Arezzo Trade - News da Wall Street -


BARRON'S: The Trader Did HSBC Get Household At A Bargain Price? By Michael Santoli For a third week following the stock market's burst higher from the depths of early October, the indexes rested but did not retreat. Traders have refused, for the moment, to conform to the standard wisdom that a voracious buying frenzy must be followed by the digestion process -- profit-taking and prudent selling born of buyer's remorse. While the market has expended a lot of energy to go virtually nowhere recently, Wall Street last week drew just enough encouragement from the cooling of war fever and some respectable profit reports to advance a little more. The Dow Jones Industrials added almost 42 points to reach 8579, just 41 points above where it sat on Oct. 21. Since that date, the market has paced between 8317 and 8771, a mere 5% range that passes for stasis in a viciously volatile year. The Standard & Poor's 500 climbed 15 points, or 1.7%, to 909, outrunning the Dow thanks to greater exposure to the ascending tech sector, which hoisted the Nasdaq upward by another 51 points, or 3.8%, to 1411. Iraq's grudging acceptance of weapons inspectors, Alan Greenspan's benign congressional testimony, monthly retail sales figures that edged past predictions, plus solid profits from Wal-Mart Stores and Dell Computer were variously cited as having stiffened buyers' backbones. Friday, the market was given plenty of impetus to fall back but managed modest gains instead. A forceful downgrade of Intel and other semiconductor stocks by Merrill Lynch and a similarly aggressive negative analyst's call on General Electric by J.P. Morgan Securities greeted investors in the morning. But in late afternoon the indexes crossed into the black, beginning the moment news spread that a senior al-Qaeda member had been arrested. Another bit of conventional thinking holds that when a market can sidestep adverse news and claw higher, it's a sign of enduring strength. Yet there's a less charitable take on recent behavior, including a series of technical and anecdotal factors that are no longer working in favor of the bulls. For one thing, the stocks that have led the way higher have been the most neglected and misbegotten tech and telecom names, those that have the least valuation support and are most subject to impulse buying and short covering. Investors playing this rally continue to be emotional, irresolute and suggestible. The initial surge beginning Oct. 10 was largely missed by most professional investors, who have since been obliged either to brood or chase the rally in a bid to salvage a semblance of performance. Technical index levels seem to be garnering outsized attention, a sign that investment pros have little conviction in the underlying investment fundamentals. On Monday, Tuesday and Wednesday of last week, the intra-day lows in the S&P 500 were 874, 876 and 872 -- right at the 870-875 level that technicians had identified as an important support area. Says Duncan Richardson, portfolio manager at Eaton Vance: "There's really no leadership. I'm very suspicious of the idea that the leaders of the last charge [big tech stocks] are going to repeat" during the next real bull market. Richardson calls the recent nadir, "a pretty good low." But he adds, "You could paint a scenario where the market could just float up right in the face of the [short sellers] and create a temporary surge, maybe taking the Dow above 10,000. That, to me, would be the worst possible scenario," because it would reinforce unrealistic expectations, setting the market up for another rush lower. Investor sentiment, despondent at the recent low, has turned sunnier, with the percentage of bullish respondents to the latest Investors Intelligence poll reaching the highest point since late May. That's a mild contrary warning signal, at least. -- On Thursday, the only day of the week when stocks registered any noteworthy upside, the buying was attributed largely to October retail sales arriving a bit higher than consensus predictions. No doubt, that didn't hurt. But it's almost as likely that buyers were inspired by the announced purchase of Household International by HSBC Holdings, the Anglo-Asian banking power, for some $14 billion. The deal was quickly proclaimed an odd-couple pairing of a worldly British bank and a Midwestern lender to moderate-income, often financially strapped, Americans. In this view, Household was the desperate party, eager for quick cash. And HSBC treated the company the way Household deals with its customers, using its leverage to set the terms to its greatest and most profitable advantage. HSBC agreed to pay stock equivalent to 0.535 of one American depositary receipt (or equivalent amount in ordinary shares) for each Household share, initially valuing Household at about $30 a share. That was a 33% premium to Household's price before the deal, but it's half what the stock commanded as recently as April. Household has been knocked back on its heels since then by concerns about its aggressive lending practices and accounting questions that have made the fixed-income markets unwilling to finance the company at favorable terms. Last December, with the stock around 60, Barron's suggested that Household had systematically understated its problem loans. So, HSBC was able to grab Household at what appears to be a slender price, with the promise that the larger institution's enormous financing clout can fund the Household business at advantageous rates. (For another take on the deal, see Asia Trader on page MW13.) With HSBC's shares trading around 15 times next year's forecast earnings, observers suggest it could well afford to take a flyer on Household at a price that computes to around seven times forecast 2003 profits. At that price -- called a "steal" by some money managers who owned Household -- even if the consumer credit picture should darken, the deal should still be additive to HSBC's earnings right out of the box. Essentially, HSBC is attempting to marry its deep funding ability with an aggressive (perhaps to a fault) loan-marketing outfit. This would replicate Citigroup's success in buying Associates First. Even though Citi has paid out a $215 million fine to settle predatory-lending charges, that deal has spun lush profits. In part, the Household transaction sparked enthusiasm in the U.S. market because of its symbolic value. Bulls viewed it as evidence that a strategic buyer saw value in a troubled American company at its current valuation. Relatedly, that Household CEO William Aldinger would capitulate and take a price so far below Household's recent value might indicate that pragmatism might overtake pride among potential sellers. As Barron's noted in an article in September 2000, when Household stock was around 50, this is a man whose license plate read "HI-75," a reference to Household's ticker symbol and the price he hoped the stock would reach. Investors last week could thus warm to the idea that other CEOs might finally forget about the high-water marks left by their stocks in happier times and look to maximize value today. Not that mergers are a cure-all for the market, but when companies risk their own cash or stock on a business, it offers investors confidence that value can be had at today's prices. What if Honeywell's management were able to get beyond the fact that it had an offer from General Electric to buy the company for $55 a share in stock two years ago? Might there be a price closer to its recent level of 23 that could prove enticing, given present difficult circumstances? Actually, had European regulators allowed GE to close that deal, for 1.055 shares of GE for each Honeywell share, the company's shareholders wouldn't be much better off. GE stock has fallen by more than 50% and the offer terms would amount to about $25 today. But United Technologies' shares have hardly fallen at all from that time, leaving it equipped to revisit Honeywell should the acquisitive urge strike again. GE outbid United Technologies for Honeywell in 2000. To cite just one more hypothetical example, might the crisis-beset management of Interpublic be interested in seeking offers for its collection of advertising and marketing firms? With a market value of only $5 billion and deal-happy executives running competitors such as WPP Group, Interpublic could be facing a destiny as part of another organization at some point, suggests one money manager who admits to owning the star-crossed stock. -- Over the years, investors have be-come attuned to the rhythms of "pre-announcement season," the period bracketing the end of each quarter when companies warn that their results are off track, usually for the worse. They might be wise to become acquainted with the "post-announcement period" following earnings-release season, when companies file quarterly SEC reports, divulging what their lawyers deem necessary and their execs might have omitted in well-scripted conference calls. Last week, several companies -- including the aforementioned Honeywell, Echostar, Electronic Data Systems and Martha Stewart Living Omnimedia -- drew Wall Street's concern when disclosures in these 10-Q filings were plumbed and broadcast by analysts and investors. This close scrutiny of filings that embed nuggets of revelation within the fretwork of obscurant boilerplate highlights the things that concern investors today. These include pension obligations, legal liabilities, credit exposures and other forces often addressed in filings. Echostar, the satellite TV outfit, lowered its forecast for 2003 cash flow growth to about 50% this year from a previously forecasted 80% to 100%. EDS warned of increased pension burdens that would crimp earnings and potential cash obligations relating to possible credit downgrades. Meanwhile, Martha Stewart Living Omnimedia's filing allowed that the insider-trading allegations dogging its founder, CEO and namesake were indeed hampering its business. Honeywell's 10-Q caused alarm when it revealed that its under-funded pension would cause a greater hit to earnings than was believed and that the cost of settling asbestos claims related to a former subsidiary might also rise. Honeywell, a maddeningly frustrating stock for many value investors, lost 2.63 to 23.38 on the week as plenty of one-time believers in this cyclical restructuring play seemingly gave up. Its pension issues are not too different from what other industrial manufacturers are dealing with, given their large pools of employees and pensioners and the bear market's assault on investment accounts. Yet its decision to contribute another $900 million in cash and its own stock leaves Honeywell open to criticism that it's parting with shares at depressed valuations. IBM recently signaled a similar move, though its shares have held up far better. Analysts at Morgan Stanley, without addressing the unspoken possibility that the company might one day find another buyer, were highlighting Honeywell's seemingly low valuation, relative to its competitors and its history. The analysts stand by their positive recommendation on the stock, relating that the hostile phone calls they endured last week show what a contrarian position it is. The valuation stacks up to 12.5 times expected 2003 earnings, with free cash flow equalling almost 10% of the share price and a dividend yield above 3%. That's cheaper than General Electric, for instance. But Honeywell's management still doesn't garner the same respect as GE's, even in the post-Jack Welch era. The potential catalysts cited by Morgan to get the stock off the mat include more share buybacks, a soon-to-be-completed search for a new chief financial officer, settlement of asbestos matters and maybe the sale of some businesses. Could be, but without the economy gaining pace, it might take more for Honeywell to reconnect with investors. And, of course, another post-announcement period arrives in just three months. -- Even in the stingiest of markets, there are always some chronically expensive stocks that refuse to surrender their premium valuations. These names attract short sellers, who often end up like vultures circling healthy livestock, tiring long before the prey succumbs. Three such stocks were eliciting chatter last week: Starbucks, Intuit and Harley-Davidson. All have vastly outperformed the market in the past year, all trade between 27 times and 36 times current-year earnings forecasts, and all have cult-like investor followings that the shorts love to mock. Because the companies continue to grow fast and make good on performance promises, the stocks stay aloft. Starbucks, true, has backed off since Barron's highlighted the slower-growth future that probably awaits it, but the coffee brewer last week nailed profit forecasts and affirmed its outlook, while analysts began penciling in another 20% earnings expansion for fiscal 2004. Intuit, maker of QuickBooks and other business software, took a hit last week after a nice run. But investors continue to love the stock for its luxurious profit margins and lack of exposure to mass-scale corporate tech spending. Who knows how long 25%-plus annual profit increases can support a P/E of 36? Still, it seems a costly folly for shorts to bet that it will end soon. Harley might be the most vulnerable. It has been rationing supply and enjoying inflated demand during its current centenary, and caters to an aging (though growing) pool of men in mid-life crisis. Harley's financing activities have drawn critical scrutiny, though it seems to be bucking the trend of softening credit, according to a new UBS Warburg report. The shorts have been suffering on the wrong side of this one for a long time -- a positive contrary signal for the stock at the moment. They may only be proven right when shareholders become concerned about the outlook for continued motorcycle demand and, rather than acting like hogs, take profits. --- VITAL SIGNS FRIDAY'S WEEK'S WEEK'S CLOSE CHANGE % CHG. DJ Industrials 8579.09 +41.96 +0.49 DJ Transportation 2333.20 -13.68 -0.58 DJ Utilities 200.34 +4.47 +2.28 DJ 65 Stocks 2391.44 +12.65 +0.53 DJ US Total Mkt 210.64 +3.56 +1.72 NYSE Comp. 482.34 +5.68 +1.19 Amex Comp. 818.40 -5.78 -0.70 S&P 500 909.83 +15.09 +1.69 S&P MidCap 433.10 +9.15 +2.16 S&P SmallCap 197.04 +2.56 +1.32 Nasdaq 1411.14 +51.86 +3.82 Value Line (arith.) 1026.97 +24.86 +2.48 Russell 2000 385.92 +6.92 +1.83 Wilshire 5000 8584.05 +145.25 +1.72 Last Week Week Ago NYSE Advances 2,094 1,791 Declines 1,346 1,636 Unchanged 85 92 New Highs 73 80 New Lows 136 88 Av Daily Vol (mil) 1,658.4 1,841.4 Dollar (Finex spot index) 105.04 104.50 T-Bond (CBT nearby futures) 111-02 112-31 Crude Oil (NYM light sweet crude) 25.51 25.78 Inflation KR-CRB (Futures Price Index) 227.13 227.66 Gold (CMX nearby futures) 320.70 321.30 ---



Ogni lettore deve considerarsi responsabile per i rischi dei propri investimenti e per l’uso che fa delle informazioni contenute in queste pagine. Lo studio che propongo ha come unico scopo quello di fornire informazioni. Non e’ quindi un’offerta o un invito a comprare o a vendere titoli. Ogni decisione di investimento/disinvestimento è di esclusiva competenza dell'investitore che riceve i consigli e le raccomandazioni, il quale può decidere di darvi o meno esecuzione. The information contained herein, including any expression of opinion, has been obtained from, or is based upon, sources believed by us to be reliable, but is not guaranteed as to accuracy or completeness. This is not intended to be an offer to buy or sell or a solicitation of an offer to buy or sell, the securities or commodities, if any, referred to herein. There is risk of loss in all trading.