Stock Market

With speculation and rumors running rampant that the Fed is considering another rate cut, the U.S. markets rose on Tuesday, with the DJIA and the NASDAQ both posting nice gains. Alcoa and American Express were the leaders, each gaining about 3%. When the Fed cut the rate last month, traders were in a frenzy soon after and all the markets showed wide growth. Another rate cut could send the markets into overdrive, especially with earnings season coming up, inflation fears subsiding a bit, and the subprime problem–while not having disappeared–at least dropping out of the spotlight.

One major company to already have released its earning report, YUM! brands, the company which owns KFC, Taco Bell, Pizza Hut, and other fast food restaurants, got the season off by exceeding expectations and posting a 5% gain.

Here is a list of companies that are due to report this week:

Wednesday, October 10:

Audiovox (VOXX)

Costco (COST)

Infosys (INFY)

Monsanto Company (MON)

Ruby Tuesday (RT)

Thursday, Oct. 11:

M&T Bank Corporation (MTB)

PepsiCo (PEP)

Safeway Inc. (SWY)

SLM Corporation (SLM)

Friday, Oct. 12

General Electric (GE)

HDFC Bank Limited (HDB)

With so much action coming up in the following days and weeks, the end of 2007 looks to be exciting. Another major company in the news is Google (GOOG) whose stock continues to rise. Monday marked the internet giant’s first venture over the $600 per share mark, helped by Bank of America’s upgrade in its price target to $670.

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The banking industry is normally thought of as a stodgy and dull field, and bank stocks usually reflect these sentiments. For years, the Indian banking industry was considered a disaster. With huge lines, layers and layers of red tape and bureaucracy, and an old-fashioned mentality that drove clients mad, the system certainly needed to be modernized, and that change finally came. Without living in India and doing business in their banks, it’s almost impossible to know how the modern Indian banking experience compares with the past, but if the charts of two of India’s biggest banks, ICICI and HDFC, India is certainly breaking the mold of stodgy and boring banking, at as far as their shares are concerned.

• HDFC (HDB)’s company profile looks like that of any other bank. They provide loans, offer savings, checking, and ATMs, and offers mutual funds, stocks, and cash management services. When visiting their website, one will notice that it is all in English. In a country that has several official languages, and many more unofficial dialects, English is the common language of business. HDB also offers a similar line of products that most any bank does: financial planning, different sorts of loans, and insurance. One particularly interesting product the bank offers is 99.9% pure gold bars for sale. Gold bars aside, the bank’s stock has been close to pure gold for investors. Over the past year, the price of each share has risen from roughly $75, to around $110.
• ICICI (ICB) is the larger of the two banks, with a market cap of $23.75 to HDB’s 11.7 billion. The bank provides similar services and products as its competitor, offering loans, varieties of corporate and private accounts, insurance, investment opportunities, and online services. Like HDB, the company’s website is in English, and offers a range of products and opportunities. Also like its competitor, ICB has seen its shares rise substantially over the course of the past 10 months. The bank’s shares opened the year at $43 per share, and at the date of this article, closed at $52. Not an enormous gain, but still a very healthy one.

If you compare the two charts, you see that both banks were hit hard by the subprime crisis and sell-offs that occurred last spring, and then the latest round of selling just a few months ago. Still, the two banks have posted terrific gains–close to 60%–over the last year. When you compare the two against two American banking stocks–in this case Wachovia (WB) and Lehman Bros. (LEH)–the gains turn out to be nothing short of spectacular.

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As the Chinese boom continues to echo throughout the world, looking at a couple of benchmark stocks and funds are an excellent way to track the growth of the country’s economy.  Across the board, no matter what sector or industry, the Chinese economy has grown, and certain stocks and securities have have huge gains–sometimes doubling, or even tripling each year.  Here are a few securities from different industries that show the success being found in China.

• FXI: The Xinhua China 25 Index Fund is an ETF which invests 90% of its holdings in the top 25 companies in China.  The fund started the year at around $115 per share.  Thanks to a strong October, the fund has broken through the $190 mark, and looks to keep churning along for the rest of the year.
• LFC: China Life Insurance Co. is the largest health, life, accident, and annuities in China.  The stock opened 2007 at $54 per share, and as of this writing, closed at just under $96.
• PTR: PetroChina is China’s largest oil company, with operations throughout the world, and is one of the largest companies in the world, with a $341 billion market cap.  The year for oil has been very volatile, and PTR’s past 10 months have been no different.  Although, looking at the company’s chart, some valley’s are apparent, a last year rally has boosted the shares to $176, up from the $141 it opened the year at.
• BIDU: Baidu is China’s largest internet search engine, boasts a market cap of almost $11 billion, and is colloquially referred to as the ‘Chinese Google.’  With the tech boom taking hold in China, and millions of people coming online each month, the tech boom has been nothing short of a gold mine for investors.  BIDU opened the year at $114 per share, and has almost tripled in just 10 months, closing last Friday at $315.
• CHL: China Mobil is the country’s largest mobile phone company, and as business continues to grow throughout the mainland, and the country becomes increasingly interconnected, investors are betting that the cell phone boom will continue its rise.  The company is a giant, with a market cap of just under $340 billion, and its closest competitor at $26.5 billion.  Needless to say, CHL totally dominates the market, and this domination shows in its share price, which has risen from the $45 price it opened the year at to the $84.96 it ended at last Friday.

Of course, everyone knows that past performance is no indication of future returns, but looking over these few stocks shows just how dramatic and deep the Chinese growth has been, and for investors who are involved in these securities, perhaps the past is prelude future riches.

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Is every company with the word ‘Chinese’ in it’s title, gold? After Friday’s latest IPO of China Digital TV Holding Co. (STV), it would seem so. The shares rose 75% in the first day of trading, from $16 at the start of Friday’s trading day to the closing price of $28 per share. One only has to have a look at the chart, which resembles one side of Mt. Everest, to see why Friday’s offering made it the 3rd most successful IPO of the year.

The company’s profile on Bloomberg.com states:

China Digital TV Holding Co., Limited provides conditional access, or CA, systems to the digital television market. The Company also licenses set-top box designs to set-top box manufacturers and sells digital television application software such as electronic program guides and subscriber management systems to digital television network operators.

Investors seemed intrigued by the prospect of a company whose business is to develop and distribute digital cable television to China’s rapidly growing upper and middle classes. In the giant country, the population with a disposable income to spend on luxuries such as upscale cable television and household electronics continues to explode, and investors are hoping that by getting in early in STV shares, they will reap returns akin to other successful Chinese tech companies.

The company has plenty of room for growth inside China, but is having its market share tested by other international, and more well-established competitors, such as News Corp.’s subsidiary, NDS Group, and Irdeto Access. STV has also stated that it may have to lower its subscription prices in order to keep and expand its market share.

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Research in Motion (RIMM), makers of the famous Blackberry phone, announced quarterly earnings on Thursday, and even though their numbers were good, apparently they weren’t good enough. Investors may be getting spoiled with RIMM’s great returns over the years, and with expectations growing higher and higher each time the company announces earnings, it’s becoming increasingly more difficult for investors to get a bump on earnings day. On Thursday, even though many analysts were looking for the $.50 per share that the company turned in, the stock dropped 2% in after hours trading.

It seems that after years of exceeding expectations, merely meeting them is not enough to please traders.

Looking at the numbers, the company is far beyond solid, and is one of the leaders in the smartphone business. The company has over ten million subscribers, and added 1.5 million last quarter. Compared to what the company did in the same quarter last year, RIMM doubled its EPS, from $.25 to $.50, and revenue more than doubled. Thestreet.com has an article outlining why investors were lukewarm on the report.

The future continues to look great for the company, as it continues to expand into new markets, and create innovative technology. RIMM has announced deals with Ukraine and the Spanish communications giant, Telefonica (TEF), and is continuing to unroll new software, hardware, and subscription plans.

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With Microsoft’s recent purchase of online advertising firm aQuantitave, shares for another online advertisement company, ValueClick, have also been rising over the past few days on speculation that Google is interested in snapping up the $2.49 billion company. This week, VCLK has seen its share price rise from about $20 to almost $25 in just two days of trading. The fact that Microsoft paid an exorbitant premium for aQuantitative is driving speculation that if Google does decide to buy ValueClick, they too will pay a premium. On Tuesday, this speculation drove the price up $2.85 per share, or just under 13%.

Although there may be a sell-off of VCLK coming soon–this is all speculation, after all–many analysts view the company as a buy, regardless of whether or not one of the big boys comes knocking. Vishesh Kumar in an article on the subject at thestreet.com, says :

. . .investors have a reason to take a close look at ValueClick even if a deal is not in the works. As the last major independent player in the space, ValueClick may serve as a haven to. . . customers who do not want to take the risk of having their online stats shared with Google and Microsoft — companies they see as competitors.

Google snatched up another online ad company last April, when it outbid Microsoft for DoubleClick, and was bidding on aQuantitative as well.  With Microsoft having won the latest round, investors certainly feel that VCLK is likely the next up on the auction block, and are rushing to get in early.  Only time will tell if this will pay off, but the company’s share price is certainly rising…for the moment.

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American computer maker Dell, has announced plans to take advantage of the ultra-hot, burgeoning Chinese economy by striking a deal with one of China’s biggest retail chains, GOME.  Stateside, Dell used a unique business model of selling its laptops and PCs by phone and internet orders to become the world’s number one PC maker.  Recently, though, Dell has seen its market share eroded by Hewlett-Packard, and hopes that becoming more involved in emerging markets will boost sales.

To start with, Dell will sell its computers in 50 major cities in China, with plans to expand further in 2008.  Dell has recently adjusted its business model in the U.S. by offering its computers in Wal-Mart–the first time the computers were available in actual stores.  Dell is hoping that the booming Chinese economy mixed with greater availability will attract Chinese consumers and push the Texas-based company back to the top.  Certainly, the overseas and developing markets seem to be the way of the future.  According to an article at thestreet.com:

(T)he PC market. . . is increasingly driven by consumers in emerging markets. Industry research firm IDC predicts that PC shipments will grow a mere 2.7% in the U.S. next year, while international shipments will jump 14.2%.

While Dell has had a fairly steady year, Hewlett-Packard has seen its shares rise in value, and its popularity soar.   GOME is a powerful ally for Dell to be in business with.  The retailer has over 1000 stores in 168 Chinese cities.  Dell used a direct sales approach to invent itself.  Now it will try a retail approach to reinvent the company.

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In a move that Wall Street traders had been calling for and speculating about for weeks, the Federal Reserve made its first benchmark rate cut in four years.  As a result, stocks and treasury notes soared, and the dollar sank to a new low against the euro.  The rate that was cut is the one that banks use to loan money between each other.  The rate had been at 5.25% and was cut .5%, making it a larger cut that many analysts had expected.

A problem that inevitably arises when the Fed cuts the rate is that many see it as a bailout to investors and companies who have been engaging in risky trading, so Ben Bernanke and the rest of the Board of Governers should be in for some rough criticism.  Regarding this, an article on Bloomberg.com states:

Today’s move suggests Bernanke’s comment on Aug. 31 that it’s not the Fed’s responsibility “to protect lenders and investors from the consequences of their financial decisions” may be little more than talk for now, said Neal Soss, chief economist at Credit Suisse in New York.

Criticism aside, the markets enjoyed a big day, with the Dow ending up 335 points (2.9%), and the Nasdaq gaining 70 points, or 2.7%.  Other markets in the Americas enjoyed the news as well, Brazil’s Bovespa gained a whopping 4.2% on the day, and Mexico’s Bolsa rose a healthy 2.7%.

One stock that particularly benefited from the rate cut was Lehman Bros.  The brokerage and investment giant had been hit hard recently by the subprime crisis, but the news of the cut sent LEH shares up over 10% on the day.

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For most Americans, seeing a new Starbucks being built (seemingly overnight) is a ubiquitous event. Especially for those who live in cities like New York and Los Angeles, where it’s almost impossible to walk a block without seeing one. For years, McDonald’s has been the uber-chain, opening stores in every corner of the world, and tailoring their menu to the tastes of local populations around the globe. McDonald’s is the largest restaurant chain in the world. Now, the Golden Arches have Starbucks in their sights, and are brewing up a recipe to move in on the Seattle coffee company’s turf.

McDonald’s has already opened 9,000 McCafes in the U.S., and judging from the results, more are certain to follow. Starbucks is the leader in the gourmet coffee chain, and is one of the biggest successes in recent years. However, their shares’ values have plummeted in the last year, and even though they still remain #1, McCafe is #5 and looking to knock off the big boys.

Coffee is one of the highest margin products available, and McDonald’s is selling their lattes, cappuccinos, and espressos at a quarter of what Starbucks does. Not only that, but McDonald’s food sales have spiked also, as many coffee drinkers order breakfast, or a snack to go along with their hot beverages. An article from Bloomberg states:

Word is getting out about McDonald’s coffee. In March, Consumer Reports magazine reported a taste test of basic black coffee found McDonald’s stronger blend beat brew from Starbucks, Burger King Holdings Inc. and Dunkin’ Donuts Inc.

Should Starbucks worry? Perhaps. McDonald’s has a pretty good track record of edging into specialty markets, as they recently did with the Mexican chain Chipotle.

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With the subprime crisis lingering and causing wild swings in the world’s stock markets, Federal Reserve Chairman, Ben Bernanke, and President Bush have given signs that the government will work to assist with the crisis. Bush tried to ease fears and jitters, by downplaying the size and severity of the crisis, and also by asking strained borrowers to refinance and to take advantage of the Federal Housing Administration insurance. Bernanke–in his typical artful language–promised to “take action as needed” and to provide “liquidity” to the markets, if need be. Wall Street stocks responded on Friday with the Dow Jones gaining 119 points (.9%), and the Nasdaq up 1.21%. However, the two made clear that a huge bailout was not in the works.

The big names that are deeply involved with subprime mortgages also rose on the news. Accredited Home Lenders (LEND) rose a whopping 43%, likely due to the troubled mortgage company balking on a low-ball buyout attempt from Lone Star, who revised their offer to buy the company from $15.10 per share, to $8.50. Countrywide Financial (+1%), Bear Stearns (+1.84%), and Lehman Brothers (+1.97%) were also among those that benefited from the news.

One company for which there was no saving, Ameriquest, announced on Saturday that they were closing for good, and selling off all assets to Citigroup (C). Ameriquest had been one of the fast-risers in the subprime game, but were eventually nailed by a rash of non-payments and delinquencies.

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