Who knows why the Treasury gives our money to some banks and not to others. That comes to mind when considering that we just gave $18 billion to 10 regional banks -- three of which are unprofitable. Why does this matter? Because giving taxpayer money to an unprofitable bank could be as good as flushing it away. I guess Treasury figures it can always get more where that came from, so why not?
Here are the lucky winners of the government bailout lottery that earned a profit and their pre-market stock price change:
It might be that the Treasury is lurching slowly in the direction of doing the right thing to fix our financial system. My cull and capitalize plan would pick the surviving few banks and close or merge the others with the winners -- it would then pump a combination of private and public capital into the winners. I think this is a good idea because the surviving banks would be healthy enough to borrow and lend to each other without undue fear of losing their money. This would go a long way to unfreezing the financial pipelines of our economy.
So far, the Treasury has invested $125 billion in nine banks which I am guessing it thinks are among the winners. Now, the Treasury is suggesting that it will dole out more capital to so-called super-regional banks -- such as KeyCorp (NYSE: KEY), Fifth Third (NYSE: FITB), BB&T (NYSE: BBT), and SunTrust Banks (NYSE: STI) -- if they use the money to acquire weaker players. These super-regional banks might be a good investment opportunity now.
Unfortunately, the Treasury is approaching the problem in a haphazard manner. For example, it already gave capital to banks that are losing enormous sums -- Citigroup (NYSE: C) which got $25 billion comes to mind. And of these four super-regionals -- two (KeyCorp and Fifth Third) are losing big bucks and two -- BB&T which posted third quarter profit of $358 million and SunTrust which earned $540 million in the second quarter -- are earning money. Why would Treasury invest in money-losing banks?
Wall Street's optimism in last week's preview about the earnings of tech stocks wasn't misplaced, as there were many more positive surprises than negative ones among the stocks we looked at. This week will bring plenty more data for investors in and watchers of the sector to mull over. Apple Inc. (NASDAQ: AAPL), AT&T Inc. (NYSE: T), and Microsoft Corp. (NASDAQ: MSFT), for example, are expected by analysts surveyed by Thomson Financial to post modest earnings gains from a year ago, to $1.11 per share (on $8.1 billion in sales), $0.72 per share (on $31.3 billion in sales), and $0.47 per share (on $14.8 billion in sales) respectively. All three of these companies ended the week closer to their 52-week lows than highs, and analysts on average consider them each a buy.
Here's a look at some of the week's biggest expected earnings gainers and decliners in the sector:
Baidu.com Inc. (NASDAQ: BIDU): $1.25 per share (+44.0%) on revenues of $134.7 million (+103.2%)
Broadcom Corp. (NASDAQ: BRCM): $0.44 per share (+38.6%) on revenues of $1.3 billion (+33.8%)
QLogic Corp. (NASDAQ: QLGC): $0.31 per share (+29.0%) on revenues of $170.0 million (+21.2%)
FLIR Systems Inc. (NASDAQ: FLIR): $0.32 per share (+28.1%) on revenues of $275.2 million (+44.0%)
Juniper Networks Inc. (NASDAQ: JNPR): $0.30 per share (+26.7%) on revenues of $927.4 million (+26.2%)
Waters Corp. (NYSE: WAT): $0.75 per share (+17.3%) on revenues of $391.6 million (+11.1%)
Baird upgraded Fifth Third Bancorp (NASDAQ: FITB), SunTrust (NYSE: STI) and Wells Fargo (NYSE: WFC) to Outperform from Neutral citing the ability to raise cheap capital following the Treasury's aggressive policy response.
Suntrust believes Zions Bancorp (NASDAQ: ZION) is disproportionately positioned to benefit from what should be a wave of industry fallout and consolidation over the next few years. Shares were upgraded to Buy from Neutral.
Cadbury (NYSE: CBY) was raised to Hold from Sell at ING Group.
Ericsson (NASDAQ: ERIC) was raised to Neutral from Sell at Goldman.
Genentech (NYSE: DNA) was upgraded at Piper Jaffray to Buy from Neutral.
Citigroup raised Ann Taylor (NYSE: ANN) to Hold from Sell. The firm upgraded shares following the company's Q2 upside and believes guidance for the second half of 2008 is appropriately conservative.
Jefferies upgraded China Sunergy (NASDAQ: CSUN) based on valuation,and improved liquidity and silicon supply outlook.
Stephens upgraded infoUSA (NASDAQ: IUSA) shares to Overweight from Equal Weight to reflect the stock's valuation, new management, improvements in expense controls and the potential to become a takeover target.
Citigroup raised BB&T (NYSE: BBT) to Buy from Hold.
Financials have staged an impressive rally from extremely oversold levels," says Kelley Wright, editor of the top-rated IQ Trends, which focuses on high quality, blue chip, dividend-paying stocks. Here's his top long-term buys among banks.
"It is increasingly evident that the banking sector is dividing into two distinct camps; the have's and the have not's. The 'have's' are:
"The impressive rally to date notwithstanding, it still remains to be seen whether another retracement will develop should crude oil, gold and other commodities reverse course.
"A strong rally in these sectors could send the market down again. While Mr. Market can do whatever he pleases, it is highly unusual for stocks to bottom in the summer.
"It would not be imprudent to see what September and October have to offer before anyone begins to talk seriously about the bottom. For investors with an appetite for the financials, however, we would suggest dusting off that old tried and true tactic of dollar cost averaging as a prudent means to establish positions."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
MOST NOTEWORTHY: Energy East, SunTrust Banks and Suncor were today's noteworthy upgrades:
Jefferies upgraded shares of Energy East (NYSE: EAS) to Buy from Hold on valuation, pointing out the return on the transaction if the Iberdrola/EAS merger deal closes is 21.9%. The firm raised their target to $28.50 from $25.50.
Baird upgraded SunTrust Banks (NYSE: STI) to Outperform from Neutral citing valuation and notes the company is unlikely to need to raise capital.
CIBC raised Suncor (NYSE: SU) to Outperformer from Sector Performer following news that Alberta's Energy Resource Conservation Board has lifted restrictions on production on the company's Firebag SAGD project.
OTHER UPGRADES:
Sterling Bancshares (NASDAQ: SBIB) was lifted to Outperform from Market Perform at Keefe Bruyette.
Vodafone (NYSE: VOD) was upgraded at Morgan Stanley to Equal Weight from Underweight.
It's officially a trend because it's happened more than three times -- a bad financial report leads to a spike in stock prices. (I posted here and here about this phenomenon with Citigroup (NYSE: C) and Bank of America (NYSE: BAC) respectively). Now, the New York Times reports that five banks lost billions, or saw their profits plunge, but their stock prices rose an average of 12.9% in the wake of those reports.
Why? The conventional wisdom suggests that investors expected them to do much worse and were pleasantly surprised. And this phenomenon is not confined to banks -- this morning, Yahoo (NASDAQ: YHOO), which reported a penny less profit per share than the 10 cents analysts had expected, is up 3% in premarket, reportedly because it did not lower its guidance.
I am not convinced by conventional wisdom about why these stocks are up. My hunch is that there were many traders who sold short the stocks of these companies because they expected them to do worse than they actually did. When reported results beat expectations, investors bought the stocks, perhaps due to bottom fishing. These buyers caused the stocks to rise enough to trigger margin calls for those who were short. The shorts bought to satisfy those margin requirements, causing a buying panic. I wish I had data to test this hypothesis.
TheStreet.com's Jim Cramer says our problems are so widespread, he sees lots more IndyMacs before we're out.
You don't need me to tell you it's awful out there. You don't need me to tell you that there's no quick fix for any of these things. But what might help you understand why it feels so bad this time is that I have never, in my career, seen so many companies go off track at the same time. This is one unbelievable moment, and it is made more horrible by the day as companies' stocks just get pummeled, causing people to then question the very viability of the companies involved.
First, obviously, are Fannie Mae (NYSE: FNM) (Cramer's Take) and Freddie Mac (NYSE: FRE) (Cramer's Take). We don't know what will happen, but we do know that their futures are much darker than their pasts. Their best hope: a Democrat becomes president and shows the usual love to both. But as investments, they are pretty much perma-losers going forward. The losses are that heavy. Yes, it is true that two years from now they will be better, but will the government let them limp through to that? View them as calls on a Democratic win.
We all know that Citigroup (NYSE: C) (Cramer's Take), Wachovia (NYSE: WB) (Cramer's Take), Washington Mutual (NYSE: WM) (Cramer's Take) and National City (NYSE: NCC) (Cramer's Take) are in trouble. Bank of America (NYSE: BAC) (Cramer's Take) says it isn't in trouble, but obviously the market doesn't believe management because the stock failed to rally when it said its dividend was safe. Any short-selling hedge fund could hire 30 actors and have them line up at a Washington Mutual or two and get a bank run going. Then we would have to hear about a "hasty" Treasury department plan to bail out WM. Hasty? How can these guys not see it coming?
MOST NOTEWORTHY: UCN Inc, Astronics and SunTrust Banks were today's noteworthy initiations:
Merriman expects UCN Inc (NASDAQ: UCNN) to further expand its contact center product set and believes it is likely to be sold to a larger provider expanding within the hosted contact solution market over the longer term. The firm started shares with a Buy rating.
Jesup & Lamont initiated Astronics (NASDAQ: ATRO) with a Neutral rating. The firm wants to see a change in the backlog visibility and more clarity on the ramp-up schedules of some new programs. For now, they view shares as fairly valued.
Friedman Billings resumed coverage of SunTrust Banks (NYSE: STI) with an Underperform rating and $37 target and cites credit deterioration and uncertainty regarding credit costs.
SunTrust Banks (NYSE: STI) closed at $43.97 Thursday. STI July option implied volatility of 64 is above its 26-week average of 41 according to Track Data, suggesting larger price uncertainty.
PNC Financial Services (NYSE: PNC) closed at $59.73 Thursday. PNC July option implied volatility of 41 is above its 26-week average of 35, suggesting larger price movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
SunTrust Banks (NYSE: STI) shares are trading higher today after data from the Conference Board showed that the US economy may be starting to right itself. This morning's Leading Indicators report indicated a 0.1% rise for April, after March showed a positive figure last month. This data is giving investors the courage to jump back into the stock market and particularly stocks that were hurt in the mortgage mess like STI. 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 STI.
After hitting a one-year high of $94.18 in May of last year, the stock has steadily declined to make its one-year low of $50.14 in April. STI opened this morning at $56.64. So far today the stock has hit a low of $56.38 and a high of $5.987. As of 12:25, STI is trading at $57.27, up 1.25 (2.2%). The chart for STI looks neutral and improving while S&P gives STI a negative 2 STARS (out of 5) sell rating.
For a bullish hedged play on this stock, I would consider a June bull-put credit spread below the $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 an 8.7% return in just five weeks as long as STI is above $50 at June expiration. SunTrust would have to fall by more than 12% before we would start to lose money. Learn more about this type of trade here.
STI hasn't been below $50 at all in the past year and has shown support around $55 recently. This trade could be risky if other housing-specific indicators are still weak in the coming months, but even if that happens, this position could be protected by support the stock might find just above $50, where it bottomed out in the past month. 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 STI.
MOST NOTEWORTHY: Smith International, Cerner and Coach were today's noteworthy upgrades:
JP Morgan upgraded Smith International (NYSE: SII) to Overweight from Neutral citing better risk/reward vs. group, and upside to estimates from Latin America drilling and its deepwater rig fleet. Note that Oppenheimer downgraded shares of SII based on valuation.
Jefferies believes Cerner Corp. (NASDAQ: CERN) in-line results and solid domestic bookings could alleviate the pressure on shares. Shares were raised to Buy from Hold.
Shares of Coach Inc. (NYSE: COH) were raised to Buy from Hold at Citigroup, citing sales stabilization and compelling valuation.
OTHER UPGRADES:
Medco Health (NYSE: MHS) was upgraded at Oppenheimer to Outperform from Perform.
ThinkPanmure raised VMware Inc. (NYSE: VMW) to Buy from Accumulate.
SunTrust Banks (NYSE: STI) was upgraded to Market Perform from Underperform at Keefe Bruyette.
MOST NOTEWORTHY: Google, Ross Stores and Novartis were today's noteworthy upgrades:
Jefferies upgraded Google (NASDAQ: GOOG) to Buy from Hold to reflect the company's "impressive" improvements in monetization in Q1, no signs of weakness from the economic downturn and upside potential from display, video and mobile.
Lehman upgraded Ross Stores (NASDAQ: ROST) to Overweight from Equal Weight and believes the company's 2008 guidance of 8-9% sales growth and up to 20% bps in margin expansion will prove conservative.
Morgan Stanley upped Novartis (NYSE: NVS) to Overweight from Underweight on valuation and expectations for positive news flow from the company's vaccine division.
OTHER UPGRADES:
JP Morgan upgraded Bladex to Neutral from Underweight.
William Blair raised Watsco (NYSE: WSO) to Outperform from Market Perform.
SunTrust (NYSE: STI) was upgraded at Baird to Neutral from Underperform.
"Changes in psyche driven by news and events, along with a fair amount of fear and greed, is the perfect backdrop for a market reversal," says Charles Payne, FOX Business news regular and editor of Wall Street Strategies.
"The inspiration for the latest volatility in equities came from Ambac (NYSE: ABK) which looked like it would be off as much as 10% instead had a monster gain, up more than 30%, on calming statements from management. Citigroup (NYSE: C) also made a strong statement concerning its financial position.
"Outside of these developments the most exciting niches of the market are those that have been hammered the most in late 2007 and thus far in 2008.
"Scuttlebutt says the President is willing to up the ante in his rescue package (in excess of $150.0 billion) and that has sent retail stocks surging. The emergency interest rate cut stoked demand for homebuilder stocks as well.
"The retailers and homebuilders have miles of room on the upside, but must first reverse horrid downtrends and get above the top of their respective channels. For the S&P Retail Index ($RLX) that means a close above 441.0
"Homebuilders have seen so many false alarms it's difficult to notice or care about periodic up sessions. However, considering the fantastic swings and pressure on the broad market today's strength stands out as more than an anomaly or fluke.
"I don't think the global economy is going to slow down as much as one could extrapolate from yesterday's overseas meltdown, but there are country-specific issues that could make individual international markets more volatile.
"There are a ton of stocks I think are screaming buys. For example, I like SunTrust Bank (NYSE: STI) among financial stocks as well as Lehman Brothers (NYSE: LEH)."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
Who knows why the Treasury gives our money to some banks and not to others. That comes to mind when considering that we just gave $18 billion to 10 regional banks -- three of which are unprofitable. Why does this matter? Because giving taxpayer money to an unprofitable bank could be as good as flushing it away. I guess Treasury figures it can always get more where that came from, so why not?
It might be that the Treasury is lurching slowly in the direction of doing the right thing to fix our financial system. My 
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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)
