Sunday, December 13, 2009

BAGAKOAA December 13, 2009 The week that will be.


December 13, 2009 The week that will be.

There are about 6 significant economic announcements this coming week you might want to keep an eye out for, as well as a couple of earnings announcements that might be opportunities.

The Producer’s Price Index reports Tuesday and best guesses are looking for a 1% increase. Anything over 1.2% will send a worrisome message which could lead to an adjustment to the market. It could also get gold back up again. The fuel and food adjusted figure should be in the .2 to .3% range indicating no significant inflation fears.

Tuesday a not as critical but important indicator is the Empire State Mfg index. Produced by the New York Fed, it is a trend indicator that is based line so anything over 0 is growth and anything under is a retraction. The expectations are around a 25, weak but positive. Keep in mind that the index was in negative territory from January 08 to April 09. If the number comes in below 15, it will be a big surprise to the down side.

Tuesday will also see Industrial Production and Factory utilization. Both should show light improvements with an expectation of a .6% gain in Production and a utilization of 71.2%. IF either comes in a lot less, look for a sell off. A surprise on the upside probably won’t be a big bump because many think the S & P are already over bought or over valued.

Wednesday will see the CPI which is the consumer version of the PPI reported on Tuesday. Oil prices should boost the number a bit, to the .4% range. Anything over .6% could indicate inflation fears which would mean a market adjustment down and gold possible coming back up. Adjusted for oil prices, look for about .1% increase tracking towards 1.2% annual well below the Fed target inflation rate of 2%.

Housing starts also present on Wednesday. The number was down last month and we will probably see flat line or just slightly positive growth. Last month there were 529 thousand new home starts. The estimate is 575. Anything over 600 would be great for the economy great for Whirlpool great for HD and companies like that.

And on Wednesday watch the fed as they leave the overnight interest rate at the 0-.25% rate alone. This should be a none issue, but if they bump it, it could be a wobbly Thursday in the market. In the back round on this indicator, watch the sound bites about Moody’s rating of US and UK credit. Some are saying the US treasure bond ratings should be dropped. If the US were a company it probably would be rated junk, but we can print our own money. If we ever do get that rating drop, grab you shovels and start digging for gold.

Tuesday you will see BBY, Best Buy report earnings. The consensus is 43 cents a share. The Whisper number (Don’t ask me how or I’ll have to kill you) is .44 a share. I think it could go above the 44 cents. It was .35 a year ago. Circuit City’s implosion makes it the best of breed. Walmart has some very predatory pricing on electronics, but Best Buy is the place to shop and their “Geek Squad” gets high ratings. If top line revenues are up by more than 3%, you could see 46 maybe 47 cents in earnings. If you are a gambling type of guy, there is a March 2010, 41 dollar call selling for 5 dollars and change. That of course means that BBY has to be at 46 to be in the money. It is currently trading at 44.34. A 46 cent earning could easily get the call in the money creating a quick10-20% gain on the Call. I am buying 3 calls at 5.15 limit order for tomorrow morning.

ADBE is reporting on Tuesday as well. I could not find a whisper number, and consensus is .31 a share. I went to the charts, (see the post from this weekend) and it is trading near the bottom end of their trading channel at 35.38 a share. I’d stay away from it as it is trading at a PE of 28 versus and industry PE of 21 and a S&P PE of 16. I like the stock and the product. I would consider putting a limit buy in at 33.00. Their net margin is obscene, ROE is healthy and debt is very manageable. Wish I had gotten in back in June. The stock was at 12.

PayChex is reporting this week as well. It is a prime competitor to ADP for payroll processing. The Whisper number and the consensus is 33 cents a share. I like ADP better but own neither. ADP has a 17 PE versus PAYX of 22. Both have manageable debt, in fact PAYX has none I think. Both should do well as people get back to work.

PALM reports on Thursday and nothing but a blow out figure will be good news for this stock. Consensus is a 41 cent loss. This is what is called worst of breed. The iPhone has killed this company and this stock.

Lastly and an important bell weather stock is FDX. FedEx consensus number is $1.07 a share. Unfortunately, the whisper number is $1.10 so its got to beat that to do something spectacular. That will take top line revenue growth and expense management. Fuel cost are going against that bet as last quarters fuel is up, but we don’t know, or I don’t know how well they hedge their fuel. Remember the Baltic Dry Index, that counts all the container ships on the ocean. There was a positive trend for several months (Not last Month), which implies there are lots of boats on the west coast with stuff needing to be shipped all over. That would be bulk and lighter that load type stuff. That would bode well for FedEx. FedEx is an 88.00 stock and a sound company. If you think that holiday packages and business packages were up over the last 4 months, here is a way you might play the earning announcement. There is an April 16 2010 75.00 call selling for 15.50. That means you would not be in the money till 91 a share. A nice surprise next Thursday could get you there. Don’t get me wrong, 15.50 for an option is a lot a money. That is 1550 dollars a contract. Be very careful. I am just going to watch this one from the side lines.

Ok now its time to catch some football.

Salve Lucrum


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