Monday, May 05, 2008; Posted: 08:22 AM
-- Deutsche Telekom (DT) considers bid for Sprint (S)Economic Data1000 April ISM Serices Index 49.8 expected; 49.6 prior
EuropeEuropean stocks are slumping as U.S. futures trade lower with Microsoft's withdrawal of its bid for Yahoo. Communications technology namkes Ericsson AB (ERIC) and Nokia (NOK) are laggards. Deutsche Telekom (DT) is also lower on a report it is mulling a bid for Sprint Nextel (S).
AsiaCiting tigher monetary policy to combat inflation, JP Morgan cut its stock index targets for China, India, Hong Kong, the Philippines and other markets in Asia according to a Friday Bloomberg News story. JP Morgan noted inflation in emerging economies is 3 percentage points above the average target ceiling, forcing central banks to move more decisively. The target for the Hang Seng China Enterprises Index was cut by 16% to 18,500, the Hang Seng trimmed by 10% to 35,000 and India's Senstive Index target was slashed by 18% to 22,500. These new targets still suggest upside gains of 27%, 33% and 28% respectively. China's stocks rose to a 7-week high with natural resource producers leading the way. Australian resource and financial names led the ASX 200 higher in Monday trading. Shares of BHP Billiton (diversified), Sundance Resources & Bount Gibson (iron ore), Centennial Coal and Felix Resources (coal) were leaders. Challenger Financial Services was higher following the Fed's added liquidity initiatives on Friday. Aussie fertilizer producer Incitec Pivot Ltd reported 6-month income rose 197% year over year. Japanese and South Korean markets were closed for a holiday Monday.Basic MaterialsBarron's Michael Santoli remains bullish on the fertilizer sector. Corn, the most fertilizer intensive crop, may extend last week's record prices as wet fields are delaying planting a negative for yields and forcing some farmers to switch to soybeans and pressuring prices for the alternative crop. Packaging industry may have turned the corner according to Kopin Tan of Barron's. He cites KeyBanc analyst Christopher Manuel who likes Silgan Holdings (SLGN), Pactive (PTV) and Greif (GEF). On Friday, paperboard manufacturer Carustar Ind (CSAR) soared nearly 10% on an unexpected Q1 profit. Goldcorp (GG) reports earnings today. EnergyOil and natural gas prices are higher in early trading on tensions in Nigeria and Iran. Newcastle (Aus) thermal coal prices rose to a 10-week high in Asia. Consumer CyclicalsA poll by NPD Group reported in the NY Times reports only only 12% of respondents play to spend the tax rebate on discretionary items, while 42% will pay down bills and 21% will add to savings. Sobering stats from last week: Thursday's 0.6% Q1 preliminary GDP gain was entirely due to a 0.8 point contribution from inventory builds; Friday's tiny (20K) April nonfarm payroll loss was greatly abetted by the government's +267K April adjustment from its unpredictable birth/death model. Time Warner could see considerable upside with its new CEO preparing to spin off Time Warner Cable (TWC) according to Barron's. Now that Microsoft has walked away for a Yahoo deal, Time Warner's AOL becomes the next hot internet property. Yahoo, Microsoft are potential acquirers and Google is a 5% owner in AOL.Melco PBL Entertainment (MPEL) is the best casino operator in Macau and could be a double in 3 years according to Joe Fath of T. Rowe Price. (Barron's)
The WSJ reports UAL (UAUA) is looking closer at US Airways (LCC) after being rebuffed by Continental Airlines (CAL). Talks began 6 weeks ago with potential synergies of $1.5 billion. FinancialsMortgages and student loans are in the news this morning. Countrywide Financial (CFC) was cut to Underperform at FBR. Last week CFC reported a ($1.60) per share Q1 loss, well below the (12c) consensus, acquirer Bank of America (BAC) said it would not guarantee CFC debt and S&P cut CFC debt to junk status. Meanwhile, GMAC's ResCap mortgage unit had its credit rating cut to deeper into junk status after it unveiled plans to restructure $14 billion of debt. Now the NY Times reports the FBI and IRS are teaming up in a criminal investigation of lenders who issued no doc loans. On a more positive note, student loan lenders like First Marblehead (NYSE: FMD | news | PowerRating | PR Charts ) and SLM (NYSE: SLM | news | PowerRating | PR Charts ) surged on Friday with federal legislation to lift limits on federally subsidized student loans. On Friday, SLM Corp director, Frank Puleo, bought 15,000 SLM share for $21 per share. Berkshire Hathaway is considering an investment in the life insurance division of RBS. IndustrialsBarron's says investors should buy the dips in General Dynamics (GD) with a new CEO to be installed there on Wednesday. GD shares could hit $100 in the next year according to the story. TechnologyMicrosoft (MSFT) announced on Saturday the withdrawal of its proposal to acquire Yahoo (YHOO) after Yahoo failed to accept $33/share, $5 billion more than the current value of the original cash and stock offer. According to the Microsoft press release, Yahoo CEO Jerry Yang insisted on at least $37/share. The internet M&A spotlight is now swinging to Time Warner's (TWX) AOL unit, with both Yahoo and Microsoft cited as possible acquirers according to a Dow Jones story. However, Google (GOOG) owns a 5% stake in AOL, a complication for any deal. Google may also gain market share from the failed MSFT/YHOO deal. Sun Microsystems (JAVA) shares plunged 22% on Friday after it reported an unexpected (4c) Q3 loss on a surprise 0.5% sales decline. Barron's Eric Savitz says that bodes poorly for Cisco Systems (CSCO) which reports Tuesday after the bell. Savitz said "There is evidence everywhere of weakness in spending on both IT infrastructure and telecommunications hardware." Savitz also cited Alcatel-Lucent's (ALU) larger than expected March quater loss. (It should be noted, Cisco has a record of meeting or beating sales and EPS estimates. Juniper Networks (JNPR) reported sales and adjusted EPS growth of 31% and 42% respectively in its March quarter.)TelecomThe Wall Street Journal reports Deutsche Telekom (DT) is considering a bid for Sprint Nextel (S). A merger of the #3 and #4 mobile names in the U.S. would have to clear regulatory hurdles. Sprint (S) also faces a lawsuit on purchases of Sprint shares by the employee pension fund. Qwest (Q) reports earnings on Tuesday. On Tuesday, Verizon Chief Technology Officer Richard Lynch bought 20,000 VZ shares at $38/share, the largest insider stock purchase in 5 years at the company according to Barron's.
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