 (-2.1%). The chart for JAVA looks neutral and improving, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bearish hedged play on this stock, I would consider a July bear-call credit spread above the $20 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. This particular trade will make a 14.1% return in four months as long as JAVA is below $20 at July expiration. Sun would have to rise by more than 20% before we would start to lose money.
JAVA hasn't been above $20 since December and has shown resistance around $17.50 recently. This trade could be risky if the economy bounces back, but even if that happens, this position could be protected by resistance JAVA might find around $18, where it has topped out over the past month. Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in JAVA.
Minyanville's top dog, Todd Harrison, dares to ask in public what Wall Street types quietly consider in private. For more insight and ideas, visit www.Minyanville.com.
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Here are some highlights from this past week's 
Sun Microsystems
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Comfort Zone Investing: Keep your recovery expectations real
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