Halftime Report for 4.25.2012

Crude Oil futures, which were much higher earlier in the session, fell to lows following the weekly inventory data at 10:30 a.m. ET. Oil inventories rose 4 million barrels last week, double the expected rate. Elsewhere in the oil patch, Natural Gas futures are higher, up 1.4% on the session.

Gold futures are down 0.3%, while Treasury futures are flat on the session. The 30-year bond yields 3.13%, and the 10-year note yields 1.97%. A 5-year note yields 0.85%. Treasury futures are likely to see increased volatility later at Bernanke’s presser.

What will the B-man say? Our best guess is a whole lotta nothing, which would be good for markets.

Morning Rage 4.25.2012

Of course, that huge gain is leading NASDAQ futures higher – up 2% at the moment. S&P and DJIA futures are experiencing more modest gains, up 0.7% and 0.3%, respectively. Markets are likely to hold this pattern ahead of the Federal Reserve announcement and press conference later today. 

In other futures markets, Crude Oil is seeing a bullish day ahead of weekly inventories at 10:30 a.m. ET. Crude futures are currently up 0.9%. Natural Gas is also higher, trading at $2.000 and up 1.3% on the session. 

Treasury futures are slightly lower. The 30-year bond futures dropped 0.3% and the 10-year note futures are down 0.2%. The US$ is modestly lower as well. EUR/USD is holding above figure 1.32, while other European currencies gained as well. USD/JPY is unchanged at 81.25.

Here’s a run-down of companies that reported since yesterday’s close, where EPS was in relation to expectations, and where the stocks are trading premarket:
– Boeing (BA): $1.11 vs. $0.95; up 2.5%

– Caterpillar (CAT): $2.37 vs. $2.15; down 1.1%

– Credit Suisse (CS): $0.03 vs. -$0.18; down 3.3%

– Panara Bread (PNRA): $1.40 vs. $1.35; up 3.2%

– Baidu (BIDU): $0.85 vs. $0.85; down 6% 

Meadows on the Markets 4.24.2012

Baidu (BIDU), however, had the opposite reaction following its earnings report today. The company warned that second quarter revenue will be below analysts’ expectations, sending the stock immediately into the dog house. Shares fell 10% after-hours, following a drop of 2.7% during today’s session.

Aflac (AFL) also reported earnings today, beating expectations and leading shares to rise nearly 5%. That stock was up 1.5% today. 

In total, we should expect NASDAQ futures to move higher, as AAPL is heavily weighted in that index. Further, the rising tide will likely life all boats, leading to gains in DJIA and S&P futures by morning. From there, the typical correlations should play – EUR/USD higher, Crude Oil up, and Gold higher as well. But, I suppose Europe could always play its part to cut into this momentum.

Trade of the Day (AAPL) 4.24.2012

Break-even:  I breakeven on this trade if AAPL closes at $499.05 by May 18, 2012.

Unprofitable: I lose money on this trade if AAPL closes under $499.05 or above $93.26 by May 18, 2012.  The most I can lose on this trade is the Price of the Spreadcan be worth $5 minus the Price I sold it for $.95 or a total of $4.05.

UPDATE 4.26.2012  With AAPL rallying hard in the last couple of days, This Put Spread has gone from $.95 to $.07, but I am leaving it on as I think there is no way that AAPL sells off $100 in 3 weeks.  Another winner at KOTM

UPDATE 4.27.2012  I closed this position out at $.06, because I am not willing to risk $4.94 to make $.06.  On to the next trade.

Read more about unprofitable by www.keeneonthemarket.com

Value Trap Companies Destined to Die : Part 1

This one seems a little bit obvious as everyone likes to pile on the Groupon stinks bandwagon but it is warranted.
Here you have a company that gives out coupons through email. Nothing proprietary here. No competitive advantage other than that most people have heard of the Groupon name. There is nothing special or unique about Groupon. Margins will decline as other copy the Groupon business model. The barriers to entry are virtually non-existent. Anyone can set up a website and send email deals to customers. Large companies already have their own email lists so why use a middleman.  I see Groupon having close to a 100% chance that it is not in business in two years. I would also give it close to a 0% chance that it is acquired by someone else as it really has no assets.

Research in Motion
This is another popular stock that is pilloried in the press almost daily. And for good reason. Their phones are way behind the times. Their management seems clueless.
The only reason anyone owns their phones still is because of the corporate email servers that use the Blackberry because of security purposes. Even that is changing. Many companies are switching to the Droid and even Apple platforms. Their employees don’t want Blackberry phones and are in a sense forcing the change. The strongest argument made to own Research in Motion is because of their cash balance and patent portfolio. First of all, if your product stinks you will be losing money before long and the cash will dwindle. Secondly, patent portfolio is just a trendy idea right now. Just because of the AOL deal, many investors now think there will be a bunch of M&A activity targeting companies with patents. But really, if their products are not wanted by consumers, what are the patents really worth anyway? I see Research in Motion having an 80% chance that it is out of business in the next two to three years. There is that small probability that it gets taken out by somebody a la Palm but I would bet that it would be considered a take under from the current price.

This one might be considered a little more controversial as Netflix does have a decent sized subscriber based and what appears to be a viable business.
The problem is that it is essentially just a middle man. It is an accumulator of content available for a monthly subscription. Their business model is nothing proprietary but does consist of small barriers to entry, mainly the large sums one has to pay for the content. This is also the downfall of Netflix. Their recent massive missteps have caused their subscriber growth to slow and even decline in some recent quarters. This does not mix well with the high costs they now have to pay for content. It is becoming more obvious over time that in the entertainment industry content is king. It is the content providers that are really in control over pricing. After charging minimal amounts to Netflix in the beginning, they now see the growth Netflix has had and want their share of the pie. Since Netflix doesn’t own any content, they have little control over the cost of content. This negatively affects their margins. As we’ve seen from past management mistakes, the price increases forced on customers have not gone over well at all. So as their costs rise dramatically while their revenues can’t match that growth, you have a recipe for disaster. I’d only give Netflix a 50% chance of staying in business. Their poor business model suggests that the percentage should be higher. However with a decent sized subscriber base it could be bought by a content owner as a method of distributing its content through a wider medium than it already has.

Hewlett Packard
This one may sound like a stretch but it has been so horribly mismanaged by its board and management teams that nothing is out of the realm of possibilities.
Desktop PC’s are the dinosaurs of the industry. They are slowly becoming extinct. There will always be a desktop PC industry but the move to a more mobile PC beyond even the laptop is well under way. Hewlett Packard is definitely not a contender in the new markets. Their failed attempt at a tablet and subsequent exit from the market is well documented. They have basically succeeded the market to Apple and Samsung.
One of the main reasons value investors like Hewlett is because of the printer business. They sell the printers for little margin but make large margins on the printer refills. Even this business isn’t what it used to be. The trend is towards paperless and to the cloud. You don’t need to print everything you used to when it can be stored on the cloud for next to nothing. Hewlett Packard really has nothing left that distinguishes them as a competitive company. Oracle has a vendetta against them and with Mark Hurd at Oracle they will eat Hewlett’s lunch if they want to. I would only give Hewlett Packard a 30% chance of being out of business in the next five years, maybe longer. I could see a competitor buying Hewlett for none other than the fact that it is Hewlett Packard. But I could easily see this company slipping onto the trash heap of history as they are under siege from the likes of Apple, IBM, and Oracle. Not who you want coming after you when they smell blood.

Next Targets
My next list will be the retail edition. I have four retail companies that I see struggling to survive.

By Ben Hoben