Monday 19 July 2010

Bank Stress Tests

19th July 2010.

The bank stress test results are being published at 16.00GMT on Friday 23rd July 2010. They will be after markets close st 16:00 GMT.

The banks I am watching this week in the UK are ;

Barclays (BAR)
HSBC


Im staying well away from other European banks (except Spanish). The German banks have some serious real estate debt and other banks I'm sure they have been lending to some of the former eastern European companies with significant property valuation issues.

Sunday 18 July 2010

Good news for the Euro

July 15 2010. Spain's sale of 15-year government bonds successful. Italian government wins backing for austerity package. Greece pushes through wage deal, widens pension reform.

Saturday 17 July 2010

Earnings for 19th July 2010

The following are notable earnings for next week.

Monday: DAL, HAL, HAS, MMR, EDU, PETS, ATHR, BRO, CCK, ELS, IBM, ICUI, IEX, LNCR, NE, PKG, RLRN, RLI, STLD, TXN, TUP, and ZION.

Tuesday: BIIB, FRX, GS, HOG, ITW, JNJ, PEP, PII, STT, AMTD, UAL, UNH, WHR, BSX, GILD, JNPR, TPX, CMW, AND YHOO.

Wednesday: ABT, MO, BLK, KO, CMA, GENZ, MS, LCC, USB, WFC, BIDU, EBAY, FFIV, ISRG, NFLX, NTGR, QCOM, SBUX, and WDC.

Thursday: APD, T, BBT, BMY, CSH, CAT, DO, LLY, EXC, FITB, FLIR, KEY, NOK, NUE, RS, TZOO, TEL, UNP, ZMH, AMZN, AXP, BUCY, CPHD, COF, CMG, ETFC, MSFT, MOS, and SNDK.

Friday: IR, JCI, KMB, ERIC, MHP, SLB, SPAR, VZ, and WIT.

Trading Ideas 17th July 2010

This last week has been a bit manic, no matter how far analyst expectations have been beat, the companies the share price has gone down. The banks particularly have been beat down and given the new finance regulation that is coming into force their future profits should be impacted due to the reduction in risk taking.

In the back of my mind the US employment situation is a bit of a concern, particular for companies that are largely focused in the US.

Next week there are significant number of earnings release and whether this will move the market considerably is yet to be seen.

For the coming month I have put in orders to go Long on the following for EURUSD

1 contract at 1.3215
2 contracts at 1.3420
3 contracts at 1.3625
4 contracts at 1.3830

My rationale is that the US is accumulating considerable debt and the local states are also having significant cash flow issues.

The Euro has been beaten down due to debt issues in Greece, Italy, Portugal and Spain. However what a lot of people fail to understand is that these countries do not suffer from excess spending, more so incompetent and corrupt tax collection policies. An increase in tax collection methodologies together with reduced government spending should see things level out in the medium term.


The other point here to note is that although the Euro has been bashed lately the USD is in much the same position but not yet caught the attention of anyone.

Monday 12 July 2010

Microsoft - Analyst Recommendation

Janney Capital analyst Sasa Zorovic this morning raised his rating on Microsoft (MSFT) to Buy from Neutral while maintaining his $30. - 12th July 2010.

The last few recommendations, I did exactly the opposite to what Sasa has recommended and was very in the money. This latest upgrade for Microsoft would indicate a good selling opportunity base on the analyst recommendation.

Microsoft trade on very low PE - not far off a company that has zero growth prospects.

Its search engine and mobile apps are about as dead as can be. It has had years to sort out Windows mobile and all it did was provide us with recurring crashes, leaving the gates wide open for Apple. Windows Vista was a disaster and Windows 7.....well we will see. I have in fact moved to Linux as a result of Vista and will never go back to Windows again if I can help it. Nor would I ever by a mobile device with Windows on it.

I know many company CIO's don't like windows...but there once was no alternative. Now with apple coming in, cloud services more available and enhanced security issues...particularly with Windows software...it could be the end to the monopoly on the desktop. Even end users are more familiar with the apple desktop than before. It is far more secure and requires a lot less software to control.

On the server side we all know how unreliable a Microsoft run server is. Unfortunately a lot of software will only run on windows....historically there was no alternative. Now however there are a lot more software developers looking to provide their services on more than one platform as companies seek out cheaper and more secure alternatives.

Could Microsoft be for 2010 what IBM was for the 1990's ? A sitting dead duck ?

Alcoa Earnings 12th July 2010 - AMC

Alcoa Q2 2010 Earnings Release - 12th June 2010

All estimates since last quarter have been revised downward
Price of Aluminum very low over the last quarter

Market Cap is $11,170m

Current Asset - $6,619m. Total Liabilities $21,985. Net deficit $15,366.

Operating Cash flow $200m for the prior quarter Q1 2010 Prior year $1,379 - 2010.

A valuation of $11bn feels high. Historic results are probably not much to go by as we experience an exceptionally high global boom through considerable overspending.

A loss has been made in last 6 quarters except 1.

Large pension scheme deficit

Earnings estimates around $5,050m and 12c a share.

Prior quarter a loss of 19c a share.

Sales growth in the last 2 quarters, compared to same quarter of the prior year of 16% and 17% respectively. Taking prior year June 2009 quarter this would put revenue to $4,960m for the current quarter if this growth continues.

Aluminum prices have seen downward trend over the last 3 months.

USA accounts for 50% of the 2009 sales. The total sales to countries which have or will have some for of austerity measures is around 12%. This could prove detrimental for guidance.

Although China and India are growing the sales to these regions are not substantial. Construction in USA has not picked up and we will not see levels of activity achieved in 2007/2008.

There could be increases to supply in Germany and France due to increases in Car sales though this is unlikely to offset the downward aluminum prices together with the potential lower expenditure as a result of the austerity measures.

In December 2009 Alcoa had revenues of $5,433m yet obtained loss of 19c on these revenues. For March 2010 there was an improvement - revenues of $4,887m but on these revenues returned 2c underlying. So how $5,000m of revenue is going to be achieved with 12c a share as profit...is any ones guess. The option buyers though look like they are in the know.

Overall it would appear that both revenue and earnings are unlikely to be beat.

However looking at the current open interest, there is a significant number of calls to puts.

Currently (12th July 2010) there is 229,547 out of the money calls. That is for 229m shares at $10 a share would be $2,290m of value. With a market cap of only $11,170 this is a significant number of call options.

However the call options could have been placed as a result of getting buyers in with a view to close prior to results or alternatively to cover heavy short positions.

Shares as % of float have slightly increased since the last quarter but the shorts are not significant.

Recommendation :

No trade. I would like to short on fundamentals this but I believe the call options buyers are in the know !

Thursday 8 July 2010

Sales Force.com

"Given the stock's valuation, there is greater downside risk than upside potential to Salesforce.com," wrote Goldman Sachs analyst Sasa Zorovic. He reiterated his sell rating and $53 price target. 05/22/08

Another great quote from a great analyst.

Sales force is now $91.00

About Me

I try and work a broadly market neutral strategy and based purely on fundamentals and my gut feel.