Today's Morning Coffee - Retail Day of Reckoning
A range of data and news are driving markets today, and the Dow slide continues. There's no fighting the tide of higher interest rates. Without earnings reports to support shares now, the flow into stocks is diluted. Retailers are starting to show numbers that raise concern and validate my argument that the consumer is finally cracking. That pillar of strength threatens to crumble before the pressure of rising costs of financing, tighter credit, decreasing home equity and increasing costs of living.
Company Specific News
Retail same-store sales reports for the month of May should be the key driver of shares today, and the best place to look for valuable information to guide us into future uncertainty. Initially, it appears that as many retailers missed estimates as beat estimates in May. Thomson Financial tallies it like this: 22 missed; 20 beat; 2 met expectations. Sales from February through May rose at half the pace of the prior year period, so be careful not to gain enthusiasm from the increase versus the coldest April in decades.
WalMart (WMT) showed an increase of 1.1% excluding sales of fuel, while Target (TGT) had a 5.8% gain. The big winner was Saks Fifth Avenue (SKS), which saw a gain of 37.5%. However, Saks' gain borrowed from planned June sales, so June's numbers could be likewise surprising on the down side. The big losers were Gap (GPS), with sales down 3%, Abercrombie & Fitch (ANF), down 5%, Macy's Inc. (M) down 3.3% and Penney (JCP) down 3%.
A company I use to follow, Martek Biosciences (MATK), reported a gain ahead of expectations and raised guidance. It appears to me that the company is about ready to turn around, finally. The company presented a great story, rising to the $80s during the time I followed it as an analyst, but as I warned as an analyst when downgrading the shares, the unseasoned management team and young company was bound to run into growing pains. It did, but I believe many of those issues are behind the company now.
Martek's DHA omega 3 fatty acid is now a fixture in infant formula, and Martek's product appears to be finally achieving traction as a food additive. Revenues are starting to follow mounting deals. Many investors were soured on the stock as it dropped into the teens over the past few years, and failed to meet its potential in foods. That negative sentiment persists, but I feel it creates a greater value in the stock than would be normal otherwise. There is a decent short interest here also that should be weeded down with time as the company meets its potential and drives revenue growth in foods. I believe there are also plenty of investors itching to get back into the shares.
Earnings and estimate momentum are important drivers of share performance and it appears we will now see a rising trend in both. Analysts and portfolio managers screen for this kind of thing, and it should attract capital to the stock, in my view. I have not run a DCF model on the shares in a while, but I remember the value add that was indicated in my model from food industry sources.
I do own speculative Martek call options and have advised someone to buy the shares for a long term holding. I may have to exit my position shortly, due to its shelf life, but that does not dilute my long term favor of the shares. I believe the reason the shares gave back ground this morning was due to quick money that bought in ahead of the report, now taking a couple dollars of profit. As this noise weeds itself out, which I believe will happen rather quickly, I think the clear trend will be net buying in the stock.
In an important ruling, the U.S. International Trade Commission is set to decide on the Qualcomm versus Broadcom patent battle. Reporting earnings on Thursday, look for Analogic (ALOG), Bio-Reference Labs (BRLI), Lakeland Industries (LAKE), National Semiconductor (NSM), Smithfield Foods (SFD), Volt Information Sciences (VOL) and others.
Economic Data & Analysis
Initial weekly jobless claims were reported today at 309,000, down 1,000 from the prior week and just about in line with expectations. To reiterate, Wall Street Greek's view is that softening consumer spending will eventually drive reduced hiring and increased unemployment, which in turn will drive further economic impact. This data should start to become concerning later on this year, in my view, or the latest, next year on the catalyst of geopolitical issues.
Wholesale trade and inventory was reported today as well. Inventory grew 0.3% in April, in line with the consensus view and with the rise in March. Consumer credit, due at 3:00 EDT, is seen increasing by $5.0 billion, according to Bloomberg. We suspect the consumer is nearly tapped out, and this figure might provide some insight. Credit rose $3.0 billion in February and $13.5 billion in March.
International Markets & Geopolitical Issues
The Bank of England kept its benchmark rate steady today, after the ECB raised rates a quarter point yesterday. The FTSE 100 dipped 0.38% through late afternoon trading, while the DJ STOXX 50 fell 0.95%. Tony Blair warned today about relations with Russia, indicating that they should be based on shared values. In other words, Russia must change its ways or possibly become an enemy of the west again. Let's face the facts here, the Putin administration is no friend of the west, not even today.
You independent equity research resource here continues to view Russia as posturing itself to benefit from a pending Middle Eastern war. It continues to develop pipelines to Europe and China, and though positions itself as against conflict, prepares to benefit from war. I continue to believe that Russia and later China will become much more aggressive in their defense of Iran, and may even place troops in harms way. This would place the full force of burden on Israel to deal with Iran, as the U.S. would not want to engage in a greater war. Though it may not come to the placement of troops, I believe the rhetoric will only get worse. I expect U.S. forces to be in place as a defensive force, to protect interests in Saudi Arabia, Kuwait, Iraq and elsewhere. It will be Israel that will have to carry the burden of initiating war.
Turkey appears to be exploiting U.S. weakness and its Iranian focus now, engaging its Kurdish enemies in Iraq. I am concerned that Turkey may intend to later capture the Kurdish territory for its oil and gas resources. Even if not intended, such resources might make it tempting to stick around if Turkey is not seriously pressured to leave. However, I suspect energy resources in Kurdish hands are much further east than the Turkish border. Turkey is hopefully well aware that America will not abandon the Iraq it has expended so many resources to better.
Commodity Markets
Comments from OPEC have driven oil prices higher this morning. OPEC is threatening that development of alternative energy resources will cause it to reduce development of capacity, thus placing pressure on prices. In other words, they're saying, if you want other energy, then we are not going to invest in developing the oil you need right now. This is an ineffective position in Wall Street Greek's view. If OPEC were to increase production and bring downward pressure on oil prices, they would be more effective in reducing the drive for alternative energy. The economics of alternative energy are not competitive yet, and if you can reduce the price of gasoline and other fuels, you reduce the incentive to develop alternative energy resources. Clearly, there remains the strategic reason to do so in any event, but economics actually drive development in this country, not strategic relevance. I'm sad to say so, but it has held true over the years.
Receive Wall Street Greek via email by subscribing here. (disclosure)
Company Specific News
Retail same-store sales reports for the month of May should be the key driver of shares today, and the best place to look for valuable information to guide us into future uncertainty. Initially, it appears that as many retailers missed estimates as beat estimates in May. Thomson Financial tallies it like this: 22 missed; 20 beat; 2 met expectations. Sales from February through May rose at half the pace of the prior year period, so be careful not to gain enthusiasm from the increase versus the coldest April in decades.
WalMart (WMT) showed an increase of 1.1% excluding sales of fuel, while Target (TGT) had a 5.8% gain. The big winner was Saks Fifth Avenue (SKS), which saw a gain of 37.5%. However, Saks' gain borrowed from planned June sales, so June's numbers could be likewise surprising on the down side. The big losers were Gap (GPS), with sales down 3%, Abercrombie & Fitch (ANF), down 5%, Macy's Inc. (M) down 3.3% and Penney (JCP) down 3%.
A company I use to follow, Martek Biosciences (MATK), reported a gain ahead of expectations and raised guidance. It appears to me that the company is about ready to turn around, finally. The company presented a great story, rising to the $80s during the time I followed it as an analyst, but as I warned as an analyst when downgrading the shares, the unseasoned management team and young company was bound to run into growing pains. It did, but I believe many of those issues are behind the company now.
Martek's DHA omega 3 fatty acid is now a fixture in infant formula, and Martek's product appears to be finally achieving traction as a food additive. Revenues are starting to follow mounting deals. Many investors were soured on the stock as it dropped into the teens over the past few years, and failed to meet its potential in foods. That negative sentiment persists, but I feel it creates a greater value in the stock than would be normal otherwise. There is a decent short interest here also that should be weeded down with time as the company meets its potential and drives revenue growth in foods. I believe there are also plenty of investors itching to get back into the shares.
Earnings and estimate momentum are important drivers of share performance and it appears we will now see a rising trend in both. Analysts and portfolio managers screen for this kind of thing, and it should attract capital to the stock, in my view. I have not run a DCF model on the shares in a while, but I remember the value add that was indicated in my model from food industry sources.
I do own speculative Martek call options and have advised someone to buy the shares for a long term holding. I may have to exit my position shortly, due to its shelf life, but that does not dilute my long term favor of the shares. I believe the reason the shares gave back ground this morning was due to quick money that bought in ahead of the report, now taking a couple dollars of profit. As this noise weeds itself out, which I believe will happen rather quickly, I think the clear trend will be net buying in the stock.
In an important ruling, the U.S. International Trade Commission is set to decide on the Qualcomm versus Broadcom patent battle. Reporting earnings on Thursday, look for Analogic (ALOG), Bio-Reference Labs (BRLI), Lakeland Industries (LAKE), National Semiconductor (NSM), Smithfield Foods (SFD), Volt Information Sciences (VOL) and others.
Economic Data & Analysis
Initial weekly jobless claims were reported today at 309,000, down 1,000 from the prior week and just about in line with expectations. To reiterate, Wall Street Greek's view is that softening consumer spending will eventually drive reduced hiring and increased unemployment, which in turn will drive further economic impact. This data should start to become concerning later on this year, in my view, or the latest, next year on the catalyst of geopolitical issues.
Wholesale trade and inventory was reported today as well. Inventory grew 0.3% in April, in line with the consensus view and with the rise in March. Consumer credit, due at 3:00 EDT, is seen increasing by $5.0 billion, according to Bloomberg. We suspect the consumer is nearly tapped out, and this figure might provide some insight. Credit rose $3.0 billion in February and $13.5 billion in March.
International Markets & Geopolitical Issues
The Bank of England kept its benchmark rate steady today, after the ECB raised rates a quarter point yesterday. The FTSE 100 dipped 0.38% through late afternoon trading, while the DJ STOXX 50 fell 0.95%. Tony Blair warned today about relations with Russia, indicating that they should be based on shared values. In other words, Russia must change its ways or possibly become an enemy of the west again. Let's face the facts here, the Putin administration is no friend of the west, not even today.
You independent equity research resource here continues to view Russia as posturing itself to benefit from a pending Middle Eastern war. It continues to develop pipelines to Europe and China, and though positions itself as against conflict, prepares to benefit from war. I continue to believe that Russia and later China will become much more aggressive in their defense of Iran, and may even place troops in harms way. This would place the full force of burden on Israel to deal with Iran, as the U.S. would not want to engage in a greater war. Though it may not come to the placement of troops, I believe the rhetoric will only get worse. I expect U.S. forces to be in place as a defensive force, to protect interests in Saudi Arabia, Kuwait, Iraq and elsewhere. It will be Israel that will have to carry the burden of initiating war.
Turkey appears to be exploiting U.S. weakness and its Iranian focus now, engaging its Kurdish enemies in Iraq. I am concerned that Turkey may intend to later capture the Kurdish territory for its oil and gas resources. Even if not intended, such resources might make it tempting to stick around if Turkey is not seriously pressured to leave. However, I suspect energy resources in Kurdish hands are much further east than the Turkish border. Turkey is hopefully well aware that America will not abandon the Iraq it has expended so many resources to better.
Commodity Markets
Comments from OPEC have driven oil prices higher this morning. OPEC is threatening that development of alternative energy resources will cause it to reduce development of capacity, thus placing pressure on prices. In other words, they're saying, if you want other energy, then we are not going to invest in developing the oil you need right now. This is an ineffective position in Wall Street Greek's view. If OPEC were to increase production and bring downward pressure on oil prices, they would be more effective in reducing the drive for alternative energy. The economics of alternative energy are not competitive yet, and if you can reduce the price of gasoline and other fuels, you reduce the incentive to develop alternative energy resources. Clearly, there remains the strategic reason to do so in any event, but economics actually drive development in this country, not strategic relevance. I'm sad to say so, but it has held true over the years.
Receive Wall Street Greek via email by subscribing here. (disclosure)
posted by The Greek | 9:43 AM
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