Thursday, October 29, 2009

Mr Coal Optimist vs Pessimist?

Two large coal miners, Patriot Coal (PCX) and Massey (MEE) reported earnings this week. The media has portrayed PCX;s earnings report as being good while MEE's earnings report being bad. The optimist was rewarded with a jump in the stock price after the release while the pessimist was punished. Reading between lines, they both are telling the same story. Just in different tones.

At PCX,
in an article of Miningweekly,

The CEO Richard Whiting said on Tuesday that markets for both coal segments remain "challenging", but that the company expects to see improvements during 2010. The demand for its steelmaking and thermal coal will recover strongly in the “near term” according to Whiting.

“We believe the markets are at an inflection point, poised to see a substantial improvement in demand in 2010, in both metallurgical and thermal coals,” Whiting said on a conference call.

“While we don't expect the market recovery to be in full swing by early 2010, we are optimistic that the timeline for recovery is more within our sights than it seemed just a quarter ago,” said CFO Mark Schroeder.

He said there is no doubt that metallurgical coal demand around the world is rebounding.

“And because of the limited availability of high quality met coal in the world, our forecasts show demand outstripping supply, and therefore driving up met pricing as we move into and through 2010.”

Patriot is also expecting to see domestic demand for thermal coal improve “significantly” in the next six to nine months.

Demand will likely exceed supply for US thermal coal, especially for central Appalachia, around the end of 2010, he said.

“And the change from oversupply to undersupply may be abrupt, taking place over a very short period of time.

“With upward pressure on demand and downward pressure on supply, we believe the effect on pricing will be meaningful.”

Although inventories remain high, customer sentiment is showing signs of improvement.


At MEE,
in a report at Yahoo Finance,

The CEO Blankenship said worldwide production and use of coal will likely increase by more than 120 million tons per year during each of the next five years.

But "the macroeconomic factors facing all businesses and particularly the coal industry have never been more
challenging," he said.

He expected domestic thermal coal demand to remain weak for the next several quarters and perhaps through 2010. Utility stockpiles remain very high and the amount of coal being burned was low.

"We continue to be encouraged by the positive news we are hearing from the seaborne metallurgical coal export markets," he said, noting steel production in China was up 22 percent in August and 5 percent for the first eight months of the year.

Steel producers have restarted or announced plans to restart more than 40 blast furnaces that have previously been idled, Blankenship said, adding that Massey has the capacity to produce more than 12 million tons of metallurgical coal per year.

Supply will be constrained by permits

At PCX, in a report by Miningweekly,
"Supply will be constrained by the delays that miners face getting new surface mining permits, and a lot of production that has been taken off line may actually leave the market permanently," Whiting speculated.

At MEE, in a report by Reuters,
"The demand for coal to generate power and make steel is growing, but environmental bureaucracy is making it more difficult to mine the fuel," Blankenship  said on Wednesday

Last month, the EPA ruled that all 79 pending mine permits in Appalachia must undergo additional evaluation, because they pose a potential hazard to water in parts of Kentucky, West Virginia and Ohio.

In a nutshell,
No significant recovery is expected before the end of 2009. The demand for metallurgical coal is looking good, expected to come around in early 2010.The demand for thermal/steam coal is expected to come around only in later part of 2010.

Is it just me or it's the tone of Mr. Whiting and Blankenship? Had Mr Blankenship colored his speech with more adjectives like "significant", "substantial", "optimistic", "near term", the stock price probably would have received "significantly" more generous treatment from the Wall Street.


Disclaimer: This blog is for general information purpose only. Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.



Disclosure: The blog author has no positions of PCX and MEE in her personal account as of October 29,2009

Wednesday, October 28, 2009

Cold winter for steel

Just like the past 3 months, the only important support to the stock price of steel companies is all but the US dollar. The fundamentals of steel have not been good since steel prices peaked in July. The 4 trillian yuan (approximately $586 billion) government stimulus has led to overexpansion in the steel industry, among other industries on the focus list. Steelmakers responded to favorable steel price early in the year by ramping up production, reaching record high output. Major steelmakers like Baosteel, Hebei Steel, have repeatedly lowered prices of their products. With excess output and export rebates comes the incentive to exports. Exports from China will place a downward pressure on the global steel price which is currently higher than its chinese counterpart. Major US steelmakers such as AK Steel, US Steel's earning releases continue to point to weaker prices in the near future.

In the coming months, there are a few factors that will change the above conjecture for the industry

1. Recovery in the automakers. If automakers can hold up their production in the second half of the year as announced early this year without "Cash-and-Clunker", steelmakers will give upside surprise in the upcoming earning reports.

2. Global economic growth. Global steel demand is expected to rise by 9.2% next year. If this is on track, we may see some "real demand" for steel instead of just "restocking"

3. US dollar. If US dollar weakens further, all commodity prices will rise.

4. Chinese government since August, has made several announcements and initiatives to crack down on over-expansion of steel industry, among others. If these initiatives can be enforced effectively, the excess capacity can be absorbed in a few months.

Tuesday, October 27, 2009

Steelmakers don't have Xmas

U.S. steelmakers reported better-than-expected third-quarter results on Tuesday but offer gloomy short-term views for the industry and the economy.

As pointed out in September post, over production of steel in China continued to pressure steel prices. Despite fairly upbeat 2010 forecast by the World Steel Association on the ground of Chinese stimuli, U.S steelmakers have generally expected the end of "Cash-and-Clunker" to slow down demand for steel toward the end of the year. US steelmakers also expect lower prices for the fourth quarter.

U.S. Steel expects to report a fourth-quarter operating loss and idle two blast furnaces to lower production.
AK Steel, which has been operating at less than 60-percent capacity, said that while it expects to post an operating profit in the fourth quarter, it anticipates a decline in average selling prices.
"Technically speaking, we may be out of the recession, but it certainly doesn't feel that way," James Wainscott, AK Steel's chairman, president and chief executive told analysts. 
"Suffice to say we've bounced off the bottom, but we've got a long way to go from here."
According to Reuters,
Wainscott said AK Steel expects to ship more steel in the fourth quarter as it increases its capacity rate to around 65 percent from 55-60 percent in the third quarter.Wainscott said he was optimistic that auto build rates would increase since carmakers currently had low inventories, due to the business generated by the clunker program.
U.S. Steel's third-quarter net loss was $303 million, or $2.11 per share, compared with a year-earlier profit of $919 million, or $7.79 per share. Revenue dropped 61 percent to $2.82 billion, but was 32 percent higher than in the second quarter, the Pittsburgh-based company said.

Excluding a one-time currency gain, the loss was $2.43 per share versus analysts' average forecast of a loss of $2.87 and revenue of $2.72 billion, said Thomson Reuters I/B/E/S.
AK Steel's third-quarter net earnings were $6.2 million, or 6 cents per share, compared with earnings of $188.3 million, or $1.67 per share, in the same quarter last year.
Revenue fell more than half to $1.04 billion, the West Chester, Ohio-based company reported. Analysts on average were expected a profit of 1 cent per share.

These forecasts are consistent with the peers that have recently announced their earnings.

Sunday, October 25, 2009

POT Saw a Dry Season

The largest potash fertilizer producer in the world, Potash Corp of Saskatchewan (POT) announced that its net income dropped to $248.8 million, or 82 cents a share, in the three months ended Sept. 30, a very shartp decline from $1.24 billion, or $3.93, a year earlier. Analysts on average expected earnings of 81 cents a share, according to Thomson Reuters I/B/E/S. The company expects fourth-quarter earnings of 65 cents to 85 cents a share. Analysts are expecting $1.24, according to Thomson Reuters I/B/E/S. The company also expects full-year 2009 earnings to be at the low end of its previously forecast range of $3.25 to $3.75 a share.

This was obviously a very dismal result however very few people were surprised as potash prices dropped from as high as $1000 a ton last year to barely $500 this year. Most kept their eyes focused on what the management had to say about the future.

Outlook
POT currently expects 2009 potash shipments of 3 million to 3.2 million tonnes. In 2008, the company produced 8.7 million tonnes of potash. The company expects global potash demand of about 50 million tonnes in 2010, which is at the low end of the 50 million to 55 million tonnes range forecast in September. In July, the company saw 2010 demand at between 55 million and 60 million tonnes.

Agricultural market is expected to be tight going forward.
"We’re in the midst of the slowest harvest since 1985, as of October 18, 17% of the crop have been harvested versus the five year average of 46%. The crop is only 83% mature and right now certain consultants believe with the freeze that we had earlier this month that are around 215 million bushels have been lost, maybe up to a billion bushels have been affected......In terms of the corn price, December corn was 304 in early September, $4 yesterday. .." said Bill Doyle, the CEO of Potash Corp.
The contract with China remains to be the key catalyst in the remaining of the year. Closing the deal is expected to eliminate uncertainty among smaller buys regarding the future price of potash fertilizer and starts replenishing the stock. Bill Doyle said that the inventory of China is about 2.5 million to 3 million tonnes now. "When they get to 2 million, they will buy," said Doyle. He expects the deal to be closed by the end of this year.

My Takes
Echoeing the recent Mosaic (MOS) ' s earnings release and the recent rally of fertilizer, the near term catalysts of fertilizers are:
1. China negotiation
2. Crop prices
3. Inventory
4. Merger& Acquisition (M&A)

While the timing of negotiations with China is uncertain, an end of the negotiation given the current inventory of China is highly likely. As far as crop prices are concerned, according to the Organisation for Economic Co-operation and Development (OECD), FAO and the Food and Agricultural Policy Research Institute (FAPRI), world stocks of most crops are not seen as evolving much during the next five years and prices are likely to remain strong. In addition, International Fertilizer Association (IFA) expects the demand for fertilizer in 2009/2010 to increase modestly by 2.6% to 165.4 MT. IFA also forecasts the demand to recover in 2011. However, this is likely to be offset by new production capacity that will come into operation in 2011.
While I don't speculate on M&A myself, having a speculation on a stock serves as a positive catalyst.

All in all, while it is too early to get aggressive on fertilizers as the economic recovery is unclear and the market may be in danger of a correction after rallying more than 6 months, I do see modestly favorable return/risk profile to accumulate these stocks on dips during market corrections.

Disclaimer: This blog is for general information purpose only. Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.



Disclosure: The blog author does not own any positions of MOS or POT in her personal account as of October 25,2009






 

Friday, October 23, 2009

PLD Sees Light in Commercial Real Estates

Things are getting better
The world's biggest industrial REIT, Prologis (PLD) on Thursday shed some lights on the struggling commercial property market. While many argued that commercial real estate market is the next shoe to drop in the economy, PLD CEO's statement hinted that at least in the industrial area, things are getting better.
"Looking ahead, we see a global market that’s beginning to show signs of stability. Perhaps growth and expansion will come sooner than we thought. We'll see..................
Globally, industrial demand is still soft, but we are seeing signs of increased customer activity. We recently polled our top customers and not surprisingly, about two-thirds of those who we spoke with, expect a more positive outlook on their business by some time in 2010, although many of them felt that it may not occur until later in the year.........................................
Importantly, several of them mentioned supply chain reconfiguration, which sometimes means expansion and sometimes simply a search of greater efficiencies. Either way, it's good for us because there is likely to be movement in the higher-quality, well-located and in many cases, newly-built facilities and that’s our business."
Occupancy increases
The company's core occupancies trended up by 20 basis points in the third quarter, as the overall leasing activity was up 13% from the second quarter. During the quarter, PLD increased the lease percentage in its static 12/31/2008 development portfolio to 61.7%, up substantially from 54.1% in the second quarter and 41.4% at the beginning of the year. As a result, the company has reached the low-end of our 60% to 70% year-end goal for leasing in this portfolio.

"I never thought I would say this in 2009, but it seems like there are more buyers then sellers in the market right now. Market rents are still of course lower than a year ago, and we expect this to remain the case for the foreseeable future. Our rents on lease is turning, we're down 14.7% in Q3, versus down 12.6% in the second quarter...............................................
However, we believe this situation will reverse itself, when market occupancies trend upward, and as we’ve mentioned in our second quarter call, rental rates today make no sense relative to replacement cost, values and will certainly need to rise substantially to justify new developments spurred by any growth in the global economy..........................................
Remember, most markets did not get substantially overbuilt in this downturn and there is no new supply on the Horizon. As a result, we're clearly seeing an increase in request for build-to-suit proposals."
Cap rates decline
"Yields have declined by 75 basis points in the UK, with anecdotal evidence of them declining in other 50 basis points on deals not yet closed.
We’ve also seen a recent 50 to 100 basis points decline in cap rates on our assets dispositions in the US. There is capital on the side lines and we’re seeing evidence of this in the number of solicited offers and unsolicited increase we’re now receiving. "
My Takes
There are a few things that I look at to gauge the progress of commercial real estates (CRE) from going-on-bankruptcy to near-bankruptcy to stabilizing and then to getting better, and eventually to grow:
1. Occupancy
2. Cap rates or the credit market
3. Funds from operations (FFO)

Per the CEO of Prologis, we do get the vibe of "getting better" with occupancy and cap rates although this may just be limited to industrial CRE instead of CRE as a whole according to "Headlines on CRE" . As far as FFO is concerned, the 2009 guidance of PLD is $1.39-1.43 per share, doubled that of 2008 at $0.68 per share but disastrous if compared to the peak period of 2007 that generated $4.61 per share. It is getting better!

By looking at how these metrics evolve over the last 12 months, I do buy the "getting-better" story. How about you?




Related articles:
http://cocacolabuffet.blogspot.com/search/label/REIT


Disclaimer: This blog is for general information purpose only. Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.



Disclosure: The blog author does not have positions in PLD in her personal account as of October 23,2009

Thursday, October 22, 2009

Initial Claims Trending Down

Amidst this economic downturn, many look eagerly at the job market for any signs of improvement or deterioration. One of the leading indicators, initial unemployment benefits claims, continues to show improvements.

In the week ending Oct. 17, the advance figure for seasonally adjusted initial claims was 531,000, an increase of 11,000 from the previous week's revised figure of 520,000. The 4-week moving average was 532,250, a decrease of 750 from the previous week's revised average of 533,000.


Weekly data fluctuate a lot even after seasonal adjustments. To smooth out fluctuations, 4-week moving average is used for analysis. The 4-week moving average has been trending down since early 2009. [Click on the diagram to enlarge it]
 


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http://cocacolabuffet.blogspot.com/search/label/Economic%20Data

Leading Indicators Leading the Way

Since the downturn of late 2007, there has always been a little voice in my heart that says, "Watch leading indicators."

I haven't seen that many recessions yet and leading indicators haven't been around that long either. Yet, I remember vividly the last recession in 2001 kicked off its recovery in 2002 as soon as leading indicators started to head north. I have been watching leading indicators for months. It is one of the signs that leads me to think that too many people underestimate the resilience of the US economy.

The leading indicator index released by the Conference Board again suggests that the recession is bottoming out and that economic conditions will continue to improve in the near term.

After having fallen steadily since reaching a peak in July 2007, The Conference Board Leading Indicator Index (LEI) for the U.S. has increased sharply over the past half year, and its six-month growth rate has picked up to the highest rate since 1983.

The six-month change in the index has continued to pick up  to 5.7 percent (an 11.8 percent annual rate) in the period through September, up from -2.7 percent (a -5.3 percent annual rate) for the previous six months. In addition, the strengths among the leading indicators have remained widespread in recent months.

Eight of the ten indicators that make up The Conference Board LEI for the U.S. increased in September. The positive contributors, beginning with the largest positive contributor, were interest rate spread, index of consumer expectations, average weekly initial claims for unemployment insurance (inverted), stock prices, real money supply, index of supplier deliveries (vendor performance), manufacturers’ new orders for nondefense capital goods and manufacturers’ new orders for consumer goods and materials. The negative
contributors, beginning with the largest negative contributor, were average weekly manufacturing hours and building permits. [Click on the diagram to enlarge it]




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Tuesday, October 20, 2009

China and Copper 2009-2010

The $586 million ( 4 trillion Yuan) by the Chinese government has boosted the economy significantly.

In an article by the Associate Press yesterday,
China's economy expanded more than 7 percent in the first nine months of the year and will certainly surpass the 2009 growth target of 8 percent, a top economic official said Monday.


"Achieving a growth rate of 8 percent for the year is basically no problem," Xiong, a deputy director of the National Development and Reform Commission, told reporters........
Statistics for September showed improving trade, housing sales, manufacturing and car sales. The data suggest that resilience in retail sales and industrial production are helping offset the blow from falling exports to China's economy.........
Separately, Yu Bin, a senior researcher with the Cabinet-affiliated Development Research Center told a conference over the weekend that growth was forecast to exceed 9 percent in the second half of the year, the financial magazine Caijing reported Monday.
"The internal and external environment for China's economic growth will be better next year," Yu said.
These bullish forecast shed glossy light on industrials and basic materials. Copper, used in pipes, power cable and other infrastructure, has been in high demand. The apparent consumption in China is very high compared to inventory. The apparent consumption of China in August was reported to be 578300 tonnes compared to 86625 tonnes of exchange inventory in warehouses at Shanghai, Guangdong and Wuxi of Shanghai Futures Exchange. The price of copper is standing near its 2009 high [Click the diagram to enlarge]


Here is a short list of companies listed in the US stock exchanges: PCU,ETQ,AZC,FCX,TGB,TCK,CHNR, VALE

You may also be interested in articles in similar categories:
http://cocacolabuffet.blogspot.com/search/label/Steel

Disclaimer: Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.



Disclosure: The blog author does not own any of the above mentioned stocks in her personal account as of October 20,2009

Monday, October 19, 2009

Steel ER Series-STLD

A streak of earnings releases of steel companies unfolds this week, with the 6th largest in the US, Steel Dynamics (STLD), being the first. In the coming weeks, I will cover most of these earning releases.

Nothing out of ordinary here. the company announced a net profit of $69 million, or 30 cents a share for the quarter ended on September 30, 2009, a sharp decline from with $193 million, or 98 cents a share, a year ago. Revenue for the quarter more than halved to $1.17 billion from the year-ago period, when steel prices were at their peak.

The results beat analysts' estimates that , on average were looking for earnings 23 cents a share, before items, on revenue of $1.06 billion, according to Thomson Reuters I/B/E/S.

"Cash-and-Clunker Effects"

After the $500 billion steel industry witnessed a slow recovery from one of the worst downturns ever, the business  was boosted by a government-sponsored discount scheme for new motor vehicle purchases "cash for clunkers," which ended in August. Shipments at the company's flat-rolled steel segment, used by vehicle manufacturers, accounted for about 73 percent of the total shipments at its steel operations.

With the end of "cash-and-clunker" and a seasonal factor, the company expected the profit of fourth quarter to be lower than the third quarter. It will provide guidance later.

You may also be interested in articles in similar categories:
http://cocacolabuffet.blogspot.com/search/label/Steel

Disclaimer: Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.



Disclosure: The blog author does not own STLD in her personal account as of October 19,2009

What is Behind the Fertilizer Rally?

There are a few reasons that drive up fertilizers stocks such ash POT, MOS, IPI, AGU,CF
1. Corn price breaks out
Crop prices dictate whether it is worth it for farmers to apply more fertilizers to get better yield. Corn is one of the crops that are fertilizer intensive and its price is a crucial factor in fertilizer demand.
The most recent quote of December 2009 corn contract at Chicago Merchantile Exchange shows that corn price has just broken out near-term. [Click to enlarge the diagram]





2. China may sign the contract by January
The negotiation over potash prices with China has been dragging on for most part of this year. The last important contract signed by India in July, another major fertilizer buyer, with Russian potash producer had a price tag of $460 per tonne, sharply off the contract price that was over $600 last year.
Another major deal is said to be inked soon. Belarusian Potash Company (BPC) is in the final stages of a Chinese supply deal. The pricing of the 860,000-ton order has not been disclosed, but, in a separate deal, 300,000 tons will be shipped to Vietnam for $500/ton next year.
This deal is expected to set the tone for a major deal between major producers such as POT with China that is expected to close by the end of January.

3. US Dollar weakness
US Dollar has been going down, breaking new lows every couple of weeks. Weak dollar means high prices of hard assets such as agricultural products, basic materials, precious materials, etc.

4. Take-over target
With resuming liquidity, merger and acquisitions are back to business. The,Australian giant miner, BHP with $18 billion cash has been rumored to eyeing POT to add to its potash portfolio as its Brazilian competitor, VALE is doing the same.


You may also be interested in articles in the same category:

http://cocacolabuffet.blogspot.com/search/label/Agriculture

Saturday, October 17, 2009

Trading Journal

Why need a trading journal?
1. We cannot afford to keep making the same mistakes and we want to continue to do what we do best.

Investing or trading , if treated as a long-term business, must avoid mistakes being repeated and allow good moves being reinforced.

Writing down the rationale that motivates a trade will help us see a pattern in our trades. What are the common mistakes that we tend to commit? What are the common charasteristics of most of our profitable trades?

One or a few trades does not constitute a pattern, therefore unlikely to provide unbiased gauge.Optimists always remember the good trades while pessimists always remember the bad trades. How many times have we found ourselves boasting profitable trades and how many times have we mourned and groaned over failed trades. Neither is useful in forming good trading pattern. A journal that records all trade can give us a clearer and most importantly, an objective map to point out where the mistakes and good moves lie.

2. We want to trade what we plan
How many times have you heard traders say, "I could have made 50% more if I had stuck to my plan."? And how many wives have yelled at their husbands , " If I had not listened to you, I could have made $5000 more." It is just natural to want to find scapegoats instead of admitting one's mistake.

The mistake here is simply being human. Most of us, are affected by external factors. The wife, the friends, the family and the most powerful, the market. Very few of us were not rattled when everybody was talking about the end of capitalism, and the lost era, and the Great Depression once more.Very few of us can sit tight and hold on to winners when the Nasdaq has rallied more than 70% from the March-low.

Having a specific,detailed trading set-up plan written clearly in front of us can help mitigate this psychological weakness. To many of us, seeing the plan visually everyday can remind us why we want to stick to the plan in the first place.

3. We want to consider as many factors as possible

To make a good trade consistently, we not only have to be able to find the good pick and the right price, we also need to be able to recognize things that could go wrong and our contigent plans. Most of us do have these in our head. But it is common that they disappear in our memory as the number of trades increases or they have changed without giving us an alert. A trading journal serves as a constant reminder of possible risks and red flags. It allows us to constantly update and refine our plan to increase the probability of winning.


Every good trade begins with planning ahead. Sitting down and jotting down all the possible market movers such as FOMC meeting, unemployment data, companies's earning release, etc put our trade into different scenario tests so that we are not caught off-guard and have a better chance of minimizing losses should things really go wrong.


4. We want to form good trading habits/strategies

As noted above, trading journal can help identifying good trading habits and strategies. Identifying good trading habits and strategies is crucial but it is only one quarter of the game. The rest lies with the ability to execute the strategy. Repetition is the mother of all skills.

We mentally rehearse these habits and strategies every time we write down the same thing in the journal for each trade. Before we know it, it's become our second nature.

To celebrate this Saturday night (Duh!!! I know I don't have a life), I would like to share an example of trading journals with friends who are interested. Everyone has different trading needs and instruments. Therefore, each one of us will probably need to customize any template to our own style and needs. [Click the table to enlarge it]. Have a good Sunday!


Friday, October 16, 2009

Google Signals Economic Recovery?

It is said that online advertising is one of the earliest to feel economic recovery as companies can literally increase their online advertising spending overnight. If companies are confident enough to add more discretionary expenses such as advertising, it is safe to say that the heart of the economy may be starting to beat again.

The largest online advertiser in the world, Google felt the heartbeat good on Friday. It not only posted higher-than-expected third-quarter profits and revenues, but also said it was looking for major acquisitions and could buy a large company "maybe every year or two."


Google's CEO Eric Schmidt said large advertisers were more eager to spend on search ads in the third quarter and consumers shopped more online, helping the Internet company notch its strongest quarter-on-quarter revenue growth since 2007's final quarter, underscoring improving economic conditions.It said both the amount of money that advertisers pay for the text ads that appear alongside search results as well as the number of clicks on those ads by Web surfers increased quarter-over-quarter.
 
Google's net revenue in the third quarter -- excluding traffic acquisition costs, or the money that Google shares with partners -- rose 8.5 percent from a year earlier to $4.38 billion, beating the $4.24 billion expected by analysts.


Net revenue also grew quarter-on-quarter for the first time this year, after being roughly flat in the second quarter and falling for the first time ever in the first quarter.

Net income was $1.64 billion, or $5.13 a share, compared with $1.29 billion, or $4.06 per share, a year earlier, thanks in part to ongoing cost controls at the Mountain View, California company.

Excluding special items, profit per share was $5.89, beating the $5.42 expected by analysts, according to Thomson Reuters I/B/E/S.

Like almost every other business these days, things are "getting better" but still not good enough.Google's revenue growth had slowed to just 3% in the second quarter from a year ago, compared with 31% growth in all of 2008. Google said cost per click, the amount advertisers pay when people click on an ad, fell 6% from a year ago but rose 5% from the second quarter. Analysts took that as a positive sign.


.

Thursday, October 15, 2009

Don't We Just Love Shoes?

I don't know about you. I , for one, am a little tired of all these big banks' earnings this week. Instead of going through numbers of Citigroup and Goldman Sacks that reported earnings today, I turn to off-beat news like" DSW raises outlook as sales improve".

"The company said it now expects earnings of 70 cents to 80 cents per share for its year ending in January, up from a previous forecast of 37 cents to 45 cents per share, issued in August. Excluding one-time items, analysts polled by Thomson Reuters expect a profit of 44 cents per share. This is the second time this year that the company has raised its outlook.

The company said it anticipates sales at stores open at least a year, a key measure of a retailers financial health, will climb 6 percent to 8 percent in the third quarter ending Oct. 31, partly on increased traffic.

The company expects flat full-year sales at stores open at least a year, compared with previous expectations of a mid-single digit decrease.

Despite a strong third-quarter outlook, DSW said it remains cautious about the fourth quarter and believes the economy will remain "challenging."

While top retailers managed a gain in September for the first time in more than a year, analysts said shoppers still expect discounts and bargains. Analysts said that could mean a slow recovery overall for retailers and the economy."
Despite the downbeat tone at the end of the news, it did sound a tune of "cautiouly optimistic". The optimism is not just DSW, it's shoes. When you look at the stock of shoes such as SHOO, SKX,NKE,KCP, DECK, almost all of them are not far away from 52-week high with SHOO not too far from all-time-high.

I guess for those who still think it's the end of retail, it's the end of spending, it's the end of capitalism, let's remember what Carries once said when she was purchasing a pregnancy test kit with Miranda.

Carrie: Which kind do I get?

Miranda: Here. This one's on sale -- half-off.

Carrie: I just spent $395 on a pair of open-toed Guccis last week. This is not the place to be frugal.


Disclaimer: Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.



Disclosure: The blog author does not own any of the above mentioned stocks in her personal account as of October 15,2009

Inventory Bottoming

One of the crucial elements in a business cycle is inventory or unsold goods that firms store in the warehouse.
When the economic activity is robust, inventory turnover is high. Goods are flying off shelves. Companies are running down inventory. In order to replenish inventory to meet the demand, companies start producing, hiring workers, ergo the upturn.

In contrast, goods stay on the shelves for way too long when the economic activity is slow. Companies stop producing and freeze hiring while trying to use up the inventory, ergo the downturn.

In short, production will take place as the inventory gets too lean. Obviously, there is no need to produce if there is no sales at all even when the inventory is zero. Therefore, the level of inventory usually is seen in the light of sales, that is inventory-to-sales ratio. It gives the number of month it takes to use up the inventory at the current rate of sales.

What we are seeing now is a level of inventory-to-sales that is close to the recovery period (2002-2003) of the last recession . The total business inventories/sales ratio based on seasonally adjusted data at the end of August was 1.33. [Click on the diagram to enlarge the chart]



I was very quick to see recession looming in the late 2007 . This year, I also find myself optimistic among people I know at this very early stage of recovery, if there is any. Sometimes, what people say does affect my stance. However, at this moment, this piece of inventory data does lend support to optimism of at least a recovery.

Wednesday, October 14, 2009

Things That We Get Out Of JP Morgan's ER

the Dow closed at the all-too-important 10,000 mark after JP Morgan (JPM)'s earnings release beat analysts' estimates by a wide margin.The bank reported a profit of 82 cents per share and $28.78 billion in revenue during the third quarter. Analysts forecast a profit of 52 cents per share and  $24.96 billion revenue.

Fixed income in the investment banking division drove the results

JPMorgan said its investment bank net income came to $1.92 billion, up $1 billion from a year earlier as fixed income trading thrived.

Fixed income markets accounted for two-thirds of the investment bank's $7.51 billion in revenue. While the company's trading operations were strong, JPMorgan was also able to write up the value of some investments that have started to recover after souring during the peak of the credit crisis.

Credit card and home loan losses increased.

The bank's loss provision to cover current and future home loan defaults jumped to $3.99 billion, while its provision for credit card losses surged to $4.97 billion.

JPMorgan said the percentage of credit card loans it wrote off as not being repayable in the third quarter reached 10.3 percent of its total portfolio. CFO Cavanagh said during a separate call with analysts that the card loss rate is expected to reach 10.5 percent in the first half of 2010 and could go higher depending on the unemployment rate.

"Credit costs remain high and are expected to stay elevated for the foreseeable future in the consumer lending and card services loan portfolios," Dimon said.

My Takes
Fixed income trading will be the bright spot of financials in the near future and more write-ups of assets will be seen as the credit market eases. Off the top of my head, let's just toss a few names that might benefit from the trend. Among them BLK, BX,IVZ, JEF,GLG,KFN,RJF.



Disclaimer: Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.



Disclosure: The blog author owns KFN but NOT other stocks mentioned above in her personal account as of October 14,2009

Tuesday, October 13, 2009

CSX Beat

Dow Theory claims that Railroad companies can serve as leading indicators of the economy and consequently the stock market. That is why the earnings release of CSX Corp (CSX), the third largest U.S. railroad company, has drawn a lot of attention on October 13, 2009

Lower Fuel Costs and Expenses Slowed Declines

CSX reported a 23% drop in earnings year over year. However, the after-market trading welcomed the stronger-than-expected quarterly profit and the statement of the CEO on "the worst of the recession is likely behind us"

The net income from continuing operations was $293 million, or 74 cents a share compared with $380 million, or 93 cents a share, a year earlier. Analysts had expected the company to report a profit of 71 cents a share, according to Thomson Reuters I/B/E/S. Revenue in the quarter fell 23 percent to $2.3billion, in line with analysts' expectations, while operating expenses fell by 24 percent, or $537 million, helped by dramatically lower fuel costs. The company said it spent on average about $1.88 a gallon on fuel in the quarter, down from $3.57 a gallon last year.

The largest decline in volume came in metals shipments, largely due to weak demand from the automotive and construction industries. But the decline in demand slowed during the quarter due to low inventories and "an improvement in automotive production" thanks to the "cash for clunkers" program, a part of the Obama administration's economic stimulus plan. 

My takes

Many may find in the earnings release signs of economic recovery but some analysts were skeptical that factors such as "cash-for-clunker" and restocking inventory that contributed to the "better-than-expected" results would cease to be in effect in coming quarters.

I am also concerned with the rising trend of oil prices in the second half of 2009. We may have to wait for a few more releases of pro-cyclical companies to draw inferences on sustainability and strength of this recovery.

Disclaimer: Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.



Disclosure: The blog author does not own CSX in her personal account as of October 13,2009

China Iron Ore Imports Exceed Real Demand, CISA Says

In  article in Chinamining. org, China Iron Ore Imports Exceed Real Demand, iron ore imports by China, the world's largest buyer, have exceeded real demand by 50 million metric tons this year. The recent gains in spot iron ore prices are  said to be"speculative," by Luo Bingsheng, the vice chairman of the China Iron & Steel Association.

China's iron ore imports surged to a record this year, hurting the group's bid to negotiate a contract price cut bigger than the 33 percent offered by Rio Tinto Group and BHP Billiton Ltd. The nation is looking at cutting the number of licensed importers, industry minister Li Yizhong reiterated today.

For the first eight months, iron ore imports gained 32 percent to 405 million tons from a year ago, China's customs said in September. Imports by traders accounted for 44 percent of China's total purchases in the first six months, compared with 30 percent a year earlier, the steel association had said in July.The cash price for Australian ore delivered to China has risen 11 percent in the past five weeks, according to the Steel Index.

No Drought for TRIT

China's Spending on Water

As previously discussed in this blog's "Tap into Chinese Water", spending on water resource and wastewater management in China is expected to soar in the next few years.

According to the budget plan announced by Ministry of Water Resources, China expects to invest $11.7 billion in 2009 in water.resources sectors. China’s central government has allocated $3.8 billion in the first half of 2009. With the projects the central government has approved, this investment will increase to $45 billion in the aggregate over the next 3 years. The projects include mitigation of 6,240 unsafe small and middle-sized reservoirs due to lack of proper maintenance for several years.South-North Water Transfer Project is a large, inter-basin, long-distance water transfer project that is charged with dozens of major urban water supply tasks for such cities as Beijing, Tianjin and Shijiazhuang.

TRIT Can Ride the Wave

Tri-Tech Holdings, Inc (TRIT) is a small Chinese company that specializes in water resource, wastewater and tail gas management. In the first half of 2009, about half of the revenues came from water resource management and the other half from wastewater and tail gas management.

TRIT definitely falls into the categories of "high-growth" companies. Q2 '09 revenue was up 54% to $3.1M from $2.0 M in Q2 '08. Q2 '09 net income $865K or $0.24 per diluted share up 100% from $444K or $0.12 per diluted share. For the six months ended June 30, 2009, revenue stood at $6.0M, up 75% from $3.4M a year ago. Net income $1.5M or $0.41 per diluted share up 78% from $807K or $0.23 per diluted share.

Assuming a range of 2009 earnings per share (EPS) between $0.65 to $0.82, at yesterday's closing price of $18.25, the stock has a price-to-earnings ratio (PE) of about 22 to 28. This is comparable or slightly higher than its Chinese counterpart, DGW, another Chinese water management company that too has just made its initial public offerings.

The valuation is fair on the assumption that the company can succeed in its pursuit of government projects in the next few years. The company is currently pursuing 100 river basin flood monitoring and forecasting systems in more than 100 counties with a market potential of $72.5M. Additional projects are being pursued through distributors and partnerships with a potential value of $43.5M. The company is pursuing wastewater treatment business in several markets including Tianjin Binhai where the government plans to construct over 40 large pumping stations and 30 sewage treatment plants with a total market potential of $8.7B. Hebei Province plans to construct 50 sewage and grey water reuse treatment plants in the next two years. Sales are expected from early flash flood warning system projects in Hubei and Tsinghai provinces. Increased sales also are anticipated in a long distance water transfer project with dozens of urban water supply tasks for major cities including Beijing, Tianjin and Shijiazhuang where the company is already engaged.

Risks
Noteworthy is that the company may face political risks in China where regulatory and central and local budget allocation procedure can be very complex and tricky. Small companies like TRIT may not have enough political connections to be granted big projects. In fact, should there be delays in budget allocation or receivables collection  which is not unusual in emerging markets, the company can face problems in its working capital.


Note:
1. As both companies are recent IPOs, the number of shares outstanding reported in http://www.google.com/finance is different from the one used in calculations of their most recent SEC filings.

Disclaimer: Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.


Disclosure: The blog author owns TRIT in her personal account as of October 13,2009

You may also be interested in articles in the same category:
http://cocacolabuffet.blogspot.com/search/label/Green

 

Monday, October 12, 2009

Steel hope for 2010

The World Steel Association said Monday that steel consumption in the industrialized world won't be as weak as it thought. The global recovery is stronger than the group has predicted in April.


The trade group said it now believes that global steel use will decline by 8.6% in 2009 compared with a year ago. Back in April, the association had predicted a 14.5% drop.

The group also predicted that worldwide demand for steel will grow by 9.2% in 2010, which would put the globe's steel consumption back on equal footing with 2008 levels.

China once again was cited as the driver. China's demand for steel will likely grow by 19% in 2009 and 5% in 2010.


Recovery in North America will come more slowly, according to the report, with a demand decline of 35.8% in 2009 before a rebound of 17% in 2010.


You may also be interested in articles in the same category:
http://cocacolabuffet.blogspot.com/search/label/Steel

http://cocacolabuffet.blogspot.com/search/label/Commodities

Gold going to $2000?

To view the video clip by Tech Ticker with Jim Rogers, click here


Famed investor Jim Rogers is "quite sure gold will go over $2000 per ounce during this bull market."

Rogers' confidence gold will continue to rally stems from a view the U.S. dollar is on its way to losing status as the world's reserve currency.

"Is it going to happen? Yes," Rogers says. "I don't like saying it [and] I'm extremely worried about it but we have to deal with the facts. America is not getting better [and] the dollar is going to be replaced just like pound sterling [was]."

Rogers didn't offer a timetable, and it's likely gold would exceed $2000 per ounce if the dollar were to lose its reserve status.

Still, "I wouldn't buy gold today," Rogers says. "I think I'll make more money in other commodities, which are cheaper," as discussed in more detail here.

Among many others, Rogers is "worried about the fact the U.S. government is printing huge amounts, spending gigantic amounts of money it doesn't have," the investor and author says. "People are very worried [and] skeptical about paper money [and] looking for places to protect themselves. The best way is to buy real assets. [That] has always protected one during currency turmoil, and it will again."

Inflation Inevitable?

In an interview with Rogers by Tech Ticker (For Video Clip, click here), Rogers expressed the following concern:

Given the Fed's extremely easy policies, runaway government spending and shortages of many commodities, inflation pressures are building and destined to get much worse, according to famed investor Jim Rogers of Rogers Holdings.


"The Federal Reserve has laid the groundwork for some serious inflation down the road by printing all this money," Rogers says. "So have many other central banks."

Although "the U.S. government lies about inflation" in its official data, inflationary pressures are already evident in nearly everything, excluding energy, Rogers says. Inflation is "going to continue, going to accelerate," he says. "We're going to be paying more for just about everything down the road."

Asked if he foresees a 1970s-style stagflation period ahead, Rogers chuckled and gave an ominous reply: "I hope it's that good. It might be much, much worse."

Given that view, Rogers remains very bullish on commodities as we discuss in subsequent clips.

Saturday, October 10, 2009

Headlines on CRE

The weather has never been better in New York City this Fall. Every morning, I put a pot of coffee to brew while watching down at the street. Breezy and nice temperature,men and women briskly hustle and bustle across the concrete jungle  while tourists are strolling down the streets. Always filling the air was the energy (erhh, sometimes pollutants). For a moment , it does seem like there is nothing more poetic than living in this ever so alive city until I open the New York Times (Well, I figure you, like me, feel more nostalgic with that scene than me turning on my PC to read reuters online).

Commercial real estates (CRE) were not short of depressing headlines in Reuters this week.
US apartment vacancy rate hits 23-year high

"It makes me wonder whether the avalanche is on its way for office and retail (real estate) unless things change really quickly and really drastically," Victor Calanog, Reis director of research, said.

Reis still expects the U.S. apartment vacancy rate to pass the 8 percent mark by perhaps next quarter but certainly by next year, Calanog said. That would make it the highest vacancy rate since Reis began tracking the market in 1980.

In the third quarter, the U.S. apartment asking rental rate fell 0.5 percent to $1,035 per month, the fourth consecutive declining quarter. Factoring in months of free rent and other perks landlords have been using to lure or keep tenants, effective rent fell 0.3 percent to $972, also the fourth consecutive quarter of declining rent.

"We have not seen that before," Calanog said............

Reis does not foresee a turnaround in the apartment market until at least the second quarter of 2010 at the earliest..............................

In New York, the largest U.S. apartment market, the vacancy rate fell 0.10 percentage points to 2.9 percent. Effective rent fell 0.9 percent to $2,657 per month.

"With job markets still being lost at the national level and with New York being relatively more dependent on the still-embattled financial services sector, it may take a few more quarters before we see rents bottoming out in the Big Apple," Calanog cautioned.
US office market vacancy rate at five-year high

The national vacancy rate rose 0.6 percentage point to 16.5 percent from the prior quarter and is up 2.3 percentage points from a year earlier, according to a report Reis released on Wednesday.

"The last time we saw vacancies in the mid-16s was at the end of 2004," Victor Calanog, Reis director of research said.......................

Even worse, since the first quarter of 2008 about 106.5 square feet of extra space have piled up, nearly wiping out the 107.9 million square feet that was snatched up during 2006 and 2007.

"So in seven quarters, the current recession has almost undone all additions to occupied space that occurred during the years when office rents peaked," Calanog said................

Asking rent slipped 1 percent from the prior quarter to $28.15 per square foot. That was down 4.3 percent from a year ago, the largest year-over-year decline since 2002.


Factoring months of free rent and other perks, effective rent fell 2.2 percent from the second quarter to $22.91 per square foot and a whopping 8.5 percent from the third quarter of 2008.

"We have to look back to 1995 to observe a similar time period when office property landlords were under such pressure to retain existing tenants or attract new ones," Calanog said.......

New York -- the largest U.S. office market, saw its vacancy rate rise 0.6 percentage point to 11.4 percent. Effective rent fell to $47.16 per square foot, down 4.4 percent. It was the largest quarterly drop Reis recorded since it began tracking the figures in 1999.


Even worse, year-over-year the effective rent in the New York area fell 18.5 percent, just about twice the decline New York saw in 2002 and surpassed only by the 20-plus percent dive in 1983.

The third-quarter vacancy rate at U.S. strip malls, which include local shopping and big-box centers, rose 0.3 percentage points from the second quarter to 10.3 percent, the highest since 1992, Reis said...............


Shopping center vacancy rate hits 17-year high
Asking rent at strip malls slid 0.3 percent from the second quarter to $19.22 per square foot and were down 1.9 percent from the prior year. Asking rents were the lowest since mid 2007.

Factoring in months of free rent and other perks, effective rent fell 0.8 percent from the second quarter to $16.89 per square foot or down 3.8 percent from the third quarter 2008. Rents were the lowest since mid-2007

"Since asking and effective rent growth only turned negative about one year ago, it is daunting to observe this acceleration in decline in what has traditionally been regarded as a stable property type," Calanog said.


Reis expects rising vacancy levels and declining asking and effective rents for neighborhood and community centers through 2011.

"We have yet to observe any unexpected systematic resumption in hiring and strength in consumer spending that may lead us to revise our projections with a more optimistic bent," Calanog said.................

U.S. mall vacancy rate rose 0.2 percentage points to 8.6 percent in the third quarter, the highest vacancy level since Reis began tracking regional malls in the first quarter 2000.

Asking rent at big U.S. malls fell 0.6 percent from the prior quarter to $39.18 per square foot and was down 3.5 percent from a year earlier. It was the fourth straight decline in rents and the largest one-year decline Reis has seen.

You may also be interested in articles in the same category:

http://cocacolabuffet.blogspot.com/search/label/CRE
http://cocacolabuffet.blogspot.com/search/label/REIT

Friday, October 9, 2009

Tap into Chinese Water

Water infrastructure in China is facing major challenges.
"China faces widedspread water scarcity, frequent floods in the south and east and droughts in the north and west. The country also suffers serious water pollution which heavily strains the environment. China's water supply is smaller than the United States but is home to approximately five times as many people. It is estimated that 300 million Chinese citizens have no daily access to clean water.....Over 700 million Chinese citizens drink water that does not meet current World Health Organization standards. Water usage in China has quintupled since 1949, and almost 90% of underground water in Chinese cities is affected by pollution........................................................In short, China is struggling to procure clean and provide enough potable water for a growing population....."
Not surprising, China is scaling up the spending on clean water projects
"Through 2010, China’s environmental investment is expected to be approximately $184.2B. Approximately $39.5B is expected to be used for water resource management, urban water management, wastewater treatment, sewage reuse and water treatment. Between 2007 and 2009, the Chinese allotted approximately $526M in special funds to establish a National Water Resources Management System.

In November 2008, the Chinese government announced a $585B stimulus package in response to the global economic crisis. This included approximately $3.3B for environmental projects."
To tap into this long term growth, let's have a snapshot of a few companies that work on waste water and water technologies: TRIT, DGW, VE, DHR. [Click to enlarge the diagram]



Disclaimer: Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.



Disclosure: The blog author does not own any positions of the above mentioned stocks in her personal account as of October 8,2009

Thursday, October 8, 2009

Initial Jobless Claims Trending Down

I guess everyone of us  has by now heard of the term,  "jobless recovery" and improvements in some economic data are nothing to be giddy about as they are not sustainable if there is no job creation.

Initial jobless claims report that was released today shed some rays of hope. It fell to the lowest since January 2009.

521,000 initial jobless claims were filed in the week ended Oct. 3, down 33,000 from an upwardly-revised 554,000 the previous week. A consensus estimate of economists surveyed by Briefing.com expected 540,000 new claims.

To smooth out week-on-week fluctuations, 4-week moving average of initial claims was often placed more emphasis. The figure was 539,750, down 9,000 from the previous week's revised average of 548,750.
 
6,040,000 people filed continuing claims in the week ended Sept. 26. That was down 72,000 from the preceding week's ongoing claims. The 4-week moving average for ongoing claims fell by 15,750 to 6,144,250, from the prior week's revised average of 6,160,000.
 
There is a caveat. The slide in continuing claims may not be a positive sign, according to the chief economist of Nomura Global Economics, David Resler, as it may signal that more filers are turning into extended benefits.

Quotes from CNN's article "Jobless claims fall to 9-month low"
Continuing claims reflect people filing each week after their initial claim until the end of their standard benefits, which usually last 26 weeks. The figures do not include those who have moved to state or federal extensions, nor people who have exhausted their benefits.
"When we add in the number of people on the extensions, we see that figure is rising and has been doing so consistently," Resler said, adding that comparison is difficult because extension data lag continuing claims by a further week
High Frequency Economics' Shepherdson said he does not expect claims "to keep falling this fast," and that the decline will slow through the year-end and into 2010 although the downward trend will continue.
But Nomura's Resler said he thinks initial claims could fall below the 500,000 mark by the end of October."We keep seeing more evidence that fewer workers are being laid off, and enough of the economic data is more positive," Resler said. "That, plus today's decline, tells me that hope isn't just a pipe dream.
"While no "absolute threshold" of claims exists, Resler said, he thinks payrolls will increase when initial filings hit 475,000 or 450,000.

Retailers, X'mas Finally?

U.S. retail sales rose for the first time in 13 month. Based on results from 24 retailers, 16 beat Wall Street estimates, and another six are due to report, according to Thomson Reuters data.

Kohl's 
Same-store sales for September increased 5.5 percent over a year ago. The sales figures far exceeded an estimate of a 0.1 percent same-store sales increase, according to analysts surveyed by Thomson Reuters.

Costco
Same-store sales for the period were up 1%, while analysts had expected a 0.6% drop.

BJ's Wholesale Club Inc.

The company said same-store sales fell 0.5% in September, due to a large drop in gas prices. Excluding that, merchandise comparable-store sales rose 5.5%, helped by a shift in pre-holiday sales for Labor Day into the month from August last year. Analysts, on average, had expected overall same-store sales to fall 1%, according to Thomson Reuters


JC Penney
The departmental store saw its sales at stores open 12 months or longer decline 1.4 percent in September, but that was better than the company’s forecast of a three to six percent drop.


Macy
Same-store sales fell 2.3 percent, half as much as analysts anticipated. Its shares rose 2.7 percent to $19.10 in premarket trading.

Neiman Marcus

The upscale retailer saw its same-store sales fall 16.9 percent in the five-week period ending in early October.



Abercrombie
Teen apparel retailer Abercrombie saw same-store sales drop 18 percent, but that was better than the 21 percent decline predicted by analysts. Its shares rose 4.6 percent to $34.15.

Aeropostale
Aeropostale, Inc.  reported a 19% jump in same-store sales for September. The results easily surpassed analysts' expectations for an increase of 12.4%

Gap
Gap Inc's sales fell more than anticipated, but its shares rose 3 percent after the company said margins came in significantly above last year.


Limited

Limited, whose chains include Victoria's Secret, posted a 1 percent increase in sales at stores open at least a year. Analysts expected a 2.4 percent decline.


Childern's Place
Children's Place Retail Stores Inc also reported an unexpected 4 percent rise in comparable sales. The results were aided by strong growth online, which the company includes in that figure.

Aeropostale Inc, American Eagle Outfitters Inc and Gymboree Corp raised their quarterly profit forecasts. Still, not all of the gains are coming from stronger sales. Gymboree's optimism stemmed mainly from inventory control and taking fewer markdowns.


Hot Topic
Hot Topic reported a 4% decrease in September, above analysts' expectations of a 6.3% decline.


Zumiez 
A specialty retailer of sports-related apparel, footwear and accessories for teens and young adults - reported its same-store sales dropped 0.8% in September, better than Wall Street's projection of a 1% decline. It was Zumiez's smallest decline in over a year.

Walgreen
In-store flu vaccinations helped Walgreen Co (WAG.N), the largest U.S. drugstore chain, post on Friday a better-than-expected 5.3 percent jump in September sales at its stores open at least a year. At Walgreen, pharmacy same-store sales rose 7 percent while same-store sales of general merchandise rose 2 percent.

Analysts, on average, expected a 3 percent rise in overall same-store sales, with pharmacy same-store sales up 4 percent and general merchandise same-store sales up 0.4 percent, according to Thomson Reuters data.

Barnes & Noble

The bookstore is currently in its second quarter, from August 2 to October 31, and expects comparable store sales to drop 1 percent to 3 percent for the period. For its new fiscal year 2010, from May 3 2009 to May 1 2010, it expects same-store sales to fall between 2 percent to 4 percent.

Wednesday, October 7, 2009

Alcoa Lifts Commodities

The first Dow component to report earnings this quarter, Alcoa Inc (AA) posted a surprise profit on Wednesday through cost cutting and higher aluminum prices after three consecutive quarterly losses, sending its stock 6 percent higher. Wall Street had expected another loss for the aluminum producer but Alcoa said its third-quarter net earnings were $77 million, or 8 cents per share, compared with earnings of $268 million, or 33 cents per share in the same quarter of 2008. The stock,together with other commodities-related stocks rose in extended hour trading.

  • Blowing away Estimates
"Excluding restructuring and one-time items, the profit was $39 million, or 4 cents per share -- smashing analysts' average forecast of a loss of 9 cents per share, according to Thomson Reuters I/B/E/S.
Revenue fell to $4.6 billion from $7.00 billion a year earlier, but was 9 percent higher than the second quarter and higher than analysts' average estimate of $4.55 billion, according to Thomson Reuters I/B/E/S."

  • Cost Cutting and Aluminium Price
"Alcoa attributed the positive results to cost savings and an increase in aluminum prices. Kleinfeld said the company's cash sustainability initiatives to reduce costs by $2 billion by 2010 had exceeded targets and reached $1.6 billion.
During the third quarter, the London Metals Exchange price for aluminum rose 16 percent to $1,890 per metric ton. Alcoa said its realized prices for primary aluminum in the third quarter rose to $1,972 per metric ton from $1,667 in the second quarter. On Wednesday the LME three-month price was $1,850."
  • Things are Getting Better but Not Good Enough
"Alcoa, which has curtailed metal production by more than 20 percent and cut its workforce by about 30 percent since the economic downturn began a year ago, said there are signs that key markets are stabilizing and it expects global consumption to rise by 11 percent in the second half of this year.
But Chief Executive Officer Klaus Kleinfeld said metal prices and demand had not yet improved enough to restart smelter production that had been cut back.
"We believe that current prices are not conducive to any restart," he said when asked on a conference call with Wall Street analysts.
Kleinfeld said although the beverage can market was expected to remain stable, the aerospace market would continue flat, commercial building and construction was in decline and the market for industrial gas turbines was weakened.
Although the U.S. cash-for-clunkers program had stimulated the auto industry this summer, sales fell off in September, he said."
Disclaimer: Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.


Disclosure: The blog author does not own AA in her personal account as of October 7,2009

REITs with Positive FFO Growth

Growth is hard to find these days, not to mention one of the most distressed sectors such as real estate. I dug through the estimates of fund from operations (FFO) by National Association of Real Estate Investment Trust  (NREIT) and made a list of reits with estimated positive FFO growth. [Click on the image to enlarge]


Disclaimer: Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.

Disclosure: The blog author owns DDR in her personal account as of October 7,2009

You may also be in interested in articles in the same categories:
http://cocacolabuffet.blogspot.com/search/label/REIT
http://cocacolabuffet.blogspot.com/search/label/CRE


Baltic Dry Bulk Index Rising Tide?

In a previous post "Dry Bulk Shipping Ready to Sail", COSCO analyst cited a few reasons to be optimistic in the sector by the end of this year. In the mean time, the once-popular Baltic Dry Bulk Index (BDI) has bulked weeks of downward trend since late September. Is this just a coincidence or it is indeed a year end party for stocks like DRYS, DSX, NM, etc?

Below is a snapshot of the BDI in the last month:

 Oct 07, 2009  2546.00
 Oct 06, 2009  2441.00
 Oct 05, 2009  2362.00
 Oct 02, 2009  2357.00
 Oct 01, 2009  2284.00
 Sep 30, 2009  2220.00
 Sep 29, 2009  2185.00
 Sep 28, 2009  2192.00
 Sep 25, 2009  2183.00
 Sep 24, 2009  2163.00
 Sep 23, 2009  2175.00
 Sep 22, 2009  2246.00
 Sep 21, 2009  2318.00
 Sep 18, 2009  2356.00
 Sep 17, 2009  2390.00
 Sep 16, 2009  2415.00
 Sep 15, 2009  2431.00
 Sep 14, 2009  2450.00
 Sep 11, 2009  2468.00
 Sep 09, 2009  2491.00
 Sep 08, 2009  2462.00
 Sep 07, 2009  2429.00

Disclaimer: Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.



Disclosure: The blog author owns DRYS in her personal account as of October 7,2009

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Tuesday, October 6, 2009

Dry Summer for MOS

As we are stepping into one of the most crucial earning seasons in years, I am going to track the earnings of a series of companies, starting from one of the largest fertilizers producers in the world, MOS.

MOS released a disappointing earnings report after the market close yesterday. The company announced  net earnings of $100.6 million, or $0.23 per diluted share, for the first quarter ended August 31, 2009. These results compare with net earnings of $1.2 billion, or $2.65 per share, for the first quarter ended August 31, 2008. Revenue fell by 66% to $1.46 billion. Analysts had been expecting EPS of 35 cents on revenue of $1.54 billion.

  • Phosphate and Potash Prices Down Sharply. Volume Started to Stabilize
The disappointing result is attributable to sharp declines in phosphate prices, potash prices and potash sales volume. The average first quarter diammonium phosphate (DAP) selling price, FOB plant, was $276 per tonne, compared to $1,013 a year ago and $345 per tonne in the fourth quarter of fiscal 2009. Phosphates sales volumes were comparable with a year ago at 2.1 million tonnes. The average muriate of potash (MOP) selling price was $382 per tonne, compared to $488 a year ago and $540 per tonne in the fourth quarter of fiscal 2009 and total potash sales volumes were 0.8 million tonnes, compared with year-ago first quarter volume of 1.9 million tonnes, but up from 0.6 million tonnes for the fourth quarter of fiscal 2009

  • Market Reaction Down First and Up Later. USD Weaknesses Helped
Yet, the price movement of MOS depicts the all too unpredictable post- ER market reaction. The stock price went down immediately after the release in the extended hour trading but soared as much as 5% as the weak US dollar lifted the entire basket of commodities.
  • Management Optimistic on Outlook
Despite the dismal earnings release, the management keeps its optimistic tone as usual, citing expected increase in the usage of fertilizers, global economic recovery, and decreasing inventory.

The company expects farmers to increase in demand in anticipation of high crop prices in 2010 as farmers make up for under applications of fertilizers in the late 2008 and 2009. Global economic recovery is expected to continue the trend of better diet (more protein diet) in densely populated emerging markets such as China and India. Inventory of phosphate in North America is at the lowest since May 2006. Inventory of potash is also working down from its elevated level earlier this calendar year. The distribution pipeline has been largely emptied.
  • My Takes
  1. The "better diet in emerging markets" theory has been the bull case offered by the management through its boom and bust , so I don't think this is the "marginal " component that will make a difference in coming months .
  2. Very lean inventory, on the other hand, is something to get excited about as this was the most important drag on pricing power. Phosphate inventory looks good now. One down, another one to go. Inventory of Potash is a key to the sector in coming months.
  3. The optimism of management is to a large extent dependent on expected high crop prices in 2010. From the May 2010 futures contract of wheat and corn, this seems to be possible but I wouldn't get too excited until I see some real movements due to the volatility of these commodities.






In a nutshell, things are getting interesting in this sector but I would stay on the sideline until I see some real movements in either crop prices or fertilizer prices.

Disclaimer: Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.


Disclosure: The blog author does not own MOS in her personal account as of October 6, 2009

Monday, October 5, 2009

Real Estate Moguls’ Views on CRE

On Monday, October 5, 2009 Bill Rudin, president of Rudin Management, and Steven Roth, chairman of Vornado Realty Trust, shared their insight and outlook on the real estate market.

“There is not doubt this is a slow motioned recovery that will take longer than most have anticipated, “ said Roth. The bottoming process can probably take 2 years, or longer than that according to Roth

There is a hint of optimism, however.

“In terms of commercial real estates (CRE) in New York, we are seeing activities,” said Rudin. According to Rudin, 12 major leases signed for properties of over 100,000 square feet in the third quarter 2009 compared to a virtually dead market 6 months ago. Among the lessees were CV Starr, Hank Greenberg’s company, Gaps, etc. Obviously, these came at much lower rents, 30-40% off .

Roth acknowledged the drastic reprising in CRE but stressed that the psychology had  improved.

“But the psychology has changed. The brokers and the tenants now feel that we are in a bottom….. signing long term. When the tenants want to go long term, traditionally that is the bottom. We are in the beginning of it, we are at the heart of it ,” stated Roth.

Rudin pointed out there are also “flights to quality . “ You are seeing people moving from 3rd avenue to Park avenue, from other part of the city to 6th avenue…”

Roth also referred to the history. The last cycle which was in the 90s lasted for 18 years, peak to peak,1988 to 2006. The cycle was followed by a period of vicious down drift that typically lasted for 2-3. Roth explained, “2006 is the top, we are now in 2009, there has been a flood of what they call reequitization in the public market…. the public market reequitized. The unsecured debt market has come back and they are roaring back. We just did a $460m deal 10 days ago for 30 year......” According to Roth,the re-equitization is typically the time to do bottom fishing. The base building typically takes 3 to 5 years.

Rudin and Roth also touched a little on the role of TALF plays in CRE. Both of them welcomed the move of the government, especially when TALF was extended from 3-year-loans to 5-year-loans

VNO is in the TALF queue. The company has $2.6 billion.

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Outlook of Coal

In an article in Barron's on October 4, "Peabody stock to double as coal use leaps":
Global coal use is projected to jump by 55 percent by 2025, a trend that could help shares of Peabody Energy Corp (BTU.N) double over the next few years, Barron's said on Sunday.China and India will likely drive the growth,.....................................................The St. Louis-based company's coal reserves in Australia and in Wyoming's Powder River Basin could be worth $18 billion, said Peabody's chief executive, Greg Boyce..................

In another article, "RBS Global Banking raises forecasts for thermal coal"
Bloomberg reported that RBS Global Banking & Markets raised forecasts for thermal coal to generate power and coking coal to make steel, citing higher than expected production costs.

Thermal coal will sell for USD 75 a tonne in the year ending March 31st 2011, up from a previous USD 70 estimate. Coking coal will sell at USD 150 in the period, 15% more than the earlier forecast.

Annual coking coal contract prices fell 57% to about USD 129 a tonne this year as global demand slumped. Power coal prices at Richards Bay have dropped 58% in the past 12 months to USD 60.80 a tonne as companies on the continent cut output in the worst recession since World War II.

Thermal coal will account for 19% of all dry bulk commodities hauled at sea this quarter. Coking coal will make up 7.9%. As a single commodity, only iron ore generates more seaborne trade.

Saturday, October 3, 2009

China's crackdown on overexpansion, commodities and industrials

In a previous blog post , it was stated that steel prices have been dropping since their peak in July due to oversupply. Apparently, that, together with oversupply in other focused industrial sectors demanded action by the Chinese government.

In a report entitled China orders crackdown on industrial overcapacity, the Associated Press reported that
"China announced sweeping curbs on surging investment in steelmaking, cement and other industries, warning that chaotic overexpansion was raising the danger of job losses and trouble for banks........................................Under Wednesday's order, new aluminum production projects are banned for three years and regulators will limit spending on factories to make steel, cement, glass, polysilicon used in solar panels and wind power equipment
Beijing appeared to be trying to fine-tune measures to keep China's recovery going by ensuring adequate supplies of industrial goods while preventing a glut that could set off price wars, hurting financially weak producers....................................
The investment boom also has been fueled by government orders to state-owned banks to support growth by sharply raising lending in the first half of this year. Economists say that is likely to lead to excessive industrial investment, especially with stimulus-financed construction boosting demand and prices for steel, cement and other materials......................................
New steel mills, cement factories and other projects will have to meet higher environmental and energy efficiency standards, the Cabinet statement said. It gave no details of how each industry's production capacity might be affected..............................
China is the world's biggest steel producer, and Beijing is trying to make the industry more competitive by closing smaller, dirtier mills. Regulators have tried to enforce similar changes in cement and other industries but local leaders who don't want to lose jobs and tax revenue resist closing outmoded facilities..................
China's annual steel production capacity of 660 million tons already exceeds its needs of 500 million tons, and another 58 million tons of capacity is under construction, "much of it illegitimate," the statement said..............
"Steel production capacity could exceed 700 million tons and overcapacity could worsen if curbs are not imposed promptly," it said.
New steel mills must be approved by Beijing instead of local authorities to ensure they meet environmental standards, the statement said. Smaller blast furnaces are to be shut down by 2011, though it was unclear how many might be affected.
Coal and petrochemical projects must meet higher energy efficiency standards and regulators will "speed up the elimination of backward projects," the statement said. It said no experimental projects will be approved for three years.
Proposed cement factories will be reviewed and developers will be forced to redesign any that do not meet standards, it said. Proposed glass factories will be reviewed and must meet higher energy efficiency standards while "backward glass production" will be shut down.
New polysilicon factories must be able to capture and recycle up to 99 percent of waste gases, the government said. Facilities also will face minimum size requirements to promote efficiency and limits on how much land they can use."
Whether this crackdown can help foster a healthier environment for these industrials and consequently boost prices of these commodities such as steel hinges on how effective the central government of China is in reining in the spending spree at local levels. Judging from the decisiveness and success in the consolidation of steel industry not long ago, I am leaning toward at least a temporary success of resolving oversupply in these industrials.