Seattle Genetics (Nasdaq: SGEN) Trepidation

Biotech Stock Has Appeal on Weakness

Seattle Genetics (Nasdaq: SGEN) was a company I followed off-wire as an analyst, and kept on my radar for potential initiation into coverage. That was when the stock traded at $5, and before I left my Senior Equity Analyst position at Standard & Poor's. It was on a short list, and unfortunately my followers never learned of it. The company is now on the cusp of gaining FDA approval for a novel and effective cancer drug, but it was downgraded by two analysts this week, and slipped to $14. So we thought we would take a look for you.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

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Seattle Genetics (Nasdaq: SGEN) Trepidation

Seattle Genetics (Nasdaq: SGEN) is a company I had on my prospects list when I was an analyst, and a firm my old employer might have benefited from had I stayed put. When I followed the stock, it traded in the $5 range. Admittedly, it was one of those companies I heard about from an unsophisticated though still savvy investor, my Uncle Tom, who I use to love to chat stocks with over the holidays. This was a company though that checked out after Uncle T's mention. SGEN now has collaborations with medicine mainstays like Bayer (OTC: BAYRY.PK), Genentech (NYSE: DNA), Millennium, GlaxoSmithKline (NYSE: GSK) and is held by major investment managers like Fidelity, T. Rowe Price (Nasdaq: TROW), Oppenheimer, Federated Investors (NYSE: FII), Wellington, etc. I kept it on the radar for other reasons...

In particular, I liked the idea behind its drug development. Seattle Genetics genetically engineers monoclonal antibodies to fight disease. I found it novel, and the approach to treating disease made sense to me as well. Inspiring and employing the body's immune system to win the battle just makes sense. Why do some people get cancer and others do not, and some overcome it and others do not? The factors that come to play within individual immune systems seem to obviously play important role in answering those questions. Seattle Genetics goes a step further by loading its antibodies with potent cell killing chemicals that release after the bomb has embedded itself inside the disease. Meanwhile, the company is also adding some extra punch to its drug development line, creating some antibodies that kill foreign bodies on their own, and in some cases juicing up that talent through more genetic engineering.

Back in the earlier part of this decade the company also seemed a sure beneficiary of terrorism tied tensions, given its pill delivered drug that targets and is effective against Small Pox. However, Seattle Genetics has since moved into larger less speculative markets. It currently has several cancer drugs in clinical stage development that have the investment community excited. Well, at least it was mostly that way until Monday.

SGEN has been downgraded to sell by two analysts (Canaccord Genuity and Brean Murray) over the last few days. One held a buy rating and the other a hold before the cuts. The stock dropped 4.8% Monday, which was also the day it reported its earnings results. It fell another 9% Tuesday, but was still quite higher than when it was on my radar screen as an analyst (at $14+ today). So, we thought we would take a look at it for you here, since an opportunity might exist now or when the stock eventually settles.

The company has made significant gains in the progress of its lead drug, Brentuximab Vedotin (SGN-35) or B-Vedotin, as the company's CEO calls it. Management's goal remains to gain FDA approval in 2011 for use treating cases of relapsed refractory Hodgkin Lymphoma and also relapsed and refractory systemic anaplastic large cell lymphoma, or sALCL. About 8K to 9K individuals in the US are diagnosed with Hodgkin lymphoma yearly, and would be treatable nearly immediately. SGEN sees potential for frontline use as well, in conjunction with chemotherapies and also other novel drugs, as tests prove out. Finally, the company hopes the drug can be effective against other cancers that exhibit similar characteristics (CD-30 positive hematologic malignancies), and it is testing drugs for pancreatic and prostate cancer among a few.

Seattle Genetics is in solid financial position, as it prepares for submission of B-Vedotin to the FDA in the first part of 2011. Revenues of $16 million were up 38% from the prior year, and were driven by amounts earned under ADC collaborations, especially via the expansion of its collaboration with Genentech. It also reflects amounts earned under the company's collaboration with Millennium, who will market the B-Vedotin product in Europe and will seek EU approval in 2011. The company's operating expenses increased as planned, and were driven by its investments in B-Vidoten to drive clinical programs forward, to prepare for drug manufacturing and prepare for Biologics License Application (BLA) submission.

The company ended the quarter in strong financial position with $315 million in cash and investments, up $28 million year-to-date. This, and its revenue, reflect payments received from Millennium on milestones reached and its expanded Genentech collaboration. The company's managers say revenues will exceed the top end of guidance and expect to end the year with more cash than previously forecast. 2011 expenses will increase as they initiate additional clinical trials and build the commercial infrastructure with anticipation of product launch in the second half of 2011.

The company reports unprecedented success rates in its trials, and fully expects to receive FDA approvals, at least for use treating Hodgkins lymphoma (75% objective response rate in trial) in some manner. It has, thus, gotten to work in setting up production capacity in order to have a significant launch next year. SGEN's CEO says, and I believe in his tone, that it is first and foremost, in order to provide these drugs to people who need them.

What I have gathered from my review of the conference call was that there was some trepidation with the progress of SGN-35 for use in sALCL treatment (86% objective response in trial). These concerns may prove unwarranted given the reported success by management, but I sensed some risk as well. Given the high expectations of FDA approvals, any delay in that process comes to play in cash flow forecasts. Perhaps there are also some concerns about the potential to even attain early approval for the ALCL usage, as testing is thus far inadequate (though precedent exists for passage). These things impact forecasts which impact valuation, and uncertainty is never good for stocks.

Given that I have given all but a day to my latest review of this company (relearning it even), I cannot say what cash flow forecasts look like, and I cannot even say I have seen another analyst's outlook. I required 3 to 5 days to put together thorough analysis as an analyst, while negligent and poor managers sought a one day turnaround. I would not budge then, nor will I now, especially on this complicated business that requires industry insight or otherwise special smarts. Therefore, for now, I will refrain from making a formal call.

However, I can say that an unscientific view of the company's progress and this setback would lead me to lean toward seeking opportunity to buy versus to sell the stock in the short-term, if I were an analyst or investor here. Without making a guarantee, I hope to take an even deeper look into the analyses produced by the analyst community here and speak with management, and to sift the data carefully to give a buysider's view on the stock in the near-term. Remember, I was a sell-side analyst, doing all the ground work myself in the past and producing formal reports; entertaining calls of portfolio managers; and generally getting on the horn behind my picks. So, for now, let's just say SGEN looks interesting. Drugs like Seattle Genetics' SGN-35 already have established a market near $2 billion in size, and the drug looks disruptive.



The article should be relative to investors in Biotechnology stocks: Amgen (Nasdaq: AMGN), Gilead Sciences (Nasdaq: GILD), Celgene (Nasdaq: CELG), Genzyme (Nasdaq: GENZ), Biogen Idec (Nasdaq: BIIB), Life Technologies (Nasdaq: LIFE), Illumina (Nasdaq: ILMN), Dendreon (Nasdaq: DNDN), Human Genome Sciences (Nasdaq: HGSI), Qiagen (Nasdaq: QGEN), Abraxis BioScience (Nasdaq: ABII), Amylin Pharmaceuticals (Nasdaq: AMLN), Talecris Biotherapeutics (Nasdaq: TLCR), BioMarin Pharmaceutical (Nasdaq: BMRN), Techne (Nasdaq: TECH), Regeneron (Nasdaq: REGN), Charles River Labs (NYSE: CRL), Incyte (Nasdaq: INCY), Medicis (NYSE: MRX), Onyx (Nasdaq: ONXX), Savient (Nasdaq: SVNT), Theravance (Nasdaq: THRX), Acorda (Nasdaq: ACOR), ViroPharma (Nasdaq: VPHM), XOMA (Nasdaq: XOMA), ZymoGenetics (Nasdaq: ZGEN), Martek (Nasdaq: MATK), Halozyme (Nasdaq: HALO), InterMune (Nasdaq: ITMN), MannKind (Nasdaq: MNKD), Enzon (Nasdaq: ENZN), Momenta (Nasdaq: MNTA), Targacept (Nasdaq: TRGT), Questcor (Nasdaq: QCOR), PDL BioPharma (Nasdaq: PDLI), Emergent BioSolutions (NYSE: EBS), Alnylam (Nasdaq: ALNY), VIVUS (Nasdaq: VVUS), Micromet (Nasdaq: MITI), Sequenom (Nasdaq: SQNM), Clinical Data (Nasdaq: CLDA), Lexicon (Nasdaq: LXRX), Eurand NV (Nasdaq: EURX), Exelixis (Nasdaq: EXEL), Medivation (Nasdaq: MDVN), Cadence (Nasdaq: CADX), Jazz (Nasdaq: JAZZ), NPS (Nasdaq: NPSP), Ariad (Nasdaq: ARIA), Immunogen (Nasdaq: IMGN), Optimer (Nasdaq: OPTR), Neurocrine (Nasdaq: NBIX), PROLOR (Nasdaq: PBTH), QLT (Nasdaq: QLTI), Codexis (Nasdaq: CDXS), 3SBio (Nasdaq: SSRX), AVEO Pharmaceuticals (Nasdaq: AVEO), Cell Therapeutics (Nasdaq: CTIC), Bacterin (OTC: BIHI.OB), Exact Sciences (Nasdaq: EXAS), Osiris (Nasdaq: OSIR), Corcept Therapeutics (Nasdaq: CORT), Dyax (Nasdaq: DYAX), China Biologic (Nasdaq: CBPO), Novavax (Nasdaq: NVAX), Obagi Medical (Nasdaq: OMPI), Cytori Therapeutics (Nasdaq: CYTX), Chelsea Therapeutics (Nasdaq: CHTP), Idenix (Nasdaq: IDIX), Xenoport (Nasdaq: XNPT), BioCryst (Nasdaq: BCRX), Nabi (Nasdaq: NABI).

Monday's other EPS reports included news from Allergan (NYSE: AGN), Baker Hughes (NYSE: BHI), Consolidated Edison (NYSE: ED), Corning (NYSE: GLW), Evergreen Solar (Nasdaq: ESLR), Humana (NYSE: HUM), Loews (NYSE: L), MEMC Electronic Materials (NYSE: WFR), Nam Tai Electronics (NYSE: NTE), and Pactiv (NYSE: PTV). The rest of the day’s EPS includes reports from Acorda Therapeutics (Nasdaq: ACOR), Administaff (NYSE: ASF), Akorn (Nasdaq: AKRX), Alberto Culver (NYSE: ACV), Alere (NYSE: ALR), Alexander’s (NYSE: ALX), Altra Holdings (Nasdaq: AIMC), American Financial Group (NYSE: AFG), Anadarko Petroleum (NYSE: APC), Anadigics (Nasdaq: ANAD), Arthrocare (Nasdaq: ARTC), Atlas Air (Nasdaq: AAWW), Axis Capital (NYSE: AXS), BankFinancial (Nasdaq: BFIN), Brigham Exploration (Nasdaq: BEXP), Brookdale Senior Living (NYSE: BKD), Calgon Carbon (NYSE: CCC), Carmike Cinemas (Nasdaq: CKEC), Carolina Trust Bank (Nasdaq: CART), CFS Bancorp (Nasdaq: CZFS), Chelsea Therapeutics (Nasdaq: CHTP), Cleco (NYSE: CNL), CNA Financial (NYSE: CNA), Cognex (Nasdaq: CGNX), Cognizant Technology (Nasdaq: CTSH), Comstock Resources (NYSE: CRK), Concurrent Computer (Nasdaq: CCUR), Cooper Tire & Rubber (NYSE: CTB), Corporate Executive Board (Nasdaq: EXBD), Credit Acceptance (Nasdaq: CACC), Cross Country Healthcare (Nasdaq: CCRN), Cumulus Media (Nasdaq: CMLS), Cutera (Nasdaq: CUTR), CVR Energy (NYSE: CVI), Dale Jarrett Racing (Nasdaq: DJRT), Deltek (Nasdaq: PROJ), Depomed (Nasdaq: DEPO), Drew Industries (NYSE: DW), Ducommun (NYSE: DCO), DXP Enterprises (Nasdaq: DXPE), Endo Pharmaceuticals (Nasdaq: ENDP), Everest Re (NYSE: RE), Extreme Networks (Nasdaq: EXTR), First Franklin (Nasdaq: FFHS), Flagstone Reinsurance (NYSE: FSR), Forest Oil (NYSE: FST), Franklin Electric (Nasdaq: FELE), Frozen Food Express (Nasdaq: FFEX), Gladstone Commercial (Nasdaq: GOOD), Global Crossing (Nasdaq: GLBC), Guidance Software (Nasdaq: GUID), Haemonetics (NYSE: HAE), Harleysville Group (Nasdaq: HGIC), Herbalife (NYSE: HLF), Heritage Financial (Nasdaq: HFWA), HFF (NYSE: HF), Hopfed Bancorp (Nasdaq: HFBC), Hutchinson Technology (Nasdaq: HTCH), Imperial Oil Limited (AMEX: IMO), Interactive Intelligence (Nasdaq: ININ), IntercontinentalExchange (NYSE: ICE), Interline Brands (NYSE: IBI), International Bancshares (Nasdaq: IBOC), Intevac (Nasdaq: IVAC), IPG Photonics (Nasdaq: IPGP), JinkoSolar (NYSE: JKS), Kaman Corp. (Nasdaq: KAMN), Kforce (Nasdaq: KFRC), Kindred Healthcare (NYSE: KND), K-Sea Transportation (NYSE: KSP), Kubota (NYSE: KUB), LeapFrog (NYSE: LF), LHC Group (Nasdaq: LHCG), LookSmart (Nasdaq: LOOK), Louisiana Bancorp (Nasdaq: LABC), LSB Financial (Nasdaq: LSBI), MAM Software (Nasdaq: MAMS), Maui Land & Pineapple (NYSE: MLP), McGrath Rentcorp (Nasdaq: MGRC), Meadowbrook Insurance (NYSE: MIG), MEMC Electronic Materials (NYSE: WFR), Mercer International (Nasdaq: MERC), Mercury General (NYSE: MCY), MicroStrategy (Nasdaq: MSTR), Microvision (Nasdaq: MVIS), Mindspeed Technologies (Nasdaq: MSPD), Momenta Pharmaceuticals (Nasdaq: MNTA), Monarch Community Bancorp (Nasdaq: MCBF), Morton’s Restaurant (NYSE: MRT), MPG Office Trust (NYSE: MPG), MSB Financial (Nasdaq: MSBF), Navarre (NYSE: NAVR), NL Industries (NYSE: NL), NutriSystem (Nasdaq: NTRI), Old Line Bancshares (Nasdaq: OLBK), Old National Bancorp (NYSE: ONB), Optibase (Nasdaq: OBAS), Orbotech (Nasdaq: ORBK), Orient Express Hotels (NYSE: OEH), Parexel (Nasdaq: PRXL), Parkway Properties (NYSE: PKY), Peapack Gladstone (Nasdaq: PGC), Penson Worldwide (Nasdaq: PNSN), Post Properties (NYSE: PPS), Provident Community Bancshares (Nasdaq: PCBS), PS Business Parks (NYSE: PSB), Regal Beloit (NYSE: RBC), REX Energy (Nasdaq: REXX), Rogers (NYSE: ROG), Rudolph Technologies (Nasdaq: RTEC), Sanmina-SCI (Nasdaq: SANM), Seattle Genetics (Nasdaq: SGEN), Senior Housing Properties (NYSE: SNH), Sify Limited (Nasdaq: SIFY), Simon Property Group (NYSE: SPG), Skilled Healthcare (NYSE: SKH), Smurfit-Stone Container (Nasdaq: SSCC), Southern Community Financial (Nasdaq: SCMF), Span-America Medical (Nasdaq: SPAN), SPAR Group (Nasdaq: SGRP), Stereotaxis (Nasdaq: STXS), Sterling Bancorp (NYSE: STL), Stewardship Financial (Nasdaq: SSFN), Summer Infant (Nasdaq: SUMR), Sykes Enterprises (Nasdaq: SYKE), Tasty Baking (Nasdaq: TSTY), Tengion (Nasdaq: TNGN), Terremark Worldwide (Nasdaq: TMRK), Texas Roadhouse (Nasdaq: TXRH), TGC Industries (Nasdaq: TGE), The Principal Group (NYSE: PFG), TNS Inc. (NYSE: TNS), Town & Country Financial (Nasdaq: TWCF), Unitrin (NYSE: UTR), Universal American (NYSE: UAM), Virtus Investment Partners (Nasdaq: VRTS), Voltaire (Nasdaq: VOLT), Vulcan Materials (NYSE: VMC), Weingarten Realty Investors (NYSE: WRI), Weyco (Nasdaq: WEYS), Wilmington Trust (NYSE: WL), Winn-Dixie (Nasdaq: WINN) and WMS Industries (NYSE: WMS).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Procter & Gamble (NYSE: PG) Looks a Safe Bet

Greek Pick: PG

Despite drags on sales and pressure on margins, this stockpile of American staple brands is making market share inroads across the globe and driving steady growth with a decent dividend to boot. In our estimation, growth is underestimated and Procter & Gamble's P/E ratio overstated as well. Thus, in my estimation, NYSE: PG shares look to provide a 15% return on capital over the next year. But keep your eye on petrochemical prices and commodity pressures as the key risk to a PG investment.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative tickers: NYSE: CL, NYSE: KMB, NYSE: AVP, NYSE: EL, NYSE: ENR, NYSE: ACV, NYSE: NUS, NYSE: REV, Nasdaq: IPAR, Nasdaq: RDEN, NYSE: BTH, Nasdaq: FHCO, Nasdaq: UG, Nasdaq: PARL, Nasdaq: FACE, AMEX: CAW, Nasdaq: SYMC, NYSE: S, NYSE: TER, NYSE: IP, Nasdaq: ESRX, Nasdaq: ATX, NYSE: ABD, NYSE: ACE, Nasdaq: ACXM, NYSE: AEA, Nasdaq: AFFX, NYSE: AEM, Nasdaq: AKAM, NYSE: AYE, Nasdaq: ALGT, NYSE: AIQ, Nasdaq: AHGP, Nasdaq: ARLP, NYSE: AB, NYSE: AMX, Nasdaq: ARII, NYSE: ASI, Nasdaq: ARGN, NYSE: AMP, Nasdaq: ARRS, NYSE: ARW, NYSE: AHL, NYSE: AIZ, NYSE: AUO, NYSE: ADP, NYSE: AVB, NYSE: AVY, NYSE: BEZ, NYSE: BYI, Nasdaq: BBVA, NYSE: BBD, NYSE: BEC, Nasdaq: BOKF, Nasdaq: BOLT, NYSE: BWA, Nasdaq: BPFH, NYSE: BDN, NYSE: EAT, Nasdaq: BVSN, NYSE: BKI, Nasdaq: CACI, Nasdaq: CDNS, NYSE: CWT, NYSE: CP, NYSE: CAJ, NYSE: CMO, Nasdaq: CAVM, NYSE: CDR, NYSE: CLS, Nasdaq: CETV, Nasdaq: CITZ, NYSE: ZNH, NYSE: CHH, NYSE: CHT, Nasdaq: CINF, Nasdaq: CMCSA, NYSE: CTV, NYSE: CYH, NYSE: COP, NYSE: OFC, NYSE: CCI, NYSE: DEL, NYSE: DB, NYSE: DHT, NYSE: DPS, NYSE: DRE, Nasdaq: DYAX, Nasdaq: DRCO, NYSE: ELN, NYSE: EOC, NYSE: EEQ, Nasdaq: WIRE, Nasdaq: ELGX, NYSE: EGN, NYSE: ENI, AMEX: EGT, Nasdaq: ENTR, NYSE: EFX, NYSE: ETH, Nasdaq: EEFT, Nasdaq: EXAS, Nasdaq: DAVE, Nasdaq: FFCH, Nasdaq: FLEX, NYSE: FLS, NYSE: FMC, Nasdaq: FXCB, NYSE: GD, NYSE: GMR, Nasdaq: GLCH, NYSE: GG, Nasdaq: GOLF, Nasdaq: GSIC, Nasdaq: GTCB, NYSE: HGR, NYSE: HTS, NYSE: HMA, NYSE: HLX, Nasdaq: HERO, Nasdaq: IACI, Nasdaq: ISIG, Nasdaq: ISSI, Nasdaq: IDCC, Nasdaq: IFSIA, NYSE: ISH, Nasdaq: IRBT, Nasdaq: ITRI, NYSE: JMP, Nasdaq: JBSS, NYSE: KYO, NYSE: LVS, NYSE: LAZ, NYSE: LM, NYSE: LAD, Nasdaq: LTFD, Nasdaq: LOGI, Nasdaq: LOGM, Nasdaq: LOJN, Nasdaq: LOOP, NYSE: LSI, NYSE: MPX, Nasdaq: MKTX, NYSE: MSO, NYSE: MHH, NYSE: MWV, Nasdaq: MDAS, NYSE: MTH, Nasdaq: MERU, Nasdaq: MORN, Nasdaq: NWK, Nasdaq: NICE, NYSE: NSC, NYSE: NVO, Nasdaq: ODFL, Nasdaq: OMCL, Nasdaq: ORLY, Nasdaq: OFIX, NYSE: OC, Nasdaq: PFCB, NYSE: PTI, Nasdaq: PRAA, Nasdaq: POWI, NYSE: PX, Nasdaq: PROV, Nasdaq: PEG, Nasdaq: RDWR, NYSE: RA, Nasdaq: RWCB, NYSE: RNR, NYSE: RYL, Nasdaq: SGMO, NYSE: SAP, Nasdaq: SVVS, NYSE: SEE, NYSE: SSW, Nasdaq: SIGI, NYSE: SXT, NYSE: SCI, Nasdaq: SMED, NYSE: SHG, Nasdaq: SFLY, Nasdaq: SIFI, Nasdaq: SLAB, Nasdaq: SPIL, NYSE: SHI, NYSE: SKM, NYSE: SKX, Nasdaq: SCKT, NYSE: SOA, Nasdaq: FIRE, NYSE: SO, Nasdaq: SRCL, NYSE: RGR, NYSE: SXL, Nasdaq: SUSQ, NYSE: SYA, Nasdaq: TASR, NYSE: TER, NYSE: ALL, NYSE: EML, NYSE: JNY, NYSE: TMO, Nasdaq: TOMO, NYSE: TMK, Nasdaq: CLUB, NYSE: TRH, NYSE: TRN, Nasdaq: TQNT, NYSE: TYL, NYSE: UMC, Nasdaq: UVSP, NYSE: UPI, Nasdaq: USMO, Nasdaq: VALE, Nasdaq: VMED, Nasdaq: VRTU, NYSE: V, Nasdaq: VISN, NYSE: WAB, Nasdaq: WFD, NYSE: WHR, NYSE: WLL, NYSE: WSH.

Procter & Gamble (NYSE: PG)

12 Month Total Return Target: +15%
Today's Closing Price: $63

This American icon sells products including Gillette Razors, Tide Detergent, Pantene Shampoo, Crest Toothpaste and other products that fill your cabinets. The company is boosting growth via expansion and market share gains into India, China and other emerging and developed markets. Its staple businesses and brands, and clever operational strategy, make it a must own for many institutional portfolio managers most of the time.

Procter & Gamble (NYSE: PG) reported quarterly results today that exceeded Wall Street's views. PG shares settled after spiking on the open, but moved higher into the close. The company reported EPS from continuing operations grew 5.2% in its quarter ended September. It's EPS from continuing operations, which exclude a sold pharmaceutical business, reached $1.02, versus $0.97 in the year ago period. The result exceeded P&G's guidance range of $0.97 to $1.01 and beat Wall Street's view for $1.00, based on Thomson Reuters data.

Procter & Gamble's sales were up 2% in the quarter, to $20.1 billion, falling short of the analysts' consensus for $20.2 billion. P&G made up for the top-line miss though with organic sales growth of 4%; this excludes factors such as acquisitions, divestitures and currency changes. Organic growth was driven by "broad-based volume and market share gains," according to P&G. Volume was up 8%. The company recorded growth in all major geographic regions and in five of its six business segments. P&G also noted market share gains in 13 of 17 countries and in 17 of its 23 billion dollar brands. This is what keeps analysts on board, as the company is making inroads for growth, and also positioning for extra lift out of economic trough.

Several factors are coming into play with regard to P&G's operating environment. Economic recession typically spares consumer staple sector shares, as investors flock to them for their more sure sales of consumer necessities like razors and soap. However, as anyone in a bind will tell you, the use of razors, deodorant, and other so-called necessities will decrease when money needs to be saved badly enough. Thus, even consumer staples can be affected by declines in economic activity, but certainly to a lesser degree than businesses that earn revenues from activities like eating out, travel and the purchase of luxuries.

P&G's sales came under pressure this quarter due to: geographies of operations and product mix (-2%); pricing (-1%); and unfavorable foreign exchange (-3%). Furthermore, Procter & Gamble shed 70 basis points on its gross margin line, due to rising commodity costs. The resin for the plastic bottles it packages its goods within and the paper pulp it uses to produce its paper goods like Charmin and Bounty products have seen steep increase. The company's peers are reporting the same issues, with Kimberly-Clark (NYSE: KMB) posting a 19% earnings decline last week on rising commodity costs. However, the company is not expected to push through costs to consumers, except via new and "improved" product line options for less price sensitive clientele. Instead, the company's CEO, Bob McDonald, says P&G will make up for it in cost savings. In its most recent quarter, P&G cut 60 basis points off its SG&A expense line on improved productivity, lower forex costs, and reduced overhead spending.

P&G continues to be a cash cow, money making machine, producing $2.5 billion in cash flow last quarter and $1.9 billion in free cash flow. The company forecast Q4 EPS from continuing operations will increase 4-10%, to $1.05 to $1.11 per share. That compares to analysts' expectations for $1.11, but P&G looks to have a record of conservative corporate estimation and solid execution. According to Yahoo Finance, PG has beaten the Street four out of the last five quarters. The company set its FY 11 (June) guidance at $3.91 to $4.01, or up 11-14%.

The stock currently trades at a P/E ratio of 15.7X the high end of its FY 11 guidance range, which, it seems to us, it is likely to attain (given its history). Before adjustment for today's result, analysts were looking for $3.97 for the full fiscal year; that will increase at least a couple points to make up for the most recent quarterly result. The P/E ratio sits above the 10% growth forecast for the company's EPS this fiscal year, but PG also offers shareholders a dividend of 3%. Considering the fact that management has likely understated growth, and the fact that this is a half year forecast, not full year, the stock looks worth owning for a seemingly reliable 15%+ return over the next 6-12 months in my view.

My greatest concern though, and what I would suggest prospective investors keep an eye on, is increasing pressure on petrochemical prices and commodities generally. I expect rising resource demand from emerging markets and economic stability-to-growth to again pressure commodity prices, and potentially pricing generally (yes inflation, while the Fed focuses on deflation). Thus, war with Iran is also a bad thing for PG (and everybody else), since it would hike petrochemicals in a hurry. So, with that risk/return analysis I leave you with the rest of the day's EPS reporters.



This article should also interest NYSE: PG peers: Colgate-Palmolive (NYSE: CL), Kimberly-Clark (NYSE: KMB), Avon (NYSE: AVP), Estee Lauder (NYSE: EL), Energizer (NYSE: ENR), Alberto-Culver (NYSE: ACV), Nu-Skin Enterprises (NYSE: NUS), Revlon (NYSE: REV), Inter Parfums (Nasdaq: IPAR), Elizabeth Arden (Nasdaq: RDEN), Blyth (NYSE: BTH), Female Health (Nasdaq: FHCO), United Guardian (Nasdaq: UG), Parlux Fragrances (Nasdaq: PARL), Physicians Formula (Nasdaq: FACE), CCA Industries (AMEX: CAW).

The remainder of the day’s EPS results emanated from: Symantec (Nasdaq: SYMC), Sprint Nextel (NYSE: S), Teradyne (NYSE: TER), International Paper (NYSE: IP), Express Scripts (Nasdaq: ESRX), A.T. Cross (Nasdaq: ATX), ACCO Brands (NYSE: ABD), ACE Limited (NYSE: ACE), Acxiom (Nasdaq: ACXM), Advance America Cash America (NYSE: AEA), Affymetrix (Nasdaq: AFFX), Agnico-Eagle Mines (NYSE: AEM), Akamai (Nasdaq: AKAM), Allegheny Energy (NYSE: AYE), Allegiant Travel (Nasdaq: ALGT), Alliance Healthcare (NYSE: AIQ), Alliance Holdings (Nasdaq: AHGP), Alliance Resource Partners (Nasdaq: ARLP), AllianceBernstein (NYSE: AB), America Movil (NYSE: AMX), American Railcar (Nasdaq: ARII), American Safety Insurance (NYSE: ASI), Amerigon (Nasdaq: ARGN), Ameriprise Financial (NYSE: AMP), Arris Group (Nasdaq: ARRS), Arrow Electronics (NYSE: ARW), Aspen Insurance (NYSE: AHL), Assurant (NYSE: AIZ), AU Optronics (NYSE: AUO), Automated Data Processing (NYSE: ADP), Avalonbay Communities (NYSE: AVB), Avery Dennison (NYSE: AVY), Baldor Electric (NYSE: BEZ), Bally Technologies (NYSE: BYI), BBVA (Nasdaq: BBVA), Banco Bradesco (NYSE: BBD), Beckman Coulter (NYSE: BEC), BOK Financial (Nasdaq: BOKF), Bolt Technology (Nasdaq: BOLT), BorgWarner (NYSE: BWA), Boston Private (Nasdaq: BPFH), Brandywine Realty Trust (NYSE: BDN), Brinker International (NYSE: EAT), Broadvision (Nasdaq: BVSN), Buckeye Technologies (NYSE: BKI), CACI International (Nasdaq: CACI), Cadence Design (Nasdaq: CDNS), California Water Service (NYSE: CWT), Canadian Pacific Railway (NYSE: CP), Canon (NYSE: CAJ), Capstead Mortgage (NYSE: CMO), Cavium Networks (Nasdaq: CAVM), Cedar Shopping Centers (NYSE: CDR), Celestica (NYSE: CLS), Central European Media (Nasdaq: CETV), CFS Bancorp (Nasdaq: CITZ), China Southern Airlines (NYSE: ZNH), Choice Hotels (NYSE: CHH), Chunghwa Telecom (NYSE: CHT), Cincinnati Financial (Nasdaq: CINF), Comcast (Nasdaq: CMCSA), CommScope (NYSE: CTV), Community Health Systems (NYSE: CYH), ConocoPhillips (NYSE: COP), Cornerstone Bancshares (Nasdaq: CSBQ), Corporate Office Properties (NYSE: OFC), Crown Castle (NYSE: CCI), Cullin/Frost Bankers (NYSE: CFR), Deltic Timber (NYSE: DEL), Deutsche Bank (NYSE: DB), DHT Holdings (NYSE: DHT), Dr. Pepper Snapple (NYSE: DPS), Duke Realty (NYSE: DRE), Dyax (Nasdaq: DYAX), Dynamics Research (Nasdaq: DRCO), Elan Corp. (NYSE: ELN), Endesa Chile (NYSE: EOC), Enbridge Energy (NYSE: EEQ), Encore Wire (Nasdaq: WIRE), Endologix (Nasdaq: ELGX), Energen (NYSE: EGN), Enersis (NYSE: ENI), Entertainment Gaming Asia (AMEX: EGT), Entropic Communications (Nasdaq: ENTR), Equifax (NYSE: EFX), Equity Residential (NYSE: EQR), Ethan Allen (NYSE: ETH), Euronet (Nasdaq: EEFT), EXACT Sciences (Nasdaq: EXAS), Famous Dave’s (Nasdaq: DAVE), First Financial (Nasdaq: FFCH), First Bancorp Michigan (Nasdaq: FBMI), FirstService (Nasdaq: FSRV), Five Star Quality Care (AMEX: FVE), Flagstar Bancorp (NYSE: FBC), Flextronics (Nasdaq: FLEX), Flowserve (NYSE: FLS), FMC (NYSE: FMC), FMC Tech (NYSE: FTI), Fox Chase Bancorp (Nasdaq: FXCB), General Dynamics (NYSE: GD), General Maritime (NYSE: GMR), Gleacher (Nasdaq: GLCH), Goldcorp (NYSE: GG), Golfsmith (Nasdaq: GOLF), Grupo Aeroportuario del Pacifico (NYSE: PAC), GSI Commerce (Nasdaq: GSIC), GTC Biotherapeutics (Nasdaq: GTCB), Hanesbrands (NYSE: HBI), Hanger Orthopedic (NYSE: HGR), Hatteras Financial (NYSE: HTS), Health Management Associates (NYSE: HMA), Helix Energy (NYSE: HLX), Hercules Offshore (Nasdaq: HERO), Hess (NYSE: HES), Hill-Rom (NYSE: HRC), Hudson Highland (Nasdaq: HHGP), Hudson Valley Holding (Nasdaq: HUVL), IAC (Nasdaq: IACI), Insignia Systems (Nasdaq: ISIG), Integrated Silicon Solution (Nasdaq: ISSI), InterDigital (Nasdaq: IDCC), Interface (Nasdaq: IFSIA), International Coal Group (NYSE: ICO), International Shipholding (NYSE: ISH), IPC (Nasdaq: IPCM), iRobot (Nasdaq: IRBT), ITC Holdings (Nasdaq: ITC), Itron (Nasdaq: ITRI), JMP Group (NYSE: JMP), John B. Sanfilippo & Son (Nasdaq: JBSS), Kadant (NYSE: KAI), Kirby (NYSE: KEX), Kyocera (NYSE: KYO), Las Vegas Sands (NYSE: LVS), Lazard (NYSE: LAZ), LeCroy (Nasdaq: LCRY), Legacy Bancorp (Nasdaq: LEGC), Legg Mason (NYSE: LM), Lincoln Electric (Nasdaq: LECO), Lithia Motors (NYSE: LAD), Littlefield (Nasdaq: LTFD), Logitech (Nasdaq: LOGI), Logmein (Nasdaq: LOGM), LoJack (Nasdaq: LOJN), LoopNet (Nasdaq: LOOP), LSI (NYSE: LSI), ManTech (Nasdaq: MANT), Marine Products (NYSE: MPX), MarketAxess (Nasdaq: MKTX), Martha Stewart Living (NYSE: MSO), Mastech (NYSE: MHH), MDC Partners (Nasdaq: MDCA), MeadWestVaco (NYSE: MWV), MedAssets (Nasdaq: MDAS), Meritage Homes (NYSE: MTH), MERU Networks (Nasdaq: MERU), Methanex (Nasdaq: MEOH), Monarch Financial (Nasdaq: MNRK), Morningstar (Nasdaq: MORN), Ness Tech (Nasdaq: NSTC), Net Servicos (Nasdaq: NETC), Network Equipment Technologies (Nasdaq: NWK), New York Community Bancorp (NYSE: NYB), Newport (Nasdaq: NEWP), NICE Systems (Nasdaq: NICE), Noranda Aluminum (NYSE: NOR), Norfolk Southern (NYSE: NSC), Northrop Grumman (NYSE: NOC), Novo Nordisk (NYSE: NVO), Office Depot (NYSE: ODP), Owens-Illinois (NYSE: OI), Old Dominion Freight (Nasdaq: ODFL), Omnicell (Nasdaq: OMCL), Open Text (Nasdaq: OTEX), Orchids Paper (AMEX: TIS), O’Reilly Automotive (Nasdaq: ORLY), Orthofix International (Nasdaq: OFIX), Owens Corning (NYSE: OC), P.A.M. Transportation (Nasdaq: PTSI), PF Chang’s (Nasdaq: PFCB), Patni Computer (NYSE: PTI), Penn Virginia (NYSE: PVG), Penn Virginia Resources (NYSE: PVR), Pinnacle Data Systems (AMEX: PNS), Plexus (Nasdaq: PLXS), Portfolio Recovery Associates (Nasdaq: PRAA), Power Integrations (Nasdaq: POWI), Praxair (NYSE: PX), Provident Financial (Nasdaq: PROV), PSE&G (Nasdaq: PEG), QCR Holdings (Nasdaq: QCRH), Quantum (NYSE: QTM), Quidel (Nasdaq: QDEL), Radware (Nasdaq: RDWR), RailAmerica (NYSE: RA), Range Resources (NYSE: RRC), Realty Income (NYSE: O), Redwood Capital (Nasdaq: RWCB), RenaissanceRe (NYSE: RNR), Rollins (NYSE: ROL), RPC (NYSE: RES), Ryland Group (NYSE: RYL), SanGamo Biosciences (Nasdaq: SGMO), SAP (NYSE: SAP), Savvis (Nasdaq: SVVS), SCANA (NYSE: SCG), Sealed Air (NYSE: SEE), Seaspan (NYSE: SSW), Selective Insurance (Nasdaq: SIGI), Sensient (NYSE: SXT), Service Corp. (NYSE: SCI), SFN Group (NYSE: SFN), Sharps Compliance (Nasdaq: SMED), Shinhan Financial (NYSE: SHG), Shutterfly (Nasdaq: SFLY), SI Financial (Nasdaq: SIFI), Silicon Laboratories (Nasdaq: SLAB), Siliconware Precision Industries (Nasdaq: SPIL), Simsbury (Nasdaq: SBTB), Sinopec Shanghai Petrochemical (NYSE: SHI), SJW (NYSE: SJW), SK Telecom (NYSE: SKM), Skechers USA (NYSE: SKX), Socket Mobile (Nasdaq: SCKT), Solutia (NYSE: SOA), Sourcefire (Nasdaq: FIRE), Southern Co. (NYSE: SO), Spectranetics (Nasdaq: SPNC), Stericycle (Nasdaq: SRCL), Sturm Ruger (NYSE: RGR), Sunoco Logistics (NYSE: SXL), Superior Energy (NYSE: SPN), Susquehanna Bancshares (Nasdaq: SUSQ), Symetra Financial (NYSE: SYA), Taser International (Nasdaq: TASR), TC Pipelines (Nasdaq: TCLP), Teradyne (NYSE: TER), The Allstate (NYSE: ALL), The Eastern Co. (NYSE: EML), The Jones Group (NYSE: JNY), The Medicines (Nasdaq: MDCO), Thermo Fisher Scientific (NYSE: TMO), TomoTherapy (Nasdaq: TOMO), Tompkins Financial (AMEX: TMP), Torchmark (NYSE: TMK), Tower Bancorp (Nasdaq: TOBC), Town Sports (Nasdaq: CLUB), Transatlantic Holdings (NYSE: TRH), Trinity Industries (NYSE: TRN), TriQuint Semiconductor (Nasdaq: TQNT), Tyler Tech (NYSE: TYL), UMB Financial (Nasdaq: UMBF), Unisource Energy (NYSE: UNS), United Bancorp (Nasdaq: UBCP), United Microelectronics (NYSE: UMC), Universal Health (NYSE: UHS), Universal Stainless and Alloy (Nasdaq: USAP), Univest (Nasdaq: UVSP), Uroplasty (NYSE: UPI), USA Mobility (Nasdaq: USMO), Vale (Nasdaq: VALE), Virgin Media (Nasdaq: VMED), ViroPharma (Nasdaq: VPHM), Virtusa (Nasdaq: VRTU), Visa (NYSE: V), VisionChina Media (Nasdaq: VISN), Vitamin Shoppe (NYSE: VSI), Wabtec (NYSE: WAB), Washington Real Estate (NYSE: WRE), Washington Trust (Nasdaq: WASH), Wausau Paper (NYSE: WPP), Westfield Financial (Nasdaq: WFD), Whirlpool (NYSE: WHR), Whiting Petroleum (NYSE: WLL), Willis Group (NYSE: WSH), Wintrust Financial (Nasdaq: WTFC), and WNS (NYSE: WNS).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Apple Pie (Nasdaq: AAPL)

"We still have a few surprises left for the remainder of this calendar year."
Steve Jobs

Those words alone have strategically carried AAPL shares since its mixed earnings release. We think it is going to take more prescient insight into the consumer electronics future and further amazing execution by the company's management team for Apple's pie, or its portion of the consumer electronics market share, to grow. Likewise, the value of its stock might seem attractive, but it incorporates these great expectations to some extent, setting it up for disappointment if it cannot deliver. What are you betting on?

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

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Apple Pie (Nasdaq: AAPL)

Apple reported its fiscal fourth quarter results Monday night and they were stellar indeed. However, a great company does not always make for a great stock investment. I hear you! I hear you! Even while the shares were down Tuesday, they have gained 47% this year. I give you that, but Apple's time in the sun must come to an end (or at least slow up a bit), as it is governed by Moore's Law.

For those of you unaware, Moore's Law, strictly defined, governs the rate of change in the technological development in computer hardware and semiconductors. Generally speaking, new technology is rendered obsolete in a matter of a couple years, by the rule of law. Well, modern times and slang have stretched the law to cover the rate of innovation in all high technology.

Apple has proven a disruptive force under the leadership of its iconic CEO Steve Jobs. Upon his return to the company, Apple took right to turning the consumer electronics world upside down again. The iPod marked the first breakthrough of the AJ period (After Jobs' return). Apple became the driving force in the mobile music market (do you still own a Walkman?), and dominates MP3 player rivals like Sony (NYSE: SNE) and SanDisk (Nasdaq: SNDK) today. I mention SanDisk because I like their cheap basic player a ton (less than $50, but don't tell my girlfriend who got it for her birthday – let's see if she reads me).

Apple sold 9.05 million iPods in its fiscal quarter ended September 25, reported Monday night. But the trend in the iPod market foreshadows the future I see for Apple. While those sales were huge, they were down 11% from the year ago period. That's due to intensified competition from players like SanDisk.

The company was able to hand the baton of growth over though to another blockbuster breakthrough, the second of the AJ period, the iPhone. iPhone sales were up 91% this quarter (over prior year), to 14.1 million units. That is characteristic of the disruption Apple created in the mobile market, turning basic mobile phones obsolete (except for a shrinking segment of the marketplace – for low priced), killing Motorola's business (NYSE: MOT) and putting Nokia (NYSE: NOK) on the defensive. Apple also blew established smart phone players like Palm nearly out of business, before its rescue by Hewlett-Packard (NYSE: HPQ). Research in Motion (Nasdaq: RIMM), with its BlackBerry models, now sits behind Apple in smart phone sales. RIM sold 12.1 million phones (2 million less than Apple) in its most recent fiscal quarter, which the cocky Apple Inc. pointed out in its press release.

And not leaving good enough alone, the aggressive disruptor took on Amazon's (Nasdaq: AMZN) Kindle Book Reader (read us on the Kindle) in its third major move for the AJ period; this of course came with its introduction of the iPad computing tablet. Apple sold 4.19 million iPads in its fiscal fourth quarter. The iPad may also be putting coffee table books on the shelf as well, at least in Upper East Side dental offices.

Indeed, Apple's revenues soared 77% over the prior year quarter, to $20.343 billion. Its net profit rocketed 70%, and its diluted EPS climbed 67.5% (lower than profit on share dilution), to $4.64 a share. These do not only represent corporate records, but awesome growth due to the size of increase and given the absolute value of sales. Meanwhile, the company accomplished this growth while giving back ground in its profit margins. But this also hints at where I'm going with my argument, and my more critical than Wall Street's wondrous expectations for Apple.

Apple's iPad sales were a disappointment this quarter, believe it or not, as analysts were looking for 4.5 million unit sales or so. This sent the stock lower in the aftermarket Monday night, but only after recent weeks of skyrocketing above the $300 mark. Thus, even while it was down on Tuesday, investors who took first stake just a short time ago were still in the green. Analysts also have supported their own momentum based forecasts for Apple, and they will ride the stock until it crashes for the most part. Their higher ups are telling them not to fight the tide (trust me), and with bonus season near and job security slim on Wall Street, it does not pay to argue with your boss, for the sake of your pocket anyway (your soul's sake is another story).

The Future: A Rotting Apple?

Disruptive as it has been, and as cocky as it remains, Apple must continue to innovate in the amazing fashion it has in order for the company to continue to justify an above average industry valuation. Steve Jobs hinted at his expectation to do so in his statement we republished atop this article. He says Apple has more surprises in store for us this year. I think I know what Apple is working on, and if I'm right, he just might be ready to take the stock much higher. Still, unless Jobs has a standing deal in place with the devil, and even though he is by far the consumer genius of our times, the continuation of this epic tale gets harder and harder to extend with time.

As an analyst, I believed in incorporating this type of management value-add (in this case genius) into the valuation of a company and into the success rate expected from R&D spending, commensurate market share gains, and EPS growth. But there are limits, and Apple seems to be testing them. Some analysts seem to me inebriated by Apple's success and their own buy opinions. This and the market's chasing of the shares this week, offers clear cut sign of an inevitable and eventual disappointment. The higher you raise expectations, you see, the more difficult they become to achieve. Apple is approaching impossible levels, but it's not there just yet.

Apple's pie is being sliced up among its competitors, even as it takes from the whole. We have seen look-alikes pop up in each of its product segments, and while they may not all live up to Apple standards, they do find buyer interest at varying price points. As the competition gets closer to Apple, the pioneer is forced to reduce price, and thus the give backs in margins. The iPad might still be taking share from Amazon's Kindle, but at the same time, it is losing share to Dell and others. As the lives of Apple's products begin to resemble the iPod, the company (and stock) will come under increased pressure to reinvent the wheel again, and also reinvent another wheel. In other words, it must stay atop the markets it is currently shocking, and also enter new markets in disruptive fashion to keep growing at its fantastic pace and to maintain an above average valuation.

My hat is tipped to Apple's management team, though I do not own one Apple product (feel free to send me one to sample and review). Apple clearly is a cut above, as a company, but as a stock, today may not represent the most opportune time to take an interest. But that is not so clear either.

The iPod is maturing and the competition is catching up. The iPhone is cutting edge, but the gauntlet has been long thrown down, and the competition is impressive. Google (Nasdaq: GOOG) recently sold more units of its Android phones in a month than Apple sold iPhones. Finally, the latest product, the iPad, seems less disruptive than the others, and thus, looks destined to reign on top for a shorter span (more likely behind the Kindle), especially given product introductions by rivals Dell (Nasdaq: DELL) and Research in Motion (Nasdaq: RIMM). Though Steve Jobs got on Apple's conference call for the first time in two years, and said the rival products were too small. The fact that he even addressed them says something.

Apple's shares rose with purpose heading into the EPS release, and then sold off after it; a typical buy the rumor, sell the news scenario. The stock closed the day down 2.7%, but is in the hands of day traders now and is slightly higher a day later.

Apple's Valuation

With its mix of businesses, Apple does not really have a pure peer; HP gets close though. Its P/E ratio of about 22X its trailing EPS does not seem too expensive when compared to historic growth, nor does it rate too high above analysts' forecast growth of 19% for the next few years. The tentative P/E ratio against FY 11 is 17.3, but that will likely move lower as analysts adjust forecasts to account for recent data. On a P/E basis, the stock is priced above Hewlett-Packard (NYSE: HPQ), Dell (Nasdaq: DELL), Microsoft (Nasdaq: MSFT), and Research in Motion (Nasdaq: RIMM). However, its expected growth rate justifies the valuation premium. The only question is, how reliable is the growth forecast?

While the stock appears to be worth buying today, much depends on its ability to continue to innovate. This is what justifies the elevated valuation, and the only dynamic factor that can sustain it. So, if you are buying Apple now, you are really banking on Steve Jobs and his team's ability to continue its streak of reinvention. Can Apple, now the second largest stock in the S&P 500 Index (behind Exxon Mobil (NYSE: XOM), based on market capitalization, stay on top of the stock market hill? History tells us that it's hard to stay on top.

"...if my intuition is correct, Apple may be about to bite into a new pie, where its disruptive ways could help its stellar growth continue and its stock price rise further as well."

Apple's special valuation has my attention but does not scare the hell out of me, despite the company's size and the difficulty to grow from such a heavy base point. My intuition tells me the stock could give back some ground in the near term, on the absence of news. However, I believe Jobs and his statement about another surprise coming, and if my intuition is correct, Apple may be about to bite into a new pie, where its disruptive ways could help its stellar growth continue and its stock price rise further as well. Thus, I would be looking to enter on weakness that might come on some macro factor, and I would use technical help to find that entry point. My untrained technical analyst's eye (I'm a fundamental analyst) tells me that is probably somewhere between $280 and $300, and I see a solid basement floor at $260. The stock trades today near $312.

I wonder if Jobs has a holiday season announcement planned for his latest invention, as the period is clearly key to any new product introduction. Maybe it will be the driver for 2011's EPS growth, but he stated the surprise would be announced in this calendar year. The one thing you can count on is that AAPL's near-term share performance will be tied to it and the rest of its pie eating as well.



Article should interest investors in Apple (Nasdaq: AAPL), Dell (Nasdaq: DELL), Research in Motion (Nasdaq: RIMM), Hewlett-Packard (NYSE: HPQ), Microsoft (Nasdaq: MSFT), Amazon.com (Nasdaq: AMZN), Nokia (NYSE: NOK), Corning (NYSE: GLW), Motorola (NYSE: MOT), Alcatel-Lucent (NYSE: ALU), Harris (NYSE: HRS), Tellabs (Nasdaq: TLAB), Sony (NYSE: SNE), Philips (NYSE: PHG), Panasonic (NYSE: PC), Hitachi (NYSE: HIT), Sensata (NYSE: ST), Hubbell (NYSE: HUB.B), Harman (NYSE: HAR), Generac (Nasdaq: GNRC), DTS (Nasdaq: DTSI), Fabrinet (NYSE: FN), Technicolor (NYSE: TCH), LSB Industries (NYSE: LXU), Universal Electronics (Nasdaq: UEIC), Vishay Precision (NYSE: VPG).

The day's EPS included news from EMC Corp. (NYSE: EMC), Bank of America (NYSE: BAC), Altera (Nasdaq: ALTR), Coca-Cola (NYSE: KO), Intuitive Surgical (Nasdaq: ISRG), Forest Labs (NYSE: FRX), A.O. Smith (NYSE: AOS), American Electric Power (NYSE: AEP), AmeriServ Financial (Nasdaq: ASRV), Astec Industries (Nasdaq: ASTE), Badger Meter (NYSE: BMI), Bank of New York Mellon (NYSE: BK), BigBand Networks (Nasdaq: BBND), Boston Scientific (NYSE: BSX), Cree (Nasdaq: CREE), Cybex International (Nasdaq: CYBI), Datalink (Nasdaq: DTLK), Dearborn Bancorp (Nasdaq: DEAR), Diamondrock Hospitality (NYSE: DRH), Dominos Pizza (NYSE: DPZ), Enterprise Financial Services (Nasdaq: EFSC), ESB Financial (Nasdaq: ESBF), FBR Capital Markets (Nasdaq: FBCM), Flexsteel Industries (Nasdaq: FLXS), Flint Telecom (Nasdaq: FLTTE), Flushing Financial (Nasdaq: FFIC), Frischs Restaurants (AMEX: FRS), FSI International (Nasdaq: FSII), Fulton Financial (Nasdaq: FULT), Gilead Sciences (Nasdaq: GILD), Goldman Sachs (NYSE: GS), Hancock Holding (Nasdaq: HBHC), Harley-Davidson (NYSE: HOG), Hawaiian Holdings (Nasdaq: HA), HDFC Bank (NYSE: HDB), Huaneng Power (NYSE: HNP), Hub Group (Nasdaq: HUBG), Illinois Toolworks (NYSE: ITW), Johnson & Johnson (NYSE: JNJ), Juniper Networks (Nasdaq: JNPR), Koss (Nasdaq: KOSS), LaBranche (NYSE: LAB), Lockheed Martin (NYSE: LMT), Manhattan Associates (Nasdaq: MANH), Marten Transport (Nasdaq: MRTN), Mercantile Bank (Nasdaq: MBWM), MGIC Investment (NYSE: MTG), Millicom International (Nasdaq: MICC), Mueller Industries (NYSE: MLI), NB&T Financial Group (Nasdaq: NBTF), Occidental Petroleum (NYSE: OXY), Omega Navigation (Nasdaq: ONAV), Omnicom (NYSE: OMC), Parker Hannifin (NYSE: PH), Peabody Energy (NYSE: BTU), Penns Woods Bancorp (Nasdaq: PWOD), Pervasive Software (Nasdaq: PVSW), Polaris Industries (NYSE: PII), Psychiatric Solutions (Nasdaq: PSYS), Pulaski Financial (Nasdaq: PULB), RC2 Corp. (Nasdaq: RCRC), Renasant (Nasdaq: RNST), SLM Corp. (NYSE: SLM), Sonic (Nasdaq: SONC), Southern First Bancshares (Nasdaq: SFST), State Street (NYSE: STT), Sterling Financial (Nasdaq: STSA), Stryker (NYSE: SYK), Supervalu (NYSE: SVU), Tempur Pedic (NYSE: TPX), McClatchy (NYSE: MNI), The New York Times (NYSE: NYT), Tupperware (NYSE: TUP), Twin Disc (Nasdaq: TWIN), UniFirst (NYSE: UNF), United Rentals (NYSE: URI), UnitedHealth (NYSE: UNH), Waste Connections (NYSE: WCN), Weatherford International (NYSE: WFT), WestAmerica Bancorp (Nasdaq: WABC), Western Digital (NYSE: WDC), WSI Industries (Nasdaq: WSCI), and Yahoo! (Nasdaq: YHOO).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

FalconStor Software (Nasdaq: FALC) - The Biggest Loser

The Biggest Loser is a new column we are launching to discuss the most significant market capital loser of the day. On this inaugural edition, The Biggest Loser is FalconStor Software (Nasdaq: FALC).

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

(Tickers: Nasdaq: APRI, Nasdaq: GMCR, Nasdaq: OLCB, Nasdaq: BYFC, Nasdaq: MLNK, Nasdaq: PDEX, NYSE: ZZ, Nasdaq: RFIL, Nasdaq: CPSL, OTC: TXICW.OB, NYSE: SAY, Nasdaq: HFFC, Nasdaq: CARV, Nasdaq: OSBC, Nasdaq: MSHL, Nasdaq: CNST, AMEX: IOT, Nasdaq: VSCI, NYSE: AM, Nasdaq: ENMD, Nasdaq: FSGI, Nasdaq: CSHB, NYSE: ATU, NYSE: AM, Nasdaq: CPSL, NYSE: FDO, NYSE: OMN, NYSE: SNX, NYSE: WOR, Nasdaq: XRTX, NYSE: FDX, Nasdaq: AMSF, NYSE: DHI, NYSE: MFA, NYSE: VR, NYSE: WFC, NYSE: ABG, Nasdaq: DENN, Nasdaq: JACK, NYSE: MRT, Paris: BNP.PA, NYSE: CS, NYSE: EXC, NYSE: PGN, NYSE: F, NYSE: UBS, NYSE: KRA, NYSE: URI, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: NYX, NYSE: ICE, Nasdaq: NDAQ)

FalconStor Software (Nasdaq: FALC) - The Biggest Loser

The day's biggest loser was FalconStor Software (Nasdaq: FALC), which dropped 22.4% Wednesday, after the abrupt resignation of Chairman, CEO & President ReiJane Huai. The reason behind the CEO's resignation was the key driver behind the collapse of the stock. But, what should shareholders and prospective shareholders do now? With an investigation still underway, that's not an easy question to answer.

FalconStor's official statement read:

"Mr. Huai tendered his resignation following his disclosure that certain improper payments were allegedly made in connection with the Company's contract with one customer. The Company has fully cooperated with law enforcement authorities with respect to the ongoing investigation, and it will continue to do so. In addition, a special committee of the Board has been formed to conduct a full internal investigation of these matters and the special committee has retained counsel to assist it in its investigation."

The company also announced these changes to its management team:

Eli Oxenhorn (board member) to non-executive Chairman of the Board
James McNiel (Chief Strategy Officer) to Interim CEO and President
James Weber (Chief Financial Officer) to CFO & Interim COO

The question for shareholders who withstood the storm today and for prospective shareholders is buy, sell or hold?

The answer to that question lies in several factors. First and foremost, there is an investigation underway that threatens to turn up more dirt. As an analyst, I learned to give respect to the possibility of another shoe dropping, and given the universe of stocks to choose from, why would a new shareholder risk touching FalconStor now? And I do not like the shift in management, unless we later learn it was a one man mistake. Too many of the old team remain in place to investigate the alleged crime for my comfort, but the news is still breaking.

The reason why someone might risk it is that the alleged criminal activity might be relegated to a certain individual or handful of individuals and might not threaten ongoing operations. If that were the case, then perhaps the stock might quickly regain the ground it lost today. But even if this is the case, now is probably not the time to buy in. The dirt is still turning up and shareholders remain more likely to sell than to buy. That is unless the story of the company or its product is much bigger than this scandal. That is only something that further detailed analysis can discover. And the question of the value of the company's assets comes into focus as well, and whether that might set a floor or whether an acquisition multiple might.

I can only comment lightly, since this is my first exposure to the company. What I note off the bat is that the earnings outlook is one that has deteriorated over the last quarter. Also, the growth outlook is a slower one than what the company has accomplished in recent years.

The stock's biggest shareholder is the guy who just retired from its operation. It also has a few interesting fund holders at Vanguard and Gabelli. The two analysts who cover the company appear to have not had a change in opinion in over a year or more (based on Yahoo Finance data). It is possible they have some tie to its capital raising efforts, or are following to serve the institutional ownership that exists already. Whatever the case, the analytical coverage is not impressive to me.

The stock has been in the dumps since the middle of 2008. The chart is not telling me anything good, except for the fact that the shares stabilized today after diving to as low as $2.63. FALC closed at $3.15 after trading flat from 1:30 PM or so.

My Call:

I would probably hold the shares if I owned them already, and not touch them if I were new to the story.

The Rest of the Day's Loser List Included:

Apricus Biosciences (Nasdaq: APRI): -18.8%
Green Mountain Coffee Roasters (Nasdaq: GMCR): -16.1%
Ohio Legacy (Nasdaq: OLCB): -16%
Broadway Financial (Nasdaq: BYFC): -14.3%
ModusLink Global Solutions (Nasdaq: MLNK): -13.7%
Pro-Dex (Nasdaq: PDEX): -12.5%
Sealy Corp. (NYSE: ZZ): -11.5%
RF Industries (Nasdaq: RFIL): -11%
China Precision Steel (Nasdaq: CPSL): -10.2%
Tongxin International (OTC: TXICW.OB): -10.2%
Satyam Computer (NYSE: SAY): -10.1%
HF Financial (Nasdaq: HFFC): -10.1%
Carver Bancorp (Nasdaq: CARV): -9.9%
Old Second Bancorp (Nasdaq: OSBC): -9.7%
Marshall Edwards (Nasdaq: MSHL): -9.7%
Constar International (Nasdaq: CNST): -9.5%
Income Opportunity Realty Trust (AMEX: IOT): -9.5%
Vision-Sciences (Nasdaq: VSCI): -9.4%
American Greetings (NYSE: AM): -9.2%
EntreMed (Nasdaq: ENMD): -8.9%
First Security Group (Nasdaq: FSGI): -8.8%
Community Shores Bank (Nasdaq: CSHB): -8.7%

In other corporate news, EPS were reported by Actuant (NYSE: ATU), American Greetings (NYSE: AM), China Precision Steel (Nasdaq: CPSL), CKE Restaurants (CKE.F), Family Dollar (NYSE: FDO), OMNOVA Solutions (NYSE: OMN), SYNNEX (NYSE: SNX), Worthington Industries (NYSE: WOR) and Xyratex (Nasdaq: XRTX).

FedEx (NYSE: FDX) met with analysts. The JMP Securities LLC Financial Services and Real Estate Conference offered presentations by Amerisafe (Nasdaq: AMSF), D.R. Horton (NYSE: DHI), MFA Financial (NYSE: MFA) and Validus Holdings (NYSE: VR). The Wells Fargo Securities Consumer Conference (NYSE: WFC) brings presentations by Asbury Automotive (NYSE: ABG), Denny's (Nasdaq: DENN), Jack in the Box (Nasdaq: JACK), and Morton's Restaurant Group (NYSE: MRT). The Bank of America Merrill Lynch Banking & Insurance Conference brought news from BNP Paribus (Paris: BNP.PA) and Credit Suisse (NYSE: CS). The Bank of America Merrill Lynch Power & Gas Leaders Conference offered presentations by Exelon (NYSE: EXC) and Progress Energy (NYSE: PGN). Ford Motor Company (NYSE: F) appeared at the Paris Auto Show UBS Investor Conference (NYSE: UBS). The Oppenheimer & Co. Industrials Conference offered news from Kraton Performance Polymers (NYSE: KRA) and United Rentals (NYSE: URI).



Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

M&A Activity on Large Cap Tech Sector Dynamics

Large Cap Tech Driving Merger Wire

A wave of merger mania has seemingly suddenly swept over the corporate world, and especially the tech sector. Naturally, analytical minds want to know why, and we believe we can help clear that up for investors swiftly. Basically, it has everything to do with a confluence of factors found within the current character of the large-cap technology sector: cash, price and growth. We go a step further today, and give you three 3Par like ideas, and look into how M&A plays with the broader market and the economy.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, and Mr. Kaminis has appeared across major media. While writing for Wall Street Greek, he presciently predicted the financial crisis in detail.

(Tickers: NYSE: HPQ, Nasdaq: DELL, NYSE: PAR, Nasdaq: GOOG, NYSE: TXN, Nasdaq: CSCO, NYSE: EMC, NYSE: MU, Nasdaq: SNDK, Nasdaq: INTC, NYSE: MFE, NYSE: IBM, Nasdaq: AAPL, NYSE: C, Nasdaq: QCOM, NYSE: CML, Nasdaq: ISLN, Nasdaq: CVLT, NYSE: POT, NYSE: BHP, NYSE: HBC, NYSE: CPB, NYSE: UBS, Nasdaq: NTAP, NYSE: WDC, NYSE: STX, Nasdaq: BRCD, Nasdaq: STEC, Nasdaq: XRTX, NYSE: IMN, Nasdaq: VOLT, Nasdaq: HTCH, Nasdaq: HILL, Nasdaq: OCZ, Nasdaq: LCRD, Nasdaq: OVRL, OTC: SONP.OB, Nasdaq: DRAM, Nasdaq: ALAN, OTC: TMOL.OB, NYSE: VMW, Nasdaq: BBHL, NYSE: SNP, Nasdaq: CNYD, Nasdaq: CNCN, Nasdaq: CISG, Nasdaq: EDS, Nasdaq: FMCN, Nasdaq: IRBS, Nasdaq: KNSY, Nasdaq: MGPI, Nasdaq: MWGP, Nasdaq: NGBF, Nasdaq: SAFM, Nasdaq: GASS, Nasdaq: TPIV, Nasdaq: TIGE, Nasdaq: TUES, Nasdaq: VBFC, NYSE: YZC, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: NYX, NYSE: ICE, Nasdaq: NDAQ)

Large Cap Tech Sector Dynamics at Play in M&A Activity

Hewlett-Packard (NYSE: HPQ) today made a competing bid for 3Par (NYSE: PAR), a data storage company. HP upped the ante for 3Par with its $24 per share bid worth $1.6 billion, surpassing Dell (Nasdaq: DELL), which had started the bidding with an $18 offer. HP might soon be re-nicknamed MnA, as it has not skipped a beat since the departure of its scandalized CEO, who by the way, oversaw the deals for 3Com and Palm before he had to go away. HP is not alone in the tech world though in its active M&A efforts, and has only contributed to the market's expectations for more. That was evidenced by trading in PAR and its relatives on Monday.

The high-end storage firm's shares spiked to a level even higher than the latest takeover bid price, all the way to $26 at the close. It seems investors expect a second offer from Dell, or a new bidder to enter the fray for this once semi-anonymous firm (to most of us). Investors seem to have good reason to expect a bidding war too, given the nascent acquisition frenzy within the technology sector.

Tech M&A Frenzy

This latest bidding war only continues a trend that's been increasingly recharacterizing the current marketplace. Just last week, the big news centered on Intel's (Nasdaq: INTC) offer to buy McAfee (NYSE: MFE) for $7.68 billion. Tech M&A activity increased in Q2 2010, on deals by Google (Nasdaq: GOOG), IBM (NYSE: IBM), Apple (Nasdaq: AAPL) and private equity firms Silver Lake Partners, TPG Capital, and Warburg Pincus. A total of 36 tech companies were acquired in Q2, in fact, which compares to 34 in Q1. The latest pace of deal making contrasts highly with the 24 deals that took place in last year's quarter. July was the biggest M&A month in 10 years for $1 billion plus transactions in tech. According to Citigroup (NYSE: C) Global M&A Chief Mark Shafir, we have seen $31 billion in transactions versus $7 billion in all of 2009. Activity is clearly on the rise, and that's a good driver for the tech sector and the investment banks that facilitate the deals. However, it may not offer any reason infer near-term economic gains nor broader stock market rise.

Rather, it seems to me that it's a product of the industry characteristics within the tech space. There are more than a few large cap tech companies with hoards of cash piling up. These once high-growth names have become cash cows in many instances. Still, all of these firms would like to relive their past glory and fuel future growth by making sweet deals for more robust businesses. By doing so, they seek to maintain or restore the higher P/E ratios that defined their past, and create value for shareholders in the process.

Whether value will be created or not is dependent on the specific stories and corporate leadership savvy and insight at each individual acquiring firm. In some cases, investors will end up wishing management had just paid out cash stores in dividends.

Given the economy and market's recovery to a more stabilized state, though still not confirmed stable, corporate managers have the guts now to buyout firms that may still look like relative bargains to them. It sure would have been nice for many of us if they had that same conviction a year and a half ago, when prices were dirt cheap. Still, we'll give these guys a break, since most of you also thought the world was coming to and end back then and were trading shares down to bottom dollar prices.

So, if capital is a key driver of these acquisitions, then CNBC's research today on the wealthiest potential acquirers might help us also anticipate who they might acquire. The only problem is that it will not, since recent deals have been across tech fields of play. The financial news channel noted Micron Technology (NYSE: MU), Sandisk (Nasdaq: SNDK), and a few others as cash rich. Texas Instruments (NYSE: TXN) is one Wedbush Morgan analyst's big pick to keep acquiring smaller firms for growth. The company has $2.3 billion in cash and no debt. An Edward Jones analyst looked towards Intel and Qualcomm (Nasdaq: QCOM) as rich potential future acquirers. He calls attention to the fact that Intel still has double-digit billions left over, even after it closes its pending deal. But, you'll want to stay away from these firms, since the acquirer's shares usually give back ground on deal announcement.

To benefit from this trend, you have to get into the heads of the corporate managers of the large cap tech companies with cash. You'll need to listen to a few conference calls, especially the Q&A sessions if available. You might call a solid analyst for some insight as well. Mark Shafir, Citigroup's M&A man, continues to look toward security and data storage for acquisition activity. IDC data seems to agree, noting the volume of data out there will increase 44X by 2020. This is not news though, but it seems to finally be finding money. Look at EMC's (NYSE: EMC) chart since the tech bubble bust, and you'll get what I mean.

3 Names to Consider

The market is a smart cookie, and smart money led some stocks on the PAR news today. Compellant (NYSE: CML), Commvault (Nasdaq: CVLT) and Isilon Systems (Nasdaq: ISLN) were three names that jumped by double-digit percentages. So, the market may already be giving us ideas, since these three companies are involved in relative businesses to 3Par. Of the three companies, ISLN's chart seems to show solid operational gains reflected in a steadily rising price chart. You'll need to do a little research here, but the chart jumps out at me for starters. I also like the rising EPS estimate trend in ISLN, but as far as valuation is concerned, CVLT looks most balanced. Again, some more due diligence would be needed to find value, if it exists. I would never invest in these stocks before a good deal more research work. Also, it's generally not wise to make a long-term investment, or to buy a stock, based on acquisition hope. Since these shares have jumped sharply now, I would be cautious in the near-term with regard to any long-term investment strategy.

The Broader Read

The fun also seems to be spreading to other industries, likely at the soft prodding of investment bankers. Potash (NYSE: POT), for instance, today spurned a bid by BHP Billiton (NYSE: BHP) on expectations for a better offer. The company is reportedly talking to others, including for instance China Sinochem. Campbell Soup (NYSE: CPB) is reportedly considering an acquisition of Britain's United Biscuits, or just its biscuits business. Campbell has been relatively active of late, acquiring artisan bread maker Ecce Panis last year. Heck, even banks are back to buying apparently, as HSBC (NYSE: HBC) is reportedly in exclusive talks with Old Mutual PLC (OTC: ODMTY.PK) to take a majority stake in South Africa's fourth largest bank, Nedbank Group.

UBS' (NYSE: UBS) Art Cashin said the deal activity is a good sign for the market, but I don't agree. Cashin says the fact that they're using cash for acquisitions indicates that they view their own stock undervalued, and therefore not the best currency to use to acquire. That would be a positive, except for the fact that corporate managers regularly view their own stock as undervalued. Now they are putting their money where their mouths are in using cash here, but just the same... So I'm not banking on this factor to look toward general market rise. And there's a golden rule I like to quote on the Street that might apply here: "Just because a stock is cheap does not mean it can't get cheaper." Cashin also points to the fact that companies are buying now as a positive sign for stocks generally. This has not proven true in recent history, and you already know my economic view, so be careful about getting trigger happy beyond specific picks on solid study.



Article should interest investors in NetApp (Nasdaq: NTAP), Western Digital (NYSE: WDC), Seagate (NYSE: STX), Brocade (Nasdaq: BRCD), STEC (Nasdaq: STEC), Xyratex (Nasdaq: XRTX), Imation (NYSE: IMN), Quantum (NYSE: QTM), Voltaire (Nasdaq: VOLT), Hutchinson Technology (Nasdaq: HTCH), Dot Hill Systems (Nasdaq: HILL), OCZ Tech (Nasdaq: OCZ), Lasercard (Nasdaq: LCRD), Overland Storage (Nasdaq: OVRL), Sonnen (OTC: SONP.OB), Dataram (Nasdaq: DRAM), Alanco (Nasdaq: ALAN), Trimol (OTC: TMOL.OB), VMWare (NYSE: VMW). The day's EPS included BCB Holdings (Nasdaq: BBHL), China Petroleum and Chemical (NYSE: SNP), China Yida (Nasdaq: CNYD), Cintel (Nasdaq: CNCN), CNInsure (Nasdaq: CISG), Exceed (Nasdaq: EDS), Focus Media (Nasdaq: FMCN), IR Biosciences (Nasdaq: IRBS), Kensey Nash (Nasdaq: KNSY), MGP Ingredients (Nasdaq: MGPI), Midwest Grain (Nasdaq: MWGP), New Generation Biofuels (Nasdaq: NGBF), Sanderson Farms (Nasdaq: SAFM), Stealthgas (Nasdaq: GASS), TapImmune (Nasdaq: TPIV), Tigrent (Nasdaq: TIGE), Tuesday Morning (Nasdaq: TUES), Village BK & TR (Nasdaq: VBFC) and Yanzhou Coal Mining (NYSE: YZC).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

WalMart's (NYSE: WMT) Same-Store Sales Red Flag

What Your Keen Eye Found in Today's Wire

The day's news wire included two troubling bits of information you may have missed. Thanks to a flood of mostly positive news, an important message was smothered. Both the ICSC and Wal-Mart same-store sales data showed an important and intensified negative trend, but thanks to WMT's better than expected EPS report, the red flag provided to the retail sector Tuesday was missed by the popular press.

Markos N. Kaminis earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, and Mr. Kaminis has appeared across major media. While writing for Wall Street Greek, he presciently predicted the financial crisis in detail.

(Tickers: NYSE: XRT, NYSE: WMT, NYSE: PIR, NYSE: ETH, Nasdaq: HOFT, NYSE: HD, NYSE: LOW, Nasdaq: AAPL, NYSE: BBY, NYSE: LTD, NYSE: CHS, NYSE: ANN, NYSE: GPS, NYSE: M, NYSE: JCP, NYSE: JWN, NYSE: TJX, NYSE: KSS, Nasdaq: COST, NYSE: TGT, NYSE: WMT, Nasdaq: WTSLA, Nasdaq: HOTT, NYSE: AEO, NYSE: ARO, NYSE: ANF, NYSE: SAK, NYSE: TIF, NYSE: TLB, NYSE: LL, Nasdaq: BLDR, NYSE: FO, NYSE: LEG, NYSE: TPX, NYSE: AYI, NYSE: LZB, Nasdaq: SCSS, NYSE: ZZ, NYSE: FBN, NYSE: NTZ, Nasdaq: SHLD, NYSE: DDS, Nasdaq: BONT, Nasdaq: CPWM, Nasdaq: BKRS, Nasdaq: BEBE, NYSE: BKE, Nasdaq: CACH, Nasdaq: CMRG, Nasdaq: CATO, NYSE: CBK, Nasdaq: CTRN, NYSE: PSS, Nasdaq: DEST, Nasdaq: DBRN, NYSE: DSW, Nasdaq: FINL, NYSE: FL, Nasdaq: GYMB, NYSE: GES, NYSE: JCG, NYSE: JNY, Nasdaq: JOSB, NYSE: NWY, NYSE: JWN, NYSE: MW, Nasdaq: SYMS, Nasdaq: PLCE, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: NYX, NYSE: ICE, Nasdaq: NDAQ)

WalMart's (NYSE: WMT) Same-Store Sales Red Flag

WalMart (NYSE: WMT) reported street exceeding EPS of $0.97, besting the experts' view by a penny. The nation's top retailer did not stop there though. WalMart also raised its guidance range for the full year by five cents. As a result, the stock is up 2% at the hour of this scribbling.

The S&P Retail SPDR (NYSEArca: XRT) is up nearly 2% too, since WalMart is a dominant component of every retail index, except the ex-WalMart portfolios (assuming at least one exists; obviously it should). Here's why I think you should use this momentary pull up of retail stocks to sell, in case you missed that message here over the last few months. The rise of retail indices today is completely due to Wal-Mart's EPS beat and guidance hike, but within WalMart's report there is an important poison pill for the US retail sector to swallow. That same information came across again today in the ICSC Weekly Same-Store Sales Report, and it's a glaring red flag for retail sector investment.

WalMart's Report Break-Down

We offered WalMart's earnings release highlights earlier today, and you can find that here: WMT Q2 EPS Report.

You heard the good news already, but what you did not get is how WalMart averted industry obstacles presented by a weak US market. Basically, the company overcame an apparent major stumbling block via its growth overseas and tight operational management. It also employed a good deal of cash in share repurchases, which can lift a bottom line.

Net sales increased 2.8%, to $103 billion, but look closely. Eight-tenths of that growth came on currency exchange, and that hints at another key catalyst. Sixty percent of the company's square footage increase came from international growth in Q2. WalMart leveraged operating expenses and expanded its ROI to 19%, versus 18.4% in last year's quarter. However, even as WalMart impressively created value, its report warns of trouble for other less perfect retailers.

WalMart's US operations saw stagnant sales year-to-year in Q2, while its International segment grew sales by 11%, including the currency gains. Sam's Club contributed a 2.2% increase on a smaller sales figure. While WMT's international growth benefited from robust activity in Mexico, Brazil and China, its US namesake division saw a 1.8% decrease in same-store sales. Take note, because this is a store that appeals to price-seekers. This is where poor people shop and where middle and formerly upper class Americans facing tough times trade down to. WalMart has been stealing market share from a broad spectrum of retailers over recent years, and especially during the recession; and now even it cannot grow them. That is saying something rather dire about American consumption. Do you know what else WalMart has been seeing an increase in? Food stamp usage. Now, the company said traffic trends improved toward the end of the 13 week's measured for Q2, but retail stock buyer beware nonetheless, because that is a very vague statement and can mean or not mean a lot.

ICSC Weekly Same-Store Sales Concur

Tuesday's International Council of Shopping Centers (ICSC) data covering the period ended August 14 concurred with WalMart's results and differed from its vague offsetting statement. So which do you want to base your investment decisions on then? Sales deteriorated further in the August 14 period, with the week-over-week comparison losing 1.3%. The yearly comparison still shows 3.3% growth, but that's down from last week's 3.7% change. We also remind that last year's comparable economic activity was simply the worst in generations, and so easy to beat in comparison. Redbook showed a 2.7% increase in sales against the prior year, versus 3.0% last week (another sign of deceleration against normalizing comparables with time). The result? We have a stagnant state of consumption developing, if not a deteriorating state.

Arbitrage Opportunity

I think today's mixed message from WalMart is providing noise to the real retail sector story. Disregarding valuation and stock specific characteristics that may surface a handful of winners, the general retail sector trend is being skewed today because WalMart is such an important part of all retail indices. The company represents a major portion of the American retail sector, and is huge based on market capitalization; thus, it is weighted heavily in these indices. So, as WalMart goes, so go the industry indices. Given this skew, many retail players are likely benefiting today without reason. So I see this an opportunity to save a few dollars by reducing weight in the sector.

Take note that the sensitivity of the sector today to the positive news may also reflect a valuation test, as retail stocks have already seen some downgrades and share price drops since spring and again this month. Yes, stocks will also move ahead of economic data (and I mean recover eventually), but I believe we are still in a period of realization of a new economic paradigm I've been trying to lay out for you to see over recent weeks and months. This economy will not be the same again, at least not for a long while. Regulation and common sense have trimmed that negligent and even criminal lending that had Americans living beyond their means for years. I realized that problem ten years ago, when my little sister without a college degree and with a mall job managed to buy a new car. I knew I couldn't afford one with an MBA, and so something was clearly wrong with the system. I talked about that here before the financial crisis; long-time readers will remember it. Money was too easy to get, clearly. We all knew it, but we blew it off.

There's no blowing it off anymore. New laws and new internal banking rules and reserve requirements are playing an important role in changing all that. 16.5% under-employment is playing a major role in keeping consumption tame as well. Panicked people living on unemployment while Congress debates cutting it off are getting a grip on it too. Welcome to the new economy, not like the old one. In this one, productivity brought on by technological advancement is not a good thing. In the past, it was noted for its role in allowing companies to expand margins. Now, it is also responsibile for keeping companies from hiring workers that are not really needed. It's amazing how a change in the labor market can affect views on unions, immigration and maybe even robotics... isn't it.

Over recent weeks, we have learned that Q2 GDP will get a shaving at its next revision, and it looks as if we might flirt with economic contraction in the second half of the year. Economists cannot imagine that, but the American economy is a consumer driven one. We don't export yet, and even if we did, Chinese domestic growth looks poised for a hurdle of an asset and real estate bubble burst sometime soon. So, can we really count on China and Europe (ex-Germany) to keep buying whatever we do sell? That's rhetorical...

So, my friends, I say take this rally and shove it. The Dow is up 1.0% at this hour (down from +2% earlier); I would sell it. The S&P Retail SPDR (NYSE: XRT) is up 1.5% (down from earlier as well); I would sell it! I think what we have here is an opportunity... to get out.



This article should prove interesting to investors in NYSE: PIR, NYSE: ETH, Nasdaq: HOFT, NYSE: HD, NYSE: LOW, Nasdaq: AAPL, NYSE: BBY, NYSE: LTD, NYSE: CHS, NYSE: ANN, NYSE: GPS, NYSE: M, NYSE: JCP, NYSE: JWN, NYSE: TJX, NYSE: KSS, Nasdaq: COST, NYSE: TGT, NYSE: WMT, Nasdaq: WTSLA, Nasdaq: HOTT, NYSE: AEO, NYSE: ARO, NYSE: ANF, NYSE: SAK, NYSE: TIF, NYSE: TLB, NYSE: LL, Nasdaq: BLDR, NYSE: FO, NYSE: LEG, NYSE: TPX, NYSE: AYI, NYSE: LZB, Nasdaq: SCSS, NYSE: ZZ, NYSE: FBN, NYSE: NTZ, Nasdaq: SHLD, NYSE: DDS, Nasdaq: BONT, Nasdaq: CPWM, Nasdaq: BKRS, Nasdaq: BEBE, NYSE: BKE, Nasdaq: CACH, Nasdaq: CMRG, Nasdaq: CATO, NYSE: CBK, Nasdaq: CTRN, NYSE: PSS, Nasdaq: DEST, Nasdaq: DBRN, NYSE: DSW, Nasdaq: FINL, NYSE: FL, Nasdaq: GYMB, NYSE: GES, NYSE: JCG, NYSE: JNY, Nasdaq: JOSB, NYSE: NWY, NYSE: JWN, NYSE: MW, Nasdaq: SYMS, Nasdaq: PLCE.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Skype IPO S-1 Registration with SEC

While you hedge fund guys slept-in out there in the the Hamptons (year right!) and left operations to your CFO, you might have missed a sleepy little news bit on an otherwise naked wire Monday. Remember Skype, the company that made a couple dudes rich and cost eBay some time? It may be offering an opportunity now for those who might see the potential if the right creative minds were in command. Much of the market is looking at Skype in a different way, as a sort of lost cause, with that old Vonage (NYSE: VG) stigma. It's too small and too radical to make a difference against huge competitors that can shift to crush it. They see Skype as a story that can only make a few pennies giving away services to the tech-savvy and cheapsters among us looking to save a nickel here or there. To most, Skype was a nice idea, but is in a competitive pool with bigger fish. But the Street may be missing something, perhaps a sleeping giant catfish even.

Many of you may not know that "The Greek" spent a portion of his analytical career researching IPOs, and they were mostly of the tech sort. "The Greek" earned clients a 23% average annual return over five years as a stock analyst on Wall Street.

(Tickers: NYSE: VON, NYSE: VZ, NYSE: S, NYSE: T, NYSE: CVC, Nasdaq: CMCSA, NYSE: TWC, Nasdaq: EBAY, Nasdaq: GOOG, Nasdaq: MSFT, Nasdaq: AAPL, NYSE: Q, NYSE: NTE, NYSE: VOD, NYSE: NTT, NYSE: FTE, NYSE: DCM, NYSE: TI, NYSE: TEF, NYSE: BT, NYSE: OTE, NYSE: BCE, NYSE: CTL, NYSE: CHT, NYSE: DTV, NYSE: VIA, NYSE: VIA-B, Nasdaq: DISCA, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: ICE, NYSE: NYX, Nasdaq: NDAQ)

Skype IPO S-1 Registration with SEC

Monday's wire somehow managed to hide a little secret. Skype filed its S-1 IPO registration with the SEC on August 9. You may not know it, but I use to write research reports on IPOs in the aftermath of the dot-com bubble burst. I was covering mostly tech-offerings, since that's what dominated the wire, until the IPO market dried up and we moved to other projects. The stock-drop of the earlier part of this decade forced my old firm to kill a long-standing and widely loved newsletter, Emerging Opportunities, which focused on our favorite small-cap stock picks and about four IPO write-ups a quarter.

I was pretty good at quickly recognizing the paradigm shift taking place in my stock group coverage, and transitioned the buy list from tech-heavy never-to-be-nothings into undervalued growth stocks (that some called value stocks) selling tangible goods and services with real profits to show for it. My stock picking performance might have been lousy that first year after inheriting the small-cap tech-heavy group in the midst of the bubble burst, but instead I quickly proved my worth with some hot-shot off-beat picks that made our clients millions and boosted our overall performance record. My old clients, colleagues and the CEOs of my picks would vouch for it, if you needed to know and I needed you to know.

Anyway, I am feeling the IPO research itch again, and am going to pick up with an analysis of the Skype IPO for you. Let me know if you are interested in having the report mailed to you when published (if you're not already on our mailing list).

Skype's sort of testing interest, using major players Goldman (NYSE: GS), JP Morgan (NYSE: JPM) and Morgan Stanley (NYSE: MS) to sell its shares. The company is only looking at raising about $100 million. Remember, this is the company eBay bought for $2.6 billion in 2005, and turned around and sold 70% of in 2009 for $1.9 billion plus some promises. I wonder if this IPO might be a farce, sort of a feeling out of the marketplace and a reminder to the players that be that Skype is still around. The buyers of the 70% stake, excluding the founders - who took a 14% interest, were a savvy group led by Silver Lake. We'll see soon enough, as an IPO registration does not necessarily lead to an IPO. It would be interesting if the threat of IPO alone were to drive a higher buyer to take interest. Or it simply may be that the new owners want to see how a larger offering might swing.

Anyway, I'll refrain from further writing until I've concluded my research; then I'll have a lot to say, and something worth reading too. For now, I just wanted you to be aware of the news and pending research. You can find some of our most recent stock research here.



Monday's corporate news schedule highlighted presentations by EMC (NYSE: EMC) and Citrix Systems (Nasdaq: CTXS) at the Pacific Crest Securities Technology Leadership Forum. The day's earnings schedule highlighted reports from King Pharmaceuticals (NYSE: KG), Tyson Foods (NYSE: TSN), Scripps Networks (NYSE: SNI), Acadia Pharmaceuticals (Nasdaq: ACAD), Anika Therapeutics (Nasdaq: ANIK) and Avi BioPharma (Nasdaq: AVII).

Monday's EPS reports included Advocat (Nasdaq: AVCA), Allied Nevada Gold (AMEX: ANV), Alumina (NYSE: AWC), Ambac (NYSE: ABK), Amedysis (Nasdaq: AMED), America First Tax Exempt (Nasdaq: ATAX), American Dairy (NYSE: ADY), American Oriental Bioengineering (NYSE: AOB), American Science and Engineering (Nasdaq: ASEI), Answers (Nasdaq: ANSW), Applied Energetics (Nasdaq: AERG), Arcadia Resources (AMEX: KAD), Array BioPharma (Nasdaq: ARRY), Ascent Media (Nasdaq: ASCMA), Assisted Living Concepts (NYSE: ALC), Athersys (Nasdaq: ATHX), Ballantyne Strong (AMEX: BTN), Baltic Trading (Nasdaq: BALT), Banks.com (AMEX: BNX), Beacon Power (Nasdaq: BCON), Bidz.com (Nasdaq: BIDZ), Blackboard (Nasdaq: BBBB), Blount Int'l (NYSE: BLT), BMP Sunstone (Nasdaq: BJGP), Bovie Medical (AMEX: BVX), Breeze-Eastern (AMEX: BZC), Broadwind Energy (Nasdaq: BWEN), Capstone Therapeutics (Nasdaq: CAPS), Capstone Turbine (Nasdaq: CPST), Carrols Restaurant (Nasdaq: TAST), Century Casinos (Nasdaq: CNTY), China Automotive (Nasdaq: CAAS), China Fire & Security (Nasdaq: CSFG), China Natural Gas (Nasdaq: CANL), China XD Plastics (Nasdaq: CXDC), China-Biotics (Nasdaq: CHBT), ChinaCast Education (Nasdaq: CAST), Chindex (Nasdaq: CHDX), Clayton Williams Energy (Nasdaq: CWEI), Clean Energy Fuels (Nasdaq: CLNE), Clear Channel Outdoor (NYSE: CCO), Clinical Data (Nasdaq: CLDA), Coeur d'Alene Mines (NYSE: CDE), Compass Diversified (Nasdaq: CODI), Composite Technology (Nasdaq: CPTC), Connecticut Water (Nasdaq: CTWS), Convergys (NYSE: CVG), Converted Organics (Nasdaq: COIN), Cousins Properties (NYSE: CUZ), CPEX Pharmaceuticals (Nasdaq: CPEX), Crawford & Co. (Nasdaq: CRDB), Ctrip.com (Nasdaq: CTRP), CytRX (Nasdaq: CYTR), DISH Network (Nasdaq: DISH), DTS, Inc. (Nasdaq: DTSI), Ebix (Nasdaq: EBIX), Echostar (Nasdaq: SATS), Emeritus (NYSE: ESC), Energy Transfer Equity (NYSE: ETE), Energy Transfer Partners (NYSE: ETP), Enterprise GP (NYSE: EPE), eResearch Technology (Nasdaq: ERES), EV Energy Partners (Nasdaq: EVEP), First Citizens Banc (Nasdaq: FCZA), Fisher Communications (Nasdaq: FSCI), Freddie Mac (OTC: FMCC.OB), Fuel Tech (Nasdaq: FTEK), Full House Resorts (AMEX: FLL), FX Energy (Nasdaq: FXEN), G. Willi-Food (Nasdaq: WILC), Genco Shipping (NYSE: GNK), Geokinetics (AMEX: GOK), Giant Interactivey (NYSE: GA), Gladstone Capital (Nasdaq: GLAD), GLG Partners (NYSE: GLG), GLG Life Tech (Nasdaq: GLGL), Golden Star Resources (AMEX: GSS), Grand Canyon Education (Nasdaq: LOPE), Granite City Food & Brewery (Nasdaq: GCFB), GSE Systems (AMEX: GVP), GTx, Inc. (Nasdaq: GTXI), Gulf Resources (Nasdaq: GFRE), Harbin Electric (Nasdaq: HRBN), Harvest Natural Resources (NYSE: HNR), Hawaiian Electric (NYSE: HE), Healthcare Realty Trust (NYSE: HR), HearUSA (AMEX: EAR), Heckmann (NYSE: HEK), Heritage Fin'l (Nasdaq: HBOS), Himax Tech (Nasdaq: HIMX), Horsehead Holding (Nasdaq: ZINC), Hospitality Properties Trust (NYSE: HPT), Houston Wire & Cable (Nasdaq: HWCC), HQ Sustainable Maritime (AMEX: HQS), Image Metrics (Nasdaq: IMGX), Industrial Services of America (Nasdaq: IDSA), Inergy (Nasdaq: NRGP), Inergy LP (Nasdaq: NRGY), UTEK (AMEX: INV), Integrated Electrical (Nasdaq: IESC), Inter Parfums (Nasdaq: IPAR), Iridium Communications (Nasdaq: IRDM), Isis Pharmaceuticals (Nasdaq: ISIS), Keryx Biopharmaceuticals (Nasdaq: KERX), Kohlberg Capital (Nasdaq: KCAP), KSW (Nasdaq: KSW), Landry's (NYSE: LNY), Lexicon Pharmaceuticals (Nasdaq: LXRX), Liberty Media (Nasdaq: LINTA), Lion's Gate Entertainment (NYSE: LGF), LJ Int'l (Nasdaq: JADE), Loral Space & Communications (Nasdaq: LORL), Macerich (NYSE: MAC), MarkWest Energy (NYSE: MWE), MBIA, Inc. (NYSE: MBI), McDermott Int'l (NYSE: MDR), Medcath (Nasdaq: MDTH), Medical Action (Nasdaq: MDCI), Medivation (Nasdaq: MDVN), Mindray Medical (NYSE: MR), Motorcar Parts (Nasdaq: MPAA), MPG Office Trust (NYSE: MPG), MTR Gaming (Nasdaq: MNTG), MYR Group (Nasdaq: MYRG), Nelnet (NYSE: NNI), NGP Capital Resources (Nasdaq: NGPC), Northern Oil Gas (AMEX: NOG), Nuance Communications (Nasdaq: NUAN), Old Point Fin'l (Nasdaq: OPOF), On Track Innovation (Nasdaq: OTIV), Ophthalmic Imaging (Nasdaq: OISI), Optimumbank Holdings (Nasdaq: OPHC), Orbcomm (Nasdaq: ORBC), Osteotech (Nasdaq: OSTE), Paragon Shipping (Nasdaq: PRGN), Parexel (Nasdaq: PRXL), PDC Energy (Nasdaq: PETD), Pegasystems (Nasdaq: PEGA), Pericom Semi (Nasdaq: PSEM), PICO Holdings (Nasdaq: PICO), Pinnacle Bancshares (Nasdaq: PCLB), Poniard Pharma (Nasdaq: PARD), Presstek (Nasdaq: PRST), Primoris (Nasdaq: PRIM), Progenics (Nasdaq: PGNX), Qiagen (Nasdaq: QGEN), Quicksilver Gas (NYSE: KGS), Quicksilver Resources (NYSE: KWK), Quinstreet (Nasdaq: QNST), Rackspace Hosting (NYSE: RAX), RADNET (Nasdaq: RDNT), Regency Energy (Nasdaq: RGNC), RenaSola (NYSE: SOL), Repros Therapeutics (Nasdaq: RPRX), Salem Communications (Nasdaq: SALM), Salix Pharma (Nasdaq: SLXP), Sanders Morris Harris (Nasdaq: SMHG), SciClone Pharma (Nasdaq: SCLN), Southwest Gas (NYSE: SWX), Southwest Water (Nasdaq: SWWC), SRI Surgical (Nasdaq: STRC), Starwood Property Trust (Nasdaq: STWD), Sterling Construction (Nasdaq: STRL), Stifel Fin'l (NYSE: SF), Stonemor (Nasdaq: STON), Sun Hydraulics (Nasdaq: SNHY), Superior Well Services (Nasdaq: SWSI), Synta Pharmaceuticals (Nasdaq: SNTA), Synutra (Nasdaq: SYUT), TechTarget (Nasdaq: TTGT), THQ (Nasdaq: THQI), Toreador (Nasdaq: TRGL), Tower (Nasdaq: TWGP), Transcept Pharma (Nasdaq: TSPT), Transmontaigne (NYSE: TLP), TravelCenters of America (AMEX: TA), US Energy (Nasdaq: USEG), Unigene Labs (Nasdaq: UGNE), United Capital (AMEX: AFP), Universal Display (Nasdaq: PANL), Uranium Resources (Nasdaq: URRE), Vantage Drilling (AMEX: VTG), VCG Holding (Nasdaq: VCGH), Verenium (Nasdaq: VRNM), ViaSat (Nasdaq: VSAT), Viasystems (Nasdaq: VIAS), Walter Investment (AMEX: WAC), Wave Systems (Nasdaq: WAVX), Wellcare Health (NYSE: WCG), Westway Group (Nasdaq: WWAY), Wonder Auto (Nasdaq: WATG), Xinyuan Real Estate (NYSE: XIN) and Xoma (Nasdaq: XOMA).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.