Seems that even this shortened week was full of news and happenings, in the U.S. and around the world. With Citigroup Inc. (NYSE: C) being bailed out by the U.S. government at the beginning of the week and China announcing fiscal and monetary stimulus plans, the Dow industrials finished in positive territory four days in a row.
But as analysts and pundits, as well as each and every economic release -- in the U.S. and around the world -- remind us, we are not out of the woods yet and the rally has really been a bear-market rally.
Investors looking to take advantage of such rallies, or at least feel they hold stable long-term holdings, can search this week's BloggingStocks' contributors' picks:
Apollo Group (NASDAQ: APOL) and Devry Inc. (NYSE: DV) -- It's often been suggested that educators do well in times of recession and high unemployment as workers look to improve or change their education to get a better job. Leo Fasciocco thinks these two are poised for a breakout.
Dollar Tree Inc. (NASDAQ: DLTR) reported stronger-than-expected earnings this week and also hiked its forecast. Not surprisingly, cash-strapped consumers turn more and more to discounters. Dollar Tree may continue to benefit from the economic downturn and the stock could also experience a short-squeeze rally.
A few days after Mexican billionaire Carlos Slim reported an 18% stake in the company, Saks (NYSE: SKS) adopted a poison pill, disclosed in a filing with the SEC.
Under the terms of the "shareholder rights plan," if Carlos Slim or anyone else acquires a stake of 20% in the company, other shareholders will be able to acquire shares at half price. The company said that the plan will "impose a significant penalty upon any person or group which acquires beneficial ownership of 20% or more of the Company's outstanding common stock without the prior approval of the Board of Directors."
Shareholders should be appalled. Shares of Saks closed at $4 on Wednesday, down from a 52-week high of $22.19. In 1993, the stock traded north of $15 per share.
So shareholders should not be happy with any plan that gives the company's current management and directors more control over the future: Their track record is one of miserable failure. Given Mr. Slim's track record of creating enormous wealth, shareholders would likely be better off with whatever plan he has up his sleeve.
The Wall Street Journalreports (subscription required) that "Saks spokeswoman Julia Bentley declined to comment on the timing of the announcement, but said that Saks had a rights plan for more than a decade that expired in March 2008."
It must be illustrative to look at the returns that shareholders have received over that period.
Saudi Prince Alwaleed isn't the only foreign investor giving a vote of confidence to struggling Citigroup (NYSE: C). Mexican-based Inbursa bank, controlled by billionaire Carlos Slim Helu, recently took a significant stake in the company, spending about $150 million to buy 29 million Citigroup shares, according to published reports.
Citigroup's stock price had been under significant pressure in recent weeks, which was later exacerbated when it announced that it would cut 53,000 jobs. Last week, shares dropped below $5 for the first time since 1994. But late Sunday, the government announced that it would give the bank an additional $20 billion and would absorb up to $300 billion in potential losses, a model some experts should be used to deal with other struggling institutions. The move also seems to be sitting well with investors including Slim, marked by a 60% jump earlier this week.
But Citi isn't the only company that Slim, one of the richest men in the world, has had his eyes on. Regulatory filings show that he recently boosted his stake in luxury retailer Saks (NYSE: SKS), buying nearly 7.6 million shares of the company over a four-day period. Saks is one of many luxury retailers suffering during the economic turmoil as even the rich cut down on spending. But with Slim's move, he is now the company's largest shareholder.
Last week, JA Solar Holdings Co. Ltd. (NASDAQ: JASO) posted a quarterly loss and lowered its guidance. But as interest in alternative energy continues to grow, analysts polled by Thomson Financial are still looking for good things from solar energy concerns scheduled to report earnings this week.
Strong growth at Trina Solar Ltd. (NYSE: TSL) in the third quarter prompted it to lift its guidance back in October. Analysts expect the Chinese company to post profits that are 76.3% higher than a year ago, or $1.18 per share on revenues of $268.4 million (+225.0%). Though Trina Solar missed estimates in the second quarter, analysts on average recommend buying TSL. Shares are down 81.4% from a year ago and trading near an all-time low.
Earnings of rival LDK Solar Co. Ltd. (NYSE: LDK) are expect to have risen 47.9% to $0.71 per share on revenues of $486.7 million (+206.6%). Also based in China, LDK has not missed estimates in recent quarters; in fact, it blew past expectations in the second quarter. Yet the consensus recommendation is to hold LDK. Like Trina Solar, LDK's shares are trading near an all-time low; the share price has fallen 50.0% in the past year.
Analysts anticipate third-quarter earnings for Canadian Solar Inc. (NASDAQ: CSIQ) to be a whopping 96.3% higher than a year ago, or $0.54 per share on revenues of $248.0 million (+154.5%). The company easily topped estimates in the previous quarter. ReneSola Ltd. (NYSE: SOL) and Suntech Power Holdings Co. Ltd. (NYSE: STP) are also expected to report earnings growth of 29.7% ($0.37 per share) and 23.8% ($0.42 per share), respectively. All three of these stocks reached 52-week lows last week, and all are considered buys.
Whenever someone asks me if a stock can go lower, I reply "of course." As investors have learned the hard way over the past few months, a company's shares can go all the way to zero. Just ask holders of Circuit City Stores Inc. (NYSE: CC) (bankruptcy), General Motors Corp. (NYSE: GM) (near-insolvency) and Sirius XM Radio Inc. (NASDAQ: SIRI) (crushing debt load) whose shares are heading off a cliff.
The number of companies trading at or near their 52-week lows is staggering. Investors are faced with some of the biggest bargains they have seen in decades or the potential to get burned even further as corporate earnings deteriorate further. I am not sure whether to dip my toe further in the market or to invest in more Mason jars that I can fill with the remnants of nest egg and bury in my backyard.
One thing is for certain, stocks are getting cheap. The challenge for investors to figure out is where the market has thrown out the baby with the bathwater. Here are some examples:
Google Inc. (NASDAQ: GOOG). The largest search engine company is trading at near a three-year low. Chief Executive Eric Schmidt has said the economy is far worse than he expected. The company traded at $307.93, near its 52-week low of $300.52. CNBC's Jim Goldman is baffled by the market's reaction to Google, as am I.
Citigroup Inc (NYSE: C) has had more ups and downs than Cher. Shares of the big bank last traded at $10.80, near its low of $10.34. It is down more than 63% this year. Remember, sometimes stocks are cheap for a good reason -- like business is bad.
Kellogg Co. (NYSE: K) reported better-than-expected third quarter earnings and gave bullish guidance. The market, though, could have cared less. Shares of the cereal maker are trading at about $48, near their 52-week low of $45.25. They are down more than 8% this year.
General Electric Co. (NYSE: GE) has been in Wall Street's dog house so long it should consider a long-term lease. The conglomerate trades for about $17.73. Its 52-week low is $17.27.
Saks Inc. (NYSE: SKS) already has gotten its lump of coal from investors worried about a horrid holiday season. Shares of the retailer are down more than 77% this year. The stock is trading at $4.66, near its 52-week low of $4.23.
There were two big trades on Wall Street today: One was the bailout trade, which included financial stocks obviously, but other than the big banks, investors also went after the second-tier firm -- the smaller, regional banks. The other big trade was the economy. As the U.S. and global economy slows down, retailers, techs and a variety of materials and industrials will suffer. Investors showed their concerns over the economy today, hammering down many of these stocks down.
Here are a few big losers from today:
Financials - obviously, financials depended on the bailout plan more than others, at least in the immediate future:
Bank of America Corp. (NYSE: BAC) declined 17.6%, while JPMorgan Chase & Co. (NYSE: JPM) slumped 15%. Citigroup (NYSE: C) declined nearly 12%, Goldman Sachs (NYSE: GS) sank 12.5% and Morgan Stanley (NYSE: MS) plunged over 15%.
American Express Co. (NYSE: AXP) was the Dow's biggest loser today with a 17.5% drop thanks to Citigroup cutting profit estimates of the credit card company.
Second-tier banks declined much more:
Bank of New York Mellon Corp. (NYSE: BK) slipped over 27%, CIT Group Inc. (NYSE: CIT) lost 25.5%, Fifth Third Bancorp (NASDAQ: FITB) fell 43.6%, FirstFed Financial Corp. (NYSE: FED) tumbled over 25%, First Horizon National Corp. (NYSE: FHN) slipped 35.7% and National City Corp. (NYSE: NCC) tumbled 63.3%.
Wachovia upgraded shares of The Goldman Sachs Group Inc (NYSE: GS) to Outperform from Market Perform on expectations for greater pricing power given Goldman's position as the largest remaining independent securities firm.
Keefe Bruyette upgraded Investment Technology Group Inc (NYSE: ITG) to Outperform from Market Perform as they believe the company will take market share with the reshaping of the large wire-house brokerage community. The company's target was raised to $37 from $33.
Broadpoint raised Hoku Scientific Inc (NASDAQ: HOKU) to Buy from Neutral as they believe the contract with Tianwei New Energy reduces financing risk.
Saks (NYSE: SKS - option chain) shares are falling today after the company reported second-quarter losses of $31.7 million, or $0.23 a share, this morning, less than analysts' estimates of -0.17. The company also forecast lower operating margins. If high-end retailers are hurting, then there is definitely some behavior of the average American consumer that is changing as well. 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 SKS.
This morning, SKS opened at $10.60. So far today the stock has hit a low of $9.60 and a high of $10.61. As of 12:10, SKS is trading at $9.92, down $1.30 (-11.6%). The chart for SKS looks neutral while S&P gives SKS a positive 4 STARS (out of 5) buy ranking.
For a bearish hedged play on this stock, I would consider a November bear-call credit spread above the $12.50 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 11.1% return in three months as long as SKS is below $12.50 at November expiration. Saks would have to rise by more than 26% before we would start to lose money. Learn more about this type of trade here.
SKS hasn't been above $120 since late June and has shown resistance around $12 recently. Brent Archer is an options analyst and writer at Investors Observer.
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 SKS.
Rival home improvement chains Home Depot Inc. (NYSE: HD) and Lowe's Companies Inc. (NYSE: LOW) are scheduled to report quarterly results this week. Not surprisingly, given the ongoing housing slump, analysts surveyed by Thomson Financial on average expect both companies to post earnings lower than in the same period a year ago. For Home Depot, that's 61 cents per share, down 20.8%, and for Lowe's, 56 cents per share, down 16.4%. Meanwhile, cabinet maker American Woodmark Corp. (NASDAQ: AMWD), for whom Home Depot and Lowe's are major distributors, is also expected to report lower earnings: 11 cents per share, down 67.6%.
The presidential campaigns have prompted much discussion of energy policy and alternative energy sources. Some solar-energy-related concerns are scheduled to report this week, and expectations seem to be high. Trina Solar Ltd. (NYSE: TSL) is expected to report 81 cents per share earnings, up 67.9%; ReneSola Ltd. (NYSE: SOL) is expected to post earnings of 32 cents per share, up 62.5%; and Suntech Power Holdings Co. (NYSE: STP) is expected to have earnings of 32 cents per share, up 21.9%. Even China Sunergy Co. Ltd. (NASDAQ: CSUN) is expected to have swung to a profit of 3 cents per share, from a per-share loss of 14 cents a year ago.
Saks Inc. (NYSE: SKS) reported Tuesday a 66% increase in first-quarter earnings, compared with weak year-ago results. Staples Inc. (NASDAQ: SPLS), on the other hand, posted only a 1.5% increase in its first-quarter profit, compared to small profit declines the previous two quarters.
New York-based Saks, the operator of luxury chain Saks Fifth Avenue, said it earned $18.27 million, or 13 cents per share, for the three months ended May 3, up from $11.04 million, or 7 cents per share, in the year-ago period. Revenues rose to $862.35 million, compared with $792.75 million in the year-ago period. Analysts surveyed by Thomson Financial expected higher profits of 17 cents per share on lower revenue of $840 million.
The company said same-store sales rose 8.4% percent in the quarter. Like many retailers, Saks warned that the challenging economic environment will continue for the rest of the year.
Shares dropped 93 cents, or 6.6%, to $13.20 Tuesday, but rebounded 12 cents in after-hours trading.
For anybody who's been following the downfall of Sharper Image, there seems to be a pretty obvious lesson: when people are worrying about the rising cost of food and are scrimping to fill their gas tanks, high-priced doodads and assorted electronic gewgaws are the first things to go. The next things, of course, are luxury goods.
Saks Fifth Avenue (NYSE: SKS)and Neiman-Marcus, two of the bigger high-end retailers, reported massive quarterly profit gains in the end of 2007, but are now acknowledging that their gains have reduced considerably in 2008. Obviously, part of this is the standard post-Christmas drop, but there has also been a significant slowdown in year-to-year growth. In 2008, Saks is anticipating a minor increase over 2007's sales, but a slight decrease in gross margin.
Part of this is due to a reduction in expenditures by "aspirational shoppers," or people who can't really afford super-luxe items, but occasionally buy them anyway. What's particularly interesting, though, is that super-rich customers are also cutting back on their purchases, a trend that some analysts attribute to a contagious feeling of economic worry. In other words, the overall belief that the economy is approaching a recession is reducing spending even among people for whom the economic slowdown isn't a pressing concern. In light of this trend, Saks' stock price has dropped from almost $21 in the beginning of the year to under $13.
In this context, it looks like the next year will be tough for manufacturers and importers of high-end luxury items. After all, if the people who can actually pay top dollar are cutting back, what will happen to the people for whom luxuries are a splurge?
TheStreet.com's Jim Cramer says the number of things that went wrong in one day is astounding, and is led by the woes of Fannie Mae and Freddie Mac.
There aren't many days like yesterday. Or let's hope there won't be. Let me refresh all of the things that went wrong so we have the context of how treacherous this market really is.
1. The Treasury and the President saw fit not to endorse the "implicit" guarantee for Fannie Mae (NYSE: FNM) (Cramer's Take) and Freddie Mac (NYSE: FRE) (Cramer's Take) paper. For those of us who have bought and sold this paper for most of our lives, this was the signal that almost everything could be worthless. Their refusal to acknowledge the problems was so in the Hoover playbook that it was shameful.
2. We always figured that you should be able to lever up if you are in the bond market, with nine to one being an acceptable level for rock solid collateral like Fannie Mae mortgage paper, which was presumed to pay off at par with the only question being when. Now, because the question is no longer "when," but "if" that level of leverage is going to be obliterated. Maybe three or four times is all we will get. There have to be trillions of dollars at risk in loans right now because of that loss of implicit guarantees.
Seems that even this shortened week was full of news and happenings, in the U.S. and around the world. With Citigroup Inc. (NYSE: C) being bailed out by the U.S. government at the beginning of the week and China announcing fiscal and monetary stimulus plans, the Dow industrials finished in positive territory four days in a row.
A few days after Mexican billionaire Carlos Slim reported an 18% stake in the company, 
Saudi Prince Alwaleed isn't the only foreign investor giving a vote of confidence to struggling 
Last week, 
Whenever someone asks me if a stock can go lower, I reply "of course." As investors have learned the hard way over the past few months, a company's shares can go all the way to zero. Just ask holders of .gif){kind=logo}
Rival home improvement chains 
For anybody who's been following the downfall of Sharper Image, there seems to be a pretty obvious lesson: when people are worrying about the rising cost of food and are scrimping to fill their gas tanks, high-priced doodads and assorted electronic gewgaws are the first things to go. The next things, of course, are luxury goods. 
Waiting for the other shoe to drop: The looming credit crisis
Closing Bell: Dow down 7.7%; GE, YHOO, MS fall, PGI, MNT soar
Bet on T&A with J&J (JNJ)
