Week in Review
DJIA +48.92 (+0.35%) to 13,992.97; S&P 500 +8.54 (+0.57%) to 1,517.93; NASDAQ +28.74 (+0.91%) to 3,193.87
Today the markets gaped higher and continued higher closing near highs. We had positive economic data where the U.S. trade deficit shrank to its narrowest level in nearly three years.
I felt the story of the day was one that didn’t really seem to be taking over the headlines but I think it might be a decision that eventually we look back at and say this was a big move that many others followed. That was NJ Governor Chris Christie will allow the state to legalize Internet gambling. There were many names in the field moving on the news including the smaller Zynga (ZNGA) which had recently noted they would be entering the field but most notably on the rise was Caesar’s Entertainment (CZR) which gained $3.84 or 38.13%. Today’s move was a nice follow-up on the previous day’s news for CZR which was they will be splitting up the assets in the company to try and unlock value and any internet assets will likely be included in that “growth” category.
Also moving higher for the day was LinkedIn (LNKD) which gained $26.39 or 21.27% on a stellar earnings report which beat both top and bottom line but also guided above current consensus estimates. I saw a few analyst upgrades and price target increases but they were not to much higher levels with two coming in at $150 where the stock stands now and others with the highest I saw at $176. LNKD has always had a high growth multiple but at this point I would only be considering LNKD for quick trades and would not be looking to make a more longer term swing or investment at these levels.
Moving lower on Friday was Nuance (NUAN) after reporting earnings which Wall Street found disappointing. Along with the report saw 3 different analysts come out and downgrade the company. The best note that summed up the move was by Sifel Nicolaus which cited decelerating organic growth, lower than expected Q1 EPS and meaningful risks to the company’s FY13 outlook. To me it is the last part that is the issue since NUAN had a large trailing PE but Forward looked more than reasonable as 2013 seemed to be a big year for NUAN and if now there are perceived issues with the business and their ability to meet expectations, then it is reasonable to see the shares face pressure. On the flip side, this drop in NUAN might be a long term opportunity and I will do some digging and add the name to my Watch List to see if we can define a clear pattern of opportunity. Also a reminder that you can review the Analyst upgrades & Downgrades each day as well as an archive in the Upgrades/Downgrades section.
Week in Review:
Monday started by essentially retracing all the gains that had been seen from the previous week and while we had factory orders I noted that this week’s economic data was light compared to what we saw the previous week. Merger Monday was back in affect as Acme Packet (APKT) agreed to be acquired by Oracle (ORCL) for $29.25 per share which represented an over 20% premium from Friday’s closing price and there was some pin action for peers including Sonus (SONS) and Broadsoft (BSFT) gaining over 20 and 10% respectively. Also moving higher was Netflix (NFLX) which seemed to just be momentum continuation and Caesar’s Entertainment (CZR) (I forgot they went public in 2012) on an announcement that the company will be looking to transfer growth related assets into a separate entity. On the downside, Moody’s (MCO) which was down over 10% in sympathy for its peer S&P who is now facing a civil lawsuit from the DoJ stemming from ratings done prior to the financial crisis.
Monday night we noted that we would not be surprised to see an up day Tuesday or at least an up morning but I wasn’t expecting the market to immediately claw back all Monday’s losses and that was essentially what happened. The stock of the day was Dell (DELL) whose board met late last night to vote on a $24.4B offer made by CEO and founder Michael Dell along with Silverlake Partners which includes, as was reported earlier by David Faber, a $2B loan from Microsoft (MSFT) who is a clear beneficiary of a strong DELL. Also in the takeover category was Virgin Media (VMED) with reports that they are in talks to be purchased by Liberty Global (LBTYA). Often times you will see companies come out and state they do not comment on rumors but VMED actually confirmed the reports that they are in talks but declined to give any details. As would be expected we also had big name companies moving simply on earnings reports and comments thereafter by both the company and analysts. Some stocks moving on earnings today included CSC (9.16%), EL (6%) and ADM (3.31%) higher and YUM (2.91%), ACI (12.84%)and BIDU (10.10%) lower.
Wednesday continued higher but negligibly so. GameStop (GME) found their way into the headlines and negatively so. The news sending GME lower was due to a report from Edge-online.com regarding Microsoft’s new Xbox720 and specifically that Xbox will need an internet connection and that games will be used along with activation codes which will have no value beyond the initial user i.e. no used games. Also moving lower was Elan (ELN) which reported an earnings beat for Q4 but also announced that they agreed to sell 50% interest in the Tysabri collaboration with Biogen Idec (BIIB). Wall Street clearly didn’t like the decision but after I reviewed I think it might be beneficial for ELN especially in the short term providing cash to follow-through on other projects but there in-lies the key and what the pipeline looks like. Lastly, Disney (DIS) which reported EPS and revenue that beat analyst expectations (79c vs 76c on $11.34B vs $11.21B). I like DIS but felt that there will ultimately be a better entry point.
Thursday story was all Apple Computers (AAPL) and more specifically David Einhorn of Greenlight Capital stated that a legal action has been initiated against AAPL over the company’s refusal to unbundled three corporate governance proposals. Essentially what Einhorn really wants is for AAPL to start giving its stockpile of cash back to investors and is suggesting they do so by creating preferred stock that carries a higher dividend rate. From what I gathered, AAPL has roughly $137B in cash now and a report from Stuart Jeffrey at Nomura Securities calculates that Apple will generate about another $103 billion over three years which takes AAPL’s nest egg to $240B of more than HALF of the current marketcap. That is crazy to me. Later in the day AAPL release a statement saying they have been reviewing ways to return cash to investors and that they will thoroughly review Mr. Einhorn’s ideas. AAPL closed $11.55 or 2.53% higher on the day. AAPL also gained another $6.76 or 1.44% Friday.
As always you can visit the Event’s Calendar for the release of economic data, scheduled meetings and other news that could move the market. Also in that section are Dividends and Splits.
Major averages 5 day results:
Dow Jones Industrial:
S&P 500:
Nasdaq:
Below our my comments from last week and while we pressed slightly higher over this week (4 points on the S&P 500), my thoughts remain essentially the same.
“As I noted above, as of Friday we really started to press into levels I have been looking for and now that they have been reached I would rather wait for a move significant decline/pullback to then look for opportunities to get long. Also just looking back at January we saw the S&P 500 gain more than 5% for the month. I would not expect 2013 to be a up 60+% for the year which means that we will enviably see backing and filling throughout the year. To me, trading is not about absolutes, it is about playing percentages and for me I think the percentages says to wait for a better entry point.”