本文发表在 rolia.net 枫下论坛It's Different This Time -- So Far
Vital Signs
MONEY IS SLUICING RAPIDLY into stock mutual funds, massive bank mergers are the talk of the tube, the indexes refuse to stay down for long and technology CEOs are tickling investors breathless with velvety smooth earnings calls.
Either this is a pilot for "That '90s Show" or investor confidence is scaling to post-meltdown highs, as the January script plays out as written.
It's true that ever since the Nasdaq began galloping ahead last year, the market conversation has featured glib declarations that bubble behavior has returned unreformed. That case doesn't quite hold up. For one thing, the Nasdaq just made a 30-month high, not an all-time high the way it did almost weekly at the mania's height. Also back then, there weren't a couple thousand hedge fund managers who'd made a fortune over three years betting against stocks and who cry "bubble" with every uptick in the market.
Still, investors' bullish gait definitely indicates the muscle memory of the boom remains intact, as "whisper numbers" drive stocks higher and every pullback is bought without apparent hesitation.
Finding no reason just yet to question the broadly upbeat consensus that earnings and election-year dynamics should carry stocks higher in 2004, investors have taken the Dow Jones Industrial Average to eight consecutive weekly gains. The Dow, helped by the warm reception afforded the profit reports of General Electric and International Business Machines, rose 141 points, or 1.3%, to 10,600.
The Nasdaq Composite extended its early-year surge, climbing 53 points, or 2.6%, to 2140, placing the index higher by almost 7% not even three weeks into the year.
The Nasdaq's strength last week came despite mild declines in tech bellwethers Intel and Yahoo. The companies beat and met published earnings forecasts, respectively. Yet the market was banking on more and had built higher hopes into the stocks. Strength in some telecom and networking sectors more than took up the slack.
One of the more impressive aspects of the market's behavior in recent weeks is this rotational tendency, in which weakness remains isolated to individual pockets and new groups rally. It's a hallmark of firm demand for stocks, even if the indexes are looking statistically in dire need of a rest or retreat, according to market analysts.
Nearly $6 billion in new cash ran into stock mutual funds in the week ended Wednesday, as the seasonal New Year inflows persisted, putting fund managers firmly in buying mode for the time being.
In addition to the Nasdaq's 2½-year high, set Friday, the Standard & Poor's 500 is just a few ticks away from a milestone of sorts. If the index climbs another 1% to about 1150, it will have recovered half the value it lost from the April 2000 top above 1550 to the October 2002 low at 768. It's not clear that would prove significant for anyone but the superstitious, numerology crowd, but expect some chatter about the phenomenon should that level be reached.
The halftime report for January shows the traditional dynamics of the year's first month have held true to form so far. The January Effect, in which smaller and more aggressive stocks tend to outperform large and stable ones, is rather vivid. The small-cap Russell 2000 is up more than 6% year to date, more than twice the 2.5% gain in the S&P 500. Some observers wondered whether there would be a discernible January Effect this year, given that small-and-risky stuff trounced everything else for most of 2003, but there it is.
Especially when it comes to dicey companies and untested stocks, some investors are starting to show a cliff diver's tolerance for danger. Bear Stearns strategist Francois Trahan reports that his own model meant to gauge market momentum, buying intensity and sentiment is at levels unseen even in the powerful market surge in late 1998 or the market's peak period in 1999 and 2000.
There are signs, too, that the risk appetites of corporate chiefs have recovered. The most obvious example is last week's news that J.P. Morgan Chase would buy Bank One for nearly $60 billion. (See Follow-Up.) Then there's the apparent bidding contest for AT&T Wireless and some splashy corporate investment programs, such as Verizon's $1 billion Internet telephony scramble.
As noted here a few weeks back, company coffers are unusually flush right now after three years of debt refinancing, cash hoarding and productivity advances. That means that when confidence returns, deals and new projects should follow.
Trahan notes that the ratio of corporate cash holdings as a percentage of outstanding debt is dramatically higher than the norm for this stage of an economic recovery. While investors might hope that CEOs will share that stash with them through dividends and stock buybacks, he figures increased merger activity will get the biggest boost.
In looking for industries ripe for consolidation, he screened for those with a big spread between the largest and smallest competitors, and with below-average returns on capital. Overcapacity and an abundance of small targets should beget acquisitions, goes the theory. Topping the list was telecom equipment, though tech services and software also scored high. Finance companies, no surprise, also made the list.
If, in fact, CEOs are able and willing to annex other companies to enlarge their empires, then the year's easiest forecast will be that there will be many more stock-market losers than there were last year.
Some investors may seem a little hazy on the ex-post lessons of the boom years. But not all of them have quite forgotten the notion that ambitious acquirers destroy value more often than they build it.
THE U.S. DOLLAR WAS IN A PERSISTENT decline versus both the euro and hard assets for months before bouncing last week. The downward slide has been regarded by those commentators who reside in the thick belly of the Wall Street opinion curve as a net positive for stocks.
Of course, a stalwart knot of big-picture worriers wonder how a weak dollar can be good for stocks when a strong dollar was very good for stocks in the late '90s. But for the most part, equity specialists have wondered how they can benefit from the weaker dollar in their work of picking stocks. The standard wisdom is that large, multinational companies should be able to outperform, thanks in part to the lift that a weaker dollar gives to reported results.
Quantitative stock strategists at Credit Suisse First Boston last week generated a list of the S&P 500 members that have the highest proportion of revenue coming from overseas and are also due to report earnings this week. Presumably, the soft dollar could lend upside potential to quarterly results not yet built into published forecasts.
CSFB came up with 42 companies with non-U.S. revenues accounting for at least 33% of the top line. But the performance of these stocks in recent months might suggest that the market has already taken account of the currency benefits. From Aug. 31 -- when the dollar's decline began -- the stocks on the screened list rose an average of 18.7% through Wednesday. That compares to about 12% for the S&P 500 itself. Only five of the 42 companies showed a negative return, and none more than 7%.
Many of the stocks are in the technology realm, and tech's overall strength could account for a portion of that stark outperformance. But another conclusion is that the market, in its way, has adjusted for the currency shifts.
That could mean that a resumption of dollar weakness won't boost the stocks all that much. It might also suggest that stocks skewed toward overseas economies could struggle if foreign-exchange markets confound the very one-sided domestic consensus that the dollar will continue to weaken, and at a benign pace. (See Current Yield)
INVESTORS WHO VENTURED TO BUY RAVAGED tech stocks in October 2002 or last March -- when the specter of a three-digit Nasdaq seemed quite real -- were not acting in expectation of an immediate group hug to envelop the sector.
They saw some cash-rich balance sheets, despondent investor sentiment and the potential (however distant) of an upturn in tech spending. These investors were effectively playing musical chairs in a room with twice as many chairs as people. That's a game that's pretty hard to lose, even if it lacks excitement.
Today's market might not be the extreme opposite of that situation, but it's at least on the way there. Right now, buyers of the onetime wreckage of the Nasdaq collapse are not lonely prospectors.
They're latching on to an upturn in real (and more importantly, perceived) business improvement, and are paying prices for many stocks that imply they believe that many more investors will join them. They're playing musical chairs with a fixed number of seats and an ever-greater pool of competitors. Exciting, especially while the music plays, but more risky.
It's not possible to figure out how long new converts will keep streaming toward the Nasdaq, re-embracing names that seemed vitally important for about eight months in 1999-2000 before their comeuppance. Momentum works exceedingly well while it works. For all the talk describing the action as a return to bubble madness, there remains a reserve of skepticism and hesitation that was absent back then. And, of course, valuations are mostly just hinting at the level of silliness they once achieved.
Still, at whatever point the number of players does overwhelm the available chairs, some recent developments might go down as worrisome clues, at least in hindsight.
A pair of follow-on stock offerings from companies whose stocks have ramped steeply may fall into this category. Late last week, Research in Motion, the maker of BlackBerry mobile devices, priced more than 12 million shares at $78.25, raising nearly $950 million. Only a week earlier, with the stock below 73, the company had announced it would try to sell nine million shares. The market, in its current generous mood, demanded more shares at a higher price.
If that pattern holds for XM Satellite, a group of early backers will be quite pleased. The satellite radio company announced plans last week to offer 18 million shares, 11 million of them from selling shareholders. The stock, already up by a factor of eight from a year ago, has traded slightly higher since the deal was announced.
For more evidence of how investors have forgiven, if not fully forgotten, painful episodes from the past, take a look at the stock charts of telecom-equipment makers Juniper Networks and PMC-Sierra.
Juniper shares crashed from above 200 to about 4 from the market top to late 2002. The stock has since soared to 29.93, including a 30% surge on Friday after it far exceeded earnings targets and spoke of rising demand among corporate customers.
PMC-Sierra shares rode an adjacent wave, as investors began sniffing the sweet air of happy sentiment and some analysts turned more positive on the stock. This stock has also gone from over 200 to the low single digits to its current price near 24.
Investor sentiment and sell-side changes of heart are perhaps what owners of these stocks are banking on. Both Juniper and PMC-Sierra had about 12% of their tradable shares sold short at last report, indicating a healthy supply of doubters. And analysts, having seen little hard evidence of stronger demand trends until just now, remain lopsidedly negative on the group.
Eighth Wonder: The Dow logged its eighth straight up week, as solid earnings from IBM and GE overcame slight weakness in J.P. Morgan after it announced it's buying Bank One.
That doesn't mean buying Juniper or PMC-Sierra at about 12 times expected 2004 revenues is a way of achieving a predictably good economic return, to say the least. Clearly, current revenue estimates will be heading higher as analysts adjust to the latest corporate outlooks. And, what do you know, both companies are already forecast to return to profitability in 2004, but not so much that the stocks look attractive based on expected profits.
Buyers of the stock today are betting on either heroic growth estimates or the chance that some circling skeptics might yet be seduced. It's hard to know at what price a stock that once traded above 200 will again "feel" expensive to those playing the sector again, let alone whether the fundamentals can approach the hoped-for levels.
The fun part of playing musical chairs, remember, is you never know when they'll stop the music.
ONLY WHEN DISCUSSING STOCKS can beer be more boring the networking equipment.
But that's the way it is, as a chart of brewer Adolph Coors' shares would suggest. Since a major profit disappointment almost a year ago that dropped the stock from 65 to the mid-40s, Coors has spent most of the market rally since March shuffling between 50 and 57.
Wall Street has very low regard for the stock. Of the 13 analysts rating it, only one recommends buying and four have Sell ratings. The latter group includes Bonnie Herzog at Smith Barney, who launched coverage of the brewers last week with a Sell on Coors and a Neutral on Anheuser-Busch.
The challenges for Coors are well known. It is the No. 3 U.S. brewer, behind Anheuser-Busch and SAB Miller's Miller Brewing. The company is highly reliant on its Coors Light brand, which faces tough competition from Anheuser-Busch's low-carbohydrate Michelob Ultra and its powerful Bud Light brand. Meanwhile, overall beer demand is growing very slowly, with consumption trends ebbing and customers switching to wine and liquor.
Coors had some trouble with its supply chain, which dragged on sales in the important pro football promotional season. Earnings forecasts have edged lower, though not dramatically so. The company is expected to earn $4.77 a share in 2004, up 8% from anticipated 2003 results.
The only real good reason to own the No. 3 competitor in an industry is if the stock trades at a big discount and, perhaps, investors find a reason to warm to the story again.
Coors shares have the discount taken care of, trading at 11.4 times 2004 earnings forecasts versus more than 18 for Anheuser-Busch. Some discount, no doubt, is warranted given Anheuser's superior record and outlook, but the gap has arguably gotten too wide and Coors is trading well below its historical multiple.
Banc of America Securities analyst Bryan Spillane, who has the lone Buy rating on Coors, says the company has gotten more cost-conscious as sales have been pressured in recent years. Volume-growth comparisons should be a bit easier as the year wears on, though Coors' outsized exposure to the Northeast (one-quarter of sales) might be a short-term worry, given the recent blast of frigid weather.
All in all, not very exciting. But that's exactly the point, because if investor tastes turn to the boring and defensive, Coors could benefit. Until then, the valuation would seem to limit potential downside, and with so much of the Street disdainful of the Coors story, even a little good news could go a long way.
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Sky's the Limit
BREAD AND CIRCUSES. Panem et Circenses, if you're into Latin. It was the famous formula the Romans devised to make the natives happy and it worked so well that, down through the ages, politicians have adopted it to keep their own subjects from even thinking about growing restive.
And consummate politician that he is, George W. Bush has made that tried-and-true combo the centerpiece of his bid to hold onto his job. But he's not planning any of the penny-ante stuff that so enthralled the Roman throngs -- you know, pitting gladiator against gladiator or feeding the lions juicy human morsels.
He's talking celestial circuses, going to the moon, maybe colonizing Mars -- truly humongous extravaganzas. Which is going to take a lot of bread. But, hey, what's dough for, except to spread it around come election time?
The president murmured something about $11 billion, but he had a twinkle in his eye. He knows, for sure, that the bucks for these high-altitude projects have a way of ballooning into the stratosphere. The early line on the space shuttle, remember, was $8 billion, but the final tab ran to maybe $100 billion.
Actually, the space shots will fit in nicely with another of Mr. Bush's election-year crowd-pleasers-spending $1.5 billion to promote marriage. For one of the ways that program plans to persuade recalcitrant potential husbands and wives is to threaten to send the women to Venus and the men to Mars on the first shuttle out.
The proposal to promote marriage should play well with all those online habituès who frequent dating sites. In other words, it's really a brilliant preemptive strike by the Bushmen at the heart of Howard Dean's constituency.
Word is, the emphasis will be on persuading lower-income couples to tie the knot. At first blush, that seemed like an idea that's right on the money: Grabbing a piece of $1.5 billion could be an irresistible inducement for a boy and a girl to get hitched, especially if the boy and girl are short on moola. Then it turns out, every cent of the $1.5 billion (which is a 150 billion cents) is ticketed not for prospective newlyweds, but for a brand new matchmaking bureaucracy. How could you possibly have a happy marriage without prenuptial instruction in spousal skills?
In spending freely to retain the presidency, Mr. Bush is merely practicing what he preaches: that one involuntarily unemployed American is one too many, and that most certainly includes himself. And we relate these particular evidences of the practice not to cavil -- imagine what it would be like to have a penny-pincher at the helm of the ship of state preoccupied with calculating how much fuel every knot consumed -- but to caution against the tendency growing rampant among economists to trim their estimates of this year's budget deficit to a mere $500 billion.
Well for these worthies to keep in mind the late Sen. Everett Dirksen's famous dictum that a billion here, a billion there -- after a while, it begins to add up. And we say that, even though we're fully aware that Mr. Dirksen lived in the olden times when a billion was a lot of money and, when it came to shelling out taxpayers' hard-earned dollars, Republicans were flinty-hearted tightwads, obviously not yet privy to the great epiphany, most recently articulated by Dick Cheney, that deficits don't matter.
What's kind of mystifying is not that Mr. Bush is doing the bread-and-circuses thing -- we can't recall a president who didn't -- but that he (or Karl Rove) thinks it's worth the bother. To our admittedly jaundiced eye, even a glance at the pathetic pack snapping and snarling at each other as they pursue the Democratic nomination should be enough to convince Mr. Bush he could win lying down, making do at most with a few thin slices of bread and a couple of low-rent circuses.
Besides, so far as the moon shot goes, we've been there, done that and discovered that the moon isn't made of green cheese -- so what's the point? As to the proposal to promote marriage, it seems a mite presumptuous since a lot of folks, including old married ones, subscribe to the venerable adage that marriage is not a word but a sentence.
OUR ROUNDTABLE CONVENED AGAIN last Monday morning and it was a long session (close to 10 hours, with a short break for a rather uninspiring lunch) but quite rewarding, as the results so adroitly edited by Lauren Rublin bear out (judge for yourself, see The 2004 Roundtable). Chock full of the venerable feature's trademark banter, enlivened by the customary bursts of wit and flashes of insight, this year's confab was distinguished from its recent predecessors in coming off a year of a powerful bounce in the stock market and promising upturn in the economy. Not unrelatedly, our crowd's picks for 2003 pretty much ranged between splendid and spectacular. Indeed, we even had those rarities of rarities, some triple-digit winners.
There's a new face gracing the rouges' gallery -- that of Bill Gross of Pimco. Bill's a first-rate guy, with a ready California smile, savvy as can be and, as you'll quickly discover, not only about bonds. If you're even a casual reader of the financial pages or accidental viewer of TV, his visage, his self-deprecating humor, his low-key eloquence and, scarcely least, his smarts are all more or less familiar to you. But, as you can't help but notice, the give and take with his peers, some of it fairly fierce, brings out the best in Bill, and the best in Bill is just about as good as it gets. A preponderance of the panel is upbeat on the prospects for this year, both for stocks and the economy. That kind of consensus is usually a tip-off that the market and the economy are in for trouble. But, alas, we advise against assuming it's a dependable negative indicator this time around because our bunch includes a number of reluctant bulls and even more have long-term reservations. The sole outright bear is the redoubtable Marc Faber.
We don't want to spoil the fun of reading this installment by babbling too much about what's in it, but we feel obliged to point out that Felix Zulauf called for a short-term gain in the dollar and, in the brief time since last Monday, his prediction has already begun to come true. Other than that, we'll content ourselves with observing that the rest -- Abby Cohen, Archie MacAllaster, Meryl Witmer, Mario Gabelli, John Neff, Scott Black, Art Samberg and Oscar Schafer -- are all in top form.
In case you wondered, this was not a commercial, but rather a public-service announcement.
ODDLY, NONE OF OUR PARTICIPANTS made much reference to the remarkable revival of bubble psychology. There are still, after all, plenty of bloodstains on the Street left behind by the debacle that issued from March 2000 and all of that. Yet the speculative sap has been rising with fresh vigor, as if the big bear market, still very much out there, we believe, now fully rested and eager to pounce again, never existed.
Day traders, for whom the last rites were solemnly rendered a few scant years ago, have miraculously resurfaced and their numbers seem to be growing. In their new incarnation, however, they're reformed and no longer are day traders -- they're hour traders. That young entrepreneur who used the Internet a while back to pump up deservedly obscure little stocks with fabricated facts and phony projections and enjoyed his 15 seconds of fame before being collared by the SEC is back in business.
Further indication of the revival of animal spirits: The worst stocks are getting the best rides. Fred Hickey had a wonderful case in point in the latest edition of "The High-Tech Strategist." He notes that in four recent trading days, Sirius Satellite Radio racked up a 60% gain and was endowed with a market value of over $4 billion. This is a company that in its most recent quarter had all of $4 million in sales and a tidy $107 million in losses.
What got the heavy-breathers all lathered up, Fred scornfully reports, was Sirius signing on to pay the National Football League $220 million over the next seven years for the rights to broadcast games starting this fall. "What an innovative idea!" Fred exclaims. "Listening to football games while driving in your car!" And he then goes on to observe: "There are already 800 radio stations across the country carrying local games for free."
The new mania, moreover, has a global tint. Investors with that tell-tale gleam in their eye have been pouring their play dough into emerging markets, notably via mutual funds that specialize in the more distant and/or exotic marts. Shades of those wild and woolly days just before the emerging markets blew up in '98 and overnight turned into submerging markets.
Seasoned technician Justin Mamis, interviewed by our old sidekick Kate Welling in her admirable fortnightly "Welling@Weeden," discusses with equal measure of awe and disapproval the raging obsession with racy Chinese stocks. Justin points out that China Fund is trading an improbable 65% above its net asset value -- even though the Shanghai market is barely up. China, he reflects, hasn't had its 1929, "but I wouldn't be surprised to see it."
While they may not register as graphic a reading of the rapidly heating investment climate as the anecdotal evidence, the sentiment figures do portray an overwhelming tilt to bullishness. The services specializing in taking the pulse of futures traders and the like, for example, report an uncommonly large percentages of bulls -- 81% at Consensus Index and 64% at Market Vane. The latest survey of its members by the American Association of Individual Investors reveals nearly two-thirds are optimistic, a puny 10.1% bearish. And Investors Intelligence says that of the market-letter writers it polls, 56.4% are bulls, dwarfing the 18.8% who are bears.
Just the stuff of a frigid day to warm the cockles of a contrarian's heart.
There's one thing more that suggests that stocks just could be ripe for a fall: the destruction of the short sellers. When those birds are so precariously perched as to merit certification as an endangered species, it's a sign that something bad may be brewing for the market.
FIRST GLOBAL IS A BRITISH securities outfit with an American branch, whose existences frankly eluded our ken until rather recently when it began sending us its research on U.S. firms. By and large, its reports are quite credible and, on occasion, more than that. What prompts this mention is Intel's earnings report and the fact that First Global has had a pretty good bead on the company and its stock.
First Global, as it is the first to tell you, was right on target with '03 estimates for the company that were higher than most of the Street's projections. Interesting, though, it nonetheless was decidedly unenthusiastic about Intel's outlook and rated the shares as "market performers," which translates into "ho-hum." And in fact, as First Global notes, they haven't even been that good over the past month or so, gaining 3% versus around 8% for Nasdaq.
While commending the improvement in Intel's fourth-quarter operations and citing signs of a pick-up in corporate spending, First Global remains cool toward the stock. It reckons that the chip maker will post revenues of $8.2 billion and earnings of 27 cents a share for the first quarter. For the full year, it sees net of $1.25, on revenues just shy of $35 billion.
But, First Global comments, selling at over seven times sales, 5.7 times book and 27 times projected earnings, the stock's valuations aren't particularly compelling. And expected growth already is in the stock. Moreover, Intel faces rising competitive pressure from the rejuvenated Advanced Micro Devices in the higher-margin server market.
In fact, First Global rates AMD as the better bet. We have no hesitation in seconding the notion.更多精彩文章及讨论，请光临枫下论坛 rolia.net
Vital Signs
MONEY IS SLUICING RAPIDLY into stock mutual funds, massive bank mergers are the talk of the tube, the indexes refuse to stay down for long and technology CEOs are tickling investors breathless with velvety smooth earnings calls.
Either this is a pilot for "That '90s Show" or investor confidence is scaling to post-meltdown highs, as the January script plays out as written.
It's true that ever since the Nasdaq began galloping ahead last year, the market conversation has featured glib declarations that bubble behavior has returned unreformed. That case doesn't quite hold up. For one thing, the Nasdaq just made a 30-month high, not an all-time high the way it did almost weekly at the mania's height. Also back then, there weren't a couple thousand hedge fund managers who'd made a fortune over three years betting against stocks and who cry "bubble" with every uptick in the market.
Still, investors' bullish gait definitely indicates the muscle memory of the boom remains intact, as "whisper numbers" drive stocks higher and every pullback is bought without apparent hesitation.
Finding no reason just yet to question the broadly upbeat consensus that earnings and election-year dynamics should carry stocks higher in 2004, investors have taken the Dow Jones Industrial Average to eight consecutive weekly gains. The Dow, helped by the warm reception afforded the profit reports of General Electric and International Business Machines, rose 141 points, or 1.3%, to 10,600.
The Nasdaq Composite extended its early-year surge, climbing 53 points, or 2.6%, to 2140, placing the index higher by almost 7% not even three weeks into the year.
The Nasdaq's strength last week came despite mild declines in tech bellwethers Intel and Yahoo. The companies beat and met published earnings forecasts, respectively. Yet the market was banking on more and had built higher hopes into the stocks. Strength in some telecom and networking sectors more than took up the slack.
One of the more impressive aspects of the market's behavior in recent weeks is this rotational tendency, in which weakness remains isolated to individual pockets and new groups rally. It's a hallmark of firm demand for stocks, even if the indexes are looking statistically in dire need of a rest or retreat, according to market analysts.
Nearly $6 billion in new cash ran into stock mutual funds in the week ended Wednesday, as the seasonal New Year inflows persisted, putting fund managers firmly in buying mode for the time being.
In addition to the Nasdaq's 2½-year high, set Friday, the Standard & Poor's 500 is just a few ticks away from a milestone of sorts. If the index climbs another 1% to about 1150, it will have recovered half the value it lost from the April 2000 top above 1550 to the October 2002 low at 768. It's not clear that would prove significant for anyone but the superstitious, numerology crowd, but expect some chatter about the phenomenon should that level be reached.
The halftime report for January shows the traditional dynamics of the year's first month have held true to form so far. The January Effect, in which smaller and more aggressive stocks tend to outperform large and stable ones, is rather vivid. The small-cap Russell 2000 is up more than 6% year to date, more than twice the 2.5% gain in the S&P 500. Some observers wondered whether there would be a discernible January Effect this year, given that small-and-risky stuff trounced everything else for most of 2003, but there it is.
Especially when it comes to dicey companies and untested stocks, some investors are starting to show a cliff diver's tolerance for danger. Bear Stearns strategist Francois Trahan reports that his own model meant to gauge market momentum, buying intensity and sentiment is at levels unseen even in the powerful market surge in late 1998 or the market's peak period in 1999 and 2000.
There are signs, too, that the risk appetites of corporate chiefs have recovered. The most obvious example is last week's news that J.P. Morgan Chase would buy Bank One for nearly $60 billion. (See Follow-Up.) Then there's the apparent bidding contest for AT&T Wireless and some splashy corporate investment programs, such as Verizon's $1 billion Internet telephony scramble.
As noted here a few weeks back, company coffers are unusually flush right now after three years of debt refinancing, cash hoarding and productivity advances. That means that when confidence returns, deals and new projects should follow.
Trahan notes that the ratio of corporate cash holdings as a percentage of outstanding debt is dramatically higher than the norm for this stage of an economic recovery. While investors might hope that CEOs will share that stash with them through dividends and stock buybacks, he figures increased merger activity will get the biggest boost.
In looking for industries ripe for consolidation, he screened for those with a big spread between the largest and smallest competitors, and with below-average returns on capital. Overcapacity and an abundance of small targets should beget acquisitions, goes the theory. Topping the list was telecom equipment, though tech services and software also scored high. Finance companies, no surprise, also made the list.
If, in fact, CEOs are able and willing to annex other companies to enlarge their empires, then the year's easiest forecast will be that there will be many more stock-market losers than there were last year.
Some investors may seem a little hazy on the ex-post lessons of the boom years. But not all of them have quite forgotten the notion that ambitious acquirers destroy value more often than they build it.
THE U.S. DOLLAR WAS IN A PERSISTENT decline versus both the euro and hard assets for months before bouncing last week. The downward slide has been regarded by those commentators who reside in the thick belly of the Wall Street opinion curve as a net positive for stocks.
Of course, a stalwart knot of big-picture worriers wonder how a weak dollar can be good for stocks when a strong dollar was very good for stocks in the late '90s. But for the most part, equity specialists have wondered how they can benefit from the weaker dollar in their work of picking stocks. The standard wisdom is that large, multinational companies should be able to outperform, thanks in part to the lift that a weaker dollar gives to reported results.
Quantitative stock strategists at Credit Suisse First Boston last week generated a list of the S&P 500 members that have the highest proportion of revenue coming from overseas and are also due to report earnings this week. Presumably, the soft dollar could lend upside potential to quarterly results not yet built into published forecasts.
CSFB came up with 42 companies with non-U.S. revenues accounting for at least 33% of the top line. But the performance of these stocks in recent months might suggest that the market has already taken account of the currency benefits. From Aug. 31 -- when the dollar's decline began -- the stocks on the screened list rose an average of 18.7% through Wednesday. That compares to about 12% for the S&P 500 itself. Only five of the 42 companies showed a negative return, and none more than 7%.
Many of the stocks are in the technology realm, and tech's overall strength could account for a portion of that stark outperformance. But another conclusion is that the market, in its way, has adjusted for the currency shifts.
That could mean that a resumption of dollar weakness won't boost the stocks all that much. It might also suggest that stocks skewed toward overseas economies could struggle if foreign-exchange markets confound the very one-sided domestic consensus that the dollar will continue to weaken, and at a benign pace. (See Current Yield)
INVESTORS WHO VENTURED TO BUY RAVAGED tech stocks in October 2002 or last March -- when the specter of a three-digit Nasdaq seemed quite real -- were not acting in expectation of an immediate group hug to envelop the sector.
They saw some cash-rich balance sheets, despondent investor sentiment and the potential (however distant) of an upturn in tech spending. These investors were effectively playing musical chairs in a room with twice as many chairs as people. That's a game that's pretty hard to lose, even if it lacks excitement.
Today's market might not be the extreme opposite of that situation, but it's at least on the way there. Right now, buyers of the onetime wreckage of the Nasdaq collapse are not lonely prospectors.
They're latching on to an upturn in real (and more importantly, perceived) business improvement, and are paying prices for many stocks that imply they believe that many more investors will join them. They're playing musical chairs with a fixed number of seats and an ever-greater pool of competitors. Exciting, especially while the music plays, but more risky.
It's not possible to figure out how long new converts will keep streaming toward the Nasdaq, re-embracing names that seemed vitally important for about eight months in 1999-2000 before their comeuppance. Momentum works exceedingly well while it works. For all the talk describing the action as a return to bubble madness, there remains a reserve of skepticism and hesitation that was absent back then. And, of course, valuations are mostly just hinting at the level of silliness they once achieved.
Still, at whatever point the number of players does overwhelm the available chairs, some recent developments might go down as worrisome clues, at least in hindsight.
A pair of follow-on stock offerings from companies whose stocks have ramped steeply may fall into this category. Late last week, Research in Motion, the maker of BlackBerry mobile devices, priced more than 12 million shares at $78.25, raising nearly $950 million. Only a week earlier, with the stock below 73, the company had announced it would try to sell nine million shares. The market, in its current generous mood, demanded more shares at a higher price.
If that pattern holds for XM Satellite, a group of early backers will be quite pleased. The satellite radio company announced plans last week to offer 18 million shares, 11 million of them from selling shareholders. The stock, already up by a factor of eight from a year ago, has traded slightly higher since the deal was announced.
For more evidence of how investors have forgiven, if not fully forgotten, painful episodes from the past, take a look at the stock charts of telecom-equipment makers Juniper Networks and PMC-Sierra.
Juniper shares crashed from above 200 to about 4 from the market top to late 2002. The stock has since soared to 29.93, including a 30% surge on Friday after it far exceeded earnings targets and spoke of rising demand among corporate customers.
PMC-Sierra shares rode an adjacent wave, as investors began sniffing the sweet air of happy sentiment and some analysts turned more positive on the stock. This stock has also gone from over 200 to the low single digits to its current price near 24.
Investor sentiment and sell-side changes of heart are perhaps what owners of these stocks are banking on. Both Juniper and PMC-Sierra had about 12% of their tradable shares sold short at last report, indicating a healthy supply of doubters. And analysts, having seen little hard evidence of stronger demand trends until just now, remain lopsidedly negative on the group.
Eighth Wonder: The Dow logged its eighth straight up week, as solid earnings from IBM and GE overcame slight weakness in J.P. Morgan after it announced it's buying Bank One.
That doesn't mean buying Juniper or PMC-Sierra at about 12 times expected 2004 revenues is a way of achieving a predictably good economic return, to say the least. Clearly, current revenue estimates will be heading higher as analysts adjust to the latest corporate outlooks. And, what do you know, both companies are already forecast to return to profitability in 2004, but not so much that the stocks look attractive based on expected profits.
Buyers of the stock today are betting on either heroic growth estimates or the chance that some circling skeptics might yet be seduced. It's hard to know at what price a stock that once traded above 200 will again "feel" expensive to those playing the sector again, let alone whether the fundamentals can approach the hoped-for levels.
The fun part of playing musical chairs, remember, is you never know when they'll stop the music.
ONLY WHEN DISCUSSING STOCKS can beer be more boring the networking equipment.
But that's the way it is, as a chart of brewer Adolph Coors' shares would suggest. Since a major profit disappointment almost a year ago that dropped the stock from 65 to the mid-40s, Coors has spent most of the market rally since March shuffling between 50 and 57.
Wall Street has very low regard for the stock. Of the 13 analysts rating it, only one recommends buying and four have Sell ratings. The latter group includes Bonnie Herzog at Smith Barney, who launched coverage of the brewers last week with a Sell on Coors and a Neutral on Anheuser-Busch.
The challenges for Coors are well known. It is the No. 3 U.S. brewer, behind Anheuser-Busch and SAB Miller's Miller Brewing. The company is highly reliant on its Coors Light brand, which faces tough competition from Anheuser-Busch's low-carbohydrate Michelob Ultra and its powerful Bud Light brand. Meanwhile, overall beer demand is growing very slowly, with consumption trends ebbing and customers switching to wine and liquor.
Coors had some trouble with its supply chain, which dragged on sales in the important pro football promotional season. Earnings forecasts have edged lower, though not dramatically so. The company is expected to earn $4.77 a share in 2004, up 8% from anticipated 2003 results.
The only real good reason to own the No. 3 competitor in an industry is if the stock trades at a big discount and, perhaps, investors find a reason to warm to the story again.
Coors shares have the discount taken care of, trading at 11.4 times 2004 earnings forecasts versus more than 18 for Anheuser-Busch. Some discount, no doubt, is warranted given Anheuser's superior record and outlook, but the gap has arguably gotten too wide and Coors is trading well below its historical multiple.
Banc of America Securities analyst Bryan Spillane, who has the lone Buy rating on Coors, says the company has gotten more cost-conscious as sales have been pressured in recent years. Volume-growth comparisons should be a bit easier as the year wears on, though Coors' outsized exposure to the Northeast (one-quarter of sales) might be a short-term worry, given the recent blast of frigid weather.
All in all, not very exciting. But that's exactly the point, because if investor tastes turn to the boring and defensive, Coors could benefit. Until then, the valuation would seem to limit potential downside, and with so much of the Street disdainful of the Coors story, even a little good news could go a long way.
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Sky's the Limit
BREAD AND CIRCUSES. Panem et Circenses, if you're into Latin. It was the famous formula the Romans devised to make the natives happy and it worked so well that, down through the ages, politicians have adopted it to keep their own subjects from even thinking about growing restive.
And consummate politician that he is, George W. Bush has made that tried-and-true combo the centerpiece of his bid to hold onto his job. But he's not planning any of the penny-ante stuff that so enthralled the Roman throngs -- you know, pitting gladiator against gladiator or feeding the lions juicy human morsels.
He's talking celestial circuses, going to the moon, maybe colonizing Mars -- truly humongous extravaganzas. Which is going to take a lot of bread. But, hey, what's dough for, except to spread it around come election time?
The president murmured something about $11 billion, but he had a twinkle in his eye. He knows, for sure, that the bucks for these high-altitude projects have a way of ballooning into the stratosphere. The early line on the space shuttle, remember, was $8 billion, but the final tab ran to maybe $100 billion.
Actually, the space shots will fit in nicely with another of Mr. Bush's election-year crowd-pleasers-spending $1.5 billion to promote marriage. For one of the ways that program plans to persuade recalcitrant potential husbands and wives is to threaten to send the women to Venus and the men to Mars on the first shuttle out.
The proposal to promote marriage should play well with all those online habituès who frequent dating sites. In other words, it's really a brilliant preemptive strike by the Bushmen at the heart of Howard Dean's constituency.
Word is, the emphasis will be on persuading lower-income couples to tie the knot. At first blush, that seemed like an idea that's right on the money: Grabbing a piece of $1.5 billion could be an irresistible inducement for a boy and a girl to get hitched, especially if the boy and girl are short on moola. Then it turns out, every cent of the $1.5 billion (which is a 150 billion cents) is ticketed not for prospective newlyweds, but for a brand new matchmaking bureaucracy. How could you possibly have a happy marriage without prenuptial instruction in spousal skills?
In spending freely to retain the presidency, Mr. Bush is merely practicing what he preaches: that one involuntarily unemployed American is one too many, and that most certainly includes himself. And we relate these particular evidences of the practice not to cavil -- imagine what it would be like to have a penny-pincher at the helm of the ship of state preoccupied with calculating how much fuel every knot consumed -- but to caution against the tendency growing rampant among economists to trim their estimates of this year's budget deficit to a mere $500 billion.
Well for these worthies to keep in mind the late Sen. Everett Dirksen's famous dictum that a billion here, a billion there -- after a while, it begins to add up. And we say that, even though we're fully aware that Mr. Dirksen lived in the olden times when a billion was a lot of money and, when it came to shelling out taxpayers' hard-earned dollars, Republicans were flinty-hearted tightwads, obviously not yet privy to the great epiphany, most recently articulated by Dick Cheney, that deficits don't matter.
What's kind of mystifying is not that Mr. Bush is doing the bread-and-circuses thing -- we can't recall a president who didn't -- but that he (or Karl Rove) thinks it's worth the bother. To our admittedly jaundiced eye, even a glance at the pathetic pack snapping and snarling at each other as they pursue the Democratic nomination should be enough to convince Mr. Bush he could win lying down, making do at most with a few thin slices of bread and a couple of low-rent circuses.
Besides, so far as the moon shot goes, we've been there, done that and discovered that the moon isn't made of green cheese -- so what's the point? As to the proposal to promote marriage, it seems a mite presumptuous since a lot of folks, including old married ones, subscribe to the venerable adage that marriage is not a word but a sentence.
OUR ROUNDTABLE CONVENED AGAIN last Monday morning and it was a long session (close to 10 hours, with a short break for a rather uninspiring lunch) but quite rewarding, as the results so adroitly edited by Lauren Rublin bear out (judge for yourself, see The 2004 Roundtable). Chock full of the venerable feature's trademark banter, enlivened by the customary bursts of wit and flashes of insight, this year's confab was distinguished from its recent predecessors in coming off a year of a powerful bounce in the stock market and promising upturn in the economy. Not unrelatedly, our crowd's picks for 2003 pretty much ranged between splendid and spectacular. Indeed, we even had those rarities of rarities, some triple-digit winners.
There's a new face gracing the rouges' gallery -- that of Bill Gross of Pimco. Bill's a first-rate guy, with a ready California smile, savvy as can be and, as you'll quickly discover, not only about bonds. If you're even a casual reader of the financial pages or accidental viewer of TV, his visage, his self-deprecating humor, his low-key eloquence and, scarcely least, his smarts are all more or less familiar to you. But, as you can't help but notice, the give and take with his peers, some of it fairly fierce, brings out the best in Bill, and the best in Bill is just about as good as it gets. A preponderance of the panel is upbeat on the prospects for this year, both for stocks and the economy. That kind of consensus is usually a tip-off that the market and the economy are in for trouble. But, alas, we advise against assuming it's a dependable negative indicator this time around because our bunch includes a number of reluctant bulls and even more have long-term reservations. The sole outright bear is the redoubtable Marc Faber.
We don't want to spoil the fun of reading this installment by babbling too much about what's in it, but we feel obliged to point out that Felix Zulauf called for a short-term gain in the dollar and, in the brief time since last Monday, his prediction has already begun to come true. Other than that, we'll content ourselves with observing that the rest -- Abby Cohen, Archie MacAllaster, Meryl Witmer, Mario Gabelli, John Neff, Scott Black, Art Samberg and Oscar Schafer -- are all in top form.
In case you wondered, this was not a commercial, but rather a public-service announcement.
ODDLY, NONE OF OUR PARTICIPANTS made much reference to the remarkable revival of bubble psychology. There are still, after all, plenty of bloodstains on the Street left behind by the debacle that issued from March 2000 and all of that. Yet the speculative sap has been rising with fresh vigor, as if the big bear market, still very much out there, we believe, now fully rested and eager to pounce again, never existed.
Day traders, for whom the last rites were solemnly rendered a few scant years ago, have miraculously resurfaced and their numbers seem to be growing. In their new incarnation, however, they're reformed and no longer are day traders -- they're hour traders. That young entrepreneur who used the Internet a while back to pump up deservedly obscure little stocks with fabricated facts and phony projections and enjoyed his 15 seconds of fame before being collared by the SEC is back in business.
Further indication of the revival of animal spirits: The worst stocks are getting the best rides. Fred Hickey had a wonderful case in point in the latest edition of "The High-Tech Strategist." He notes that in four recent trading days, Sirius Satellite Radio racked up a 60% gain and was endowed with a market value of over $4 billion. This is a company that in its most recent quarter had all of $4 million in sales and a tidy $107 million in losses.
What got the heavy-breathers all lathered up, Fred scornfully reports, was Sirius signing on to pay the National Football League $220 million over the next seven years for the rights to broadcast games starting this fall. "What an innovative idea!" Fred exclaims. "Listening to football games while driving in your car!" And he then goes on to observe: "There are already 800 radio stations across the country carrying local games for free."
The new mania, moreover, has a global tint. Investors with that tell-tale gleam in their eye have been pouring their play dough into emerging markets, notably via mutual funds that specialize in the more distant and/or exotic marts. Shades of those wild and woolly days just before the emerging markets blew up in '98 and overnight turned into submerging markets.
Seasoned technician Justin Mamis, interviewed by our old sidekick Kate Welling in her admirable fortnightly "Welling@Weeden," discusses with equal measure of awe and disapproval the raging obsession with racy Chinese stocks. Justin points out that China Fund is trading an improbable 65% above its net asset value -- even though the Shanghai market is barely up. China, he reflects, hasn't had its 1929, "but I wouldn't be surprised to see it."
While they may not register as graphic a reading of the rapidly heating investment climate as the anecdotal evidence, the sentiment figures do portray an overwhelming tilt to bullishness. The services specializing in taking the pulse of futures traders and the like, for example, report an uncommonly large percentages of bulls -- 81% at Consensus Index and 64% at Market Vane. The latest survey of its members by the American Association of Individual Investors reveals nearly two-thirds are optimistic, a puny 10.1% bearish. And Investors Intelligence says that of the market-letter writers it polls, 56.4% are bulls, dwarfing the 18.8% who are bears.
Just the stuff of a frigid day to warm the cockles of a contrarian's heart.
There's one thing more that suggests that stocks just could be ripe for a fall: the destruction of the short sellers. When those birds are so precariously perched as to merit certification as an endangered species, it's a sign that something bad may be brewing for the market.
FIRST GLOBAL IS A BRITISH securities outfit with an American branch, whose existences frankly eluded our ken until rather recently when it began sending us its research on U.S. firms. By and large, its reports are quite credible and, on occasion, more than that. What prompts this mention is Intel's earnings report and the fact that First Global has had a pretty good bead on the company and its stock.
First Global, as it is the first to tell you, was right on target with '03 estimates for the company that were higher than most of the Street's projections. Interesting, though, it nonetheless was decidedly unenthusiastic about Intel's outlook and rated the shares as "market performers," which translates into "ho-hum." And in fact, as First Global notes, they haven't even been that good over the past month or so, gaining 3% versus around 8% for Nasdaq.
While commending the improvement in Intel's fourth-quarter operations and citing signs of a pick-up in corporate spending, First Global remains cool toward the stock. It reckons that the chip maker will post revenues of $8.2 billion and earnings of 27 cents a share for the first quarter. For the full year, it sees net of $1.25, on revenues just shy of $35 billion.
But, First Global comments, selling at over seven times sales, 5.7 times book and 27 times projected earnings, the stock's valuations aren't particularly compelling. And expected growth already is in the stock. Moreover, Intel faces rising competitive pressure from the rejuvenated Advanced Micro Devices in the higher-margin server market.
In fact, First Global rates AMD as the better bet. We have no hesitation in seconding the notion.更多精彩文章及讨论，请光临枫下论坛 rolia.net