Thursday, June 10, 2004
Time To Start the Weekend
With the market acting like a jumping bean, I'm taking the afternoon off. After playing a little free poker at Cardplayer, I may just go out to an afternoon showing of The Day After Tomorrow. In addition, this will be my last post until Monday due to the market being closed for Reagan's funeral. As always, I hope all of you are kicking butt and taking names. Before I go, I'll leave you with one of my favorite quotes by Lord John Maynard Keynes. He once said "The stock market can remain irrational longer than an investor can remain solvent." How very true. See you next week!
This Year's Stock Winners
From time to time, I always take a look at stocks appearing on the winner's list. The reason? I want to know what I've been missing. Although I've been able to participate in some of these returns (stocks I've traded have a red dot beside them), there are plenty here that I missed. Time to figure out why so I can fill the the gaps in my overall strategy.
Herb Greenberg points out that the president of Career Education's (CECO) online education division has recently sold a number of shares at a high rate. Similar insider selling can be found at Corinthian Education (COCO), one of the firm's main competitors. As Herb says, both companies are in an industry that is currently under major regulatory scrutiny. As some of you know, I've not be a big fan of this industry for some time now. Back in March I closed out a short in my trading portfolio in CECO for a small loss, but seeing the stock on the new 52-week high list, and I'm starting to take another look and you should too!
Up, Down, Up, Down, Up?
Are you enjoying today's roller coaster ride? If I didn't know any better, I would think it was options expiration day. I warned that it would be choppy out there today, but this is ridiculous! Like yesterday, I'm doing very little other than running stocks screens this morning and catching up on my reading & research.
Sectors under slight accumulation include gold, oil services, and coal. Notable weakness can be found in biotech, brokers, airlines, and gaming stocks. And, for what it is worth, stocks appearing on my trading radar include WZEN, BVEW, ISSC, RECN, FMD, and URBN.
Atlantic Coast Airlines
Airline stocks have been flying higher recently due to speculation that the price of oil has topped out. As I recently wrote, I've increasingly been looking at the airline sector for some investment opportunities. One of the stocks catching my attention continues to be Atlantic Coast Airlines (ACAI).
ACAI is a classic value stock opportunity. The stock has been in a steady downtrend for some time as a combination of regulatory and growth issues inspired investors to disown the stock. In fact, the FAA just proposed to fine ACAI $1.5 million dollars for operating planes without performing required inspections. Still, it trades at four times earnings, 0.78 times book value and 0.32 times revenue. At some point you have to wonder whether the bad news is already baked into the stock price.
But, intrinsic value alone is not the only reason to give the company another look. In buying these stocks, I'm also looking for an upside catalyst as value stocks tend to stay cheap a lot longer than everyone expects. Nevertheless, one such catalyst may be found in the firm's new Independence unit. Although analysts don't necessary think this bodes well for ACAI, they've been wrong in the past. Chris Isidore at CNNMoney outlines the debate. READ
High Demand for Oil Tankers
When there is extrodinary high demand, there are profits to be made for those companies in the right place at the right time. If you've been investing in the oil tanker stocks in the past year, you already understand this concept pretty well. The New York Times explains why oil tankers are in such high demand now. As some of you may remember, I've written about this before back in late February.
Anadarko Petroleum Corp. (APC) continues to impress Wall Street and finds itself this morning on the new 52-week high list. The Texas-based U.S. oil and natural-gas producer said it will sell more than $2.5 billion in assets and buy back as much as $2 billion in stock to boost shareholder returns. The last time I thought about buying this stock was back in December following this post.
Refinancing & The Economy
The ABCNews/Money magazine Consumer Comfort Index last week fell to -19 from -18 the prior week. It’s down eight points in the past three weeks and well below its 2004 peak of -3 in mid-Jan. Of those polled, 33% say the economy is in good shape and 54% say their own finances are healthy, both down a point in the week. (That means that 46% of Americas believe their finances are not healthy - yikes!)
So, is the consumer getting stronger or weaker? From this report, it seems like the consumer is starting to pull back. And, perhaps for good reason. As you can see from the chart below, mortgage refinancing has dropped significantly now that interest rates have moved higher. Many economists and Wall Street analysts believe that mortgage refinancing was one of, if not the most important factor that helped U.S. consumers in the past couple of years. If that is true, we may see a major change in consumer spending in the second half of the year.
Choppy Trading Ahead of Long Weekend
Good morning and welcome to the last day of the trading week. I've often said that weeks shortened by holidays or special events are some of the most difficult to trade, and this week has not been an exception to that rule. There are a number of headlines to deal with this morning, and some of the more important ones include the following:
- Target (TGT) announced late yesterday that it will sell its Marshall Fields unit to May Dept Stores (MAY).
- The Semiconductor Industry Association predicted 28.6% growth for 2004. However, the report also calls for 4.2% growth in 2005, and a decline of 0.8% in 2006 suggesting that this year will be the peak in the chip cycle. In addition, chip firm National Semi (NSM) reported Q4 EPS of $0.32 vs. $0.29.
- Merrill Lynch took down their estimates on brokers Schwab (SCH), eTrade (ET), & Ameritrade (AMTD) due to weaker than anticipated trading volumes
- UBS raises the oilfield services group from neutral to buy while upgrading Schlumberger (SLB), Nabors (NBR), Noble Drilling (NE), Smith International (SII), BJ Services (BJS), and Ensco International (ESV).
- The Bank of England raised interest rates 25 bps to 4.50% noting that inflationary pressures are likely to build.
- The New York Times has reported that Libya intelligence operatives had a plot to assassinate Saudi Prince Abdullah. U.S. officials have been building stronger ties with the country in recent months due to a belief that Libya had changed.
- According to the International Energy Agency, world oil demand will rise by its highest level since 1980 based on a growing world economy and consumption in Brazil, India, China, and the U.S. The IEA is now looking for daily use of gasoline, diesel, and other fuels to rise 2.3 million barrels to 81.1 million
Today will be a tricky day as we head into a long weekend with higher than usual terrorism risk due to Reagan's funeral. While we are firmly in the green at the start, I expect the trading day to be extremely choppy so be careful if you're trying to grind out some trades.