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(Best) STEC, COF, SNDK (Worst) ASBC, WL, REG from Better Trades

July 20, 2009

The stock markets surged throughout much of the week, as investors were enticed by improving profits at banks, believing it could be a signal the economy has begun its recovery. Nevertheless, the three-day rally in the markets was interrupted mid-week, as shareholders remained cautious that a huge rally in March and April could have been a bit premature and that the indices have yet to reach bottom.

Despite conflicting data in company earnings and economic reports, the Dow and S&P managed to post four consecutive up days. Even more encouraging, the tech-heavy NASDAQ advanced eight straight days. The NASDAQ ended Friday’s session at its highest level since last October.

Top 3 Stocks

STEC – STEC Inc. ($23.53 to $32.59) +38.5%

Following the markets higher over the past several trading sessions was STEC Inc. (STEC). STEC is a leading technology solutions provider offering products based on dynamic random access memory, or DRAM, static random-access memory, or SRAM, and Flash memory technologies. STEC designs, manufactures and markets a comprehensive line of custom and standard memory and storage products, as well as connectivity products that connect memory cards and hard drive upgrade kits to PCs.

During the week of July 13 through July 17, shares of STEC surged nearly 40%, mainly on news that the company finalized a deal with their largest enterprise storage customer for a reported $120M. STEC will now supply solid-state drivers (SSD) to the unnamed customer for the remainder of the year.

Revenues generated from the sale of the company’s ZeusIOPS drives are expected to exceed $220M by the end of 2009. Prior to last week’s deal, STEC had expected sales of the Zeus drive to reach revenues totaling $80M through the first six months of the year.

Industry analysts view solid-state drives as the wave of the future, because they are faster and have no moving parts unlike their predecessor hard disk drives. Although SSDs are more expensive than their counterparts, they are becoming more and more common in laptops because they consume less energy and are more durable.

During the past week, shares of STEC jumped more than $9 per share, while reaching a 52-week high of $32.92 to end the week. Over the past three months, STEC has increased four-fold in market value.

At the conclusion of the July 20 trading session, shares of STEC continued their gains, adding $0.33, or 0.1%, to end the day at $32.92 per share.

COF – Capital One Financial Corp. ($20.63 to $26.50) +28.5%

Included in the list of biggest weekly percentage gainers is Capital One Financial Corp. (COF), which operates as a holding company whose subsidiaries provide a variety of products and services to consumers using its proprietary information-based strategy. The company’s main business unit, credit cards, was the main propellant to the company’s stock climbing nearly 30% throughout last week’s session.

Reporting mid-week, COF confirmed that the delinquency rate in June improved, a possible sign that borrowers may not be in as bad of shape as was thought before. For Capital One, the delinquency rates on U.S. credit cards improved for the fourth consecutive month, to a rate of 4.77%, down from May’s reading of 4.9%.

As a positive indication for the financial institution, Capital One also released information pertaining to the percentage of loans that the company has deemed as unrecoverable, or charge-offs. In June, that rate jumped from 9.41% to 9.73%.

"Given the continued weak employment data, increasing unemployment rate, fewer hours worked, stagnant wages, we view the recent strength as seasonal," stated an FBR analyst. Credit card defaults typically follow the unemployment rate, which has recently reached a 26-year high of 9.5%, with the expected rate topping 10% by the end of the year.

Meanwhile, analysts are anticipating that the credit card default rate will reach between 12% and 14% by early 2010. With that rate, losses are expected to reach $100B and the industry itself may not reach profitability until sometime in 2011.

Heading into the July 20 trading day, shares of COF gained nearly $6 per share, or 28.5%, by the end of the week. At the start of the third week in July, shares of Capital One continue their upward trend, adding $0.21, or 0.1%, to close at $26.71 per share. Over the course of a year, COF has traded as high as $63.50 per share, and as low as $7.80 per share.

SNDK – SanDisk Corp. ($14.47 to $18.03) +24.6%

Rounding out the list of gainers last week is SanDisk Corp. (SNDK), which designs, manufactures, and markets flash memory storage products that are used in a wide variety of electronic systems. SanDisk designs these flash memory storage devices in order to address the storage requirements of emerging applications in the consumer electronics and industrial/communications markets. Its products are used in a number of applications, including digital cameras, personal digital assistants (PDAs), digital video recorders and smart phones.

Prior to releasing their 2Q results, due out July 22, SanDisk was upgraded by several analysts last week, which based their projection on the company finishing the quarter on a positive note. One analyst from Lazard Capital Markets stated that the company has gained nearly 3% market share during the 2Q, following a loss in the same quarter in 2008. However, the analyst reduced his estimated loss for the quarter from a loss of $0.21 per share on total revenues of $696M to a loss of $0.16 per share on overall sales of $714M.

In addition, an analyst from Thomas Weisel upgraded the stock from “Market Weight” to “Overweight,” while raising the target price on the stock from $15 per share to $20 per share. The reasons behind the upgrade came from a reduction in SanDisk’s manufacturing costs as overall production levels returned to near full capacity.

With production levels on the rise, the Weisel analyst sees an increase in demand, which would drive revenues higher by 22% in 2010, leading to overall sales figures of $3.5B. With an increase in sales, the company could post a profit next year, on an adjusted basis, a year earlier than expected.

Following a nearly 25% gain in market value last week, shares of SNDK remained in the green by the close of the July 20 trading session. By the sound of the closing bell, SanDisk shares were up 3.3%, or $0.59, to end the session at $18.62 per share.

During the past year, the stock has reached highs of $23.50 per share and lows of $5.07 per share.

Worst 3 Stocks

ASBC – Associated Banc-Corp ($11.95 to $10.45) -12.6%

Leading the list of biggest percentage losers for the past week was Associated Banc-Corp (ASBC), which is a diversified multi-bank holding company that offers a full range of traditional banking services such as Business banking, Trust, Asset Management, and Investment services. The company also provides Retail banking, Private banking, Credit and Debit cards, Personal loans, Discount and Online Investment brokerage, Insurance, Cash management services and International banking.

ASBC shares tumbled more than 12% during last week’s trading due in large part to the company’s loss in the 2Q. Announcing last Thursday, ASBC confirmed that for the quarter, a loss of $24.7M, or $0.19 per share was amassed, in sharp contrast to the previous year’s profit of $47.4M, or $0.37 per share, led by massive charge-offs due to bad loans.

Operating more than 300 banks throughout Minnesota, Illinois and Wisconsin, ASBC increased their loan provisions for bad loans to $155M during the period, up from $105.4M last quarter and up from $59M in the 2Q of 2008. Prior to the release of quarterly figures, ASBC warned that loan losses would range between $145M and $160M.

A contributing factor to the dismal performance was the steep decline in net interest income, which plunged from $113.7M to $24.1M, a decrease of nearly 79% after provisions for loan losses. Gross interest income for ASBC fell nearly 11%, dropping from $279.6M to $249.9M, with interest and fees on loans plummeting more than 18%, from $237.7M to $194.4M.

Analysts, on average, were looking for the financial firm to post a loss of $0.24 per share on total revenues equaling $277.9M. One positive for the company came from an increase in total deposits, which jumped 22% during the quarter, climbing from $13.4B to $16.3B.

Continuing their downward trek, shares of ASBC traded deeper in the red by the close of the July 20 session, losing more than 8%, or $0.87 to end the day at $9.64 per share. During Monday’s trading session, ASBC shares set a new 52-week low of $9.48 per share. Throughout the past year, shares of Associated Banc-Corp have traded as high as $31.99 per share.

WL – Wilmington Trust Corporation ($11.48 to $10.19) -11.2%

Losing more than 11% in last week’s trading, Wilmington Trust Corporation (WL) operates as a financial services holding company that provides wealth management and specialized corporate services to clients throughout the United States and in more than eighty-five other countries. As one of the largest personal trust providers in the U.S. and the leading retail and commercial bank in Delaware, Wilmington Trust announced late last week that the bank is expecting to report 2Q earnings below market expectations.

The lowered projection comes as the company is anticipating higher-than-expected loan loss provisions, along with a pre-tax charge related to pooled trust-preferred investment securities. Loan provisions are expected to increase 83% to nearly $54M for the quarter. Furthermore, net charge-offs, or loans not expected to be paid back to the bank, are projected to come in nearly 70% higher than the 2Q in 2008 at $36M.

The CEO at Wilmington Trust, Ted Cecala commented, "While our Wealth Advisory Services and Corporate Client Services businesses performed well during the second quarter, the recession continued to put stress on some of our borrowers and on some of the underlying issuers in our pooled trust-preferred securities."

Wilmington is looking to post a pre-tax charge of almost $23M on investment securities, as well as a $5M special assessment charge levied by the Federal Deposit Insurance Corp. (FDIC).

For the upcoming 2Q, analysts within the industry are looking for Wilmington to post a profit of $0.11 per share. In last year’s 2Q, the bank reported a loss of $19.5M, or $0.29 per share.

Starting the new trading week, following a decline in market value of more than $1 per share, Wilmington Trust reversed their trend in the July 20 session, adding nearly 6%, or $0.60, to end the day at $10.79 per share. During the past year, shares of WL have ranged between $6.76 and $35.75 per share.

REG – Regency Centers Corp. ($30.87 to $29.43) -4.7%

Finally, Regency Centers Corp. (REG), a real estate investment trust which is engaged in the management, leasing, acquisition, development and brokerage of real estate properties consisting primarily of shopping centers and suburban office buildings, witnessed their stock’s price slip nearly 5% last week following a statement in which the company reduced their guidance for the 2Q and full-year.

Prior to last Friday’s close, Regency affirmed that the real estate trust company was lowering their outlook for the 2Q to a range of $0.60 to $0.62 per share, down from a previously stated range of $0.74 to $0.79 per share. As for full-year expectations, Regency lowered their projections as well, from a range of $3.03 to $3.28 per share, down to a range between $2.76 and $2.90 per share, before impairment charges.

In relation to the company’s downward revisions, Regency is looking to take between $7.9M and $14.1M, or $0.10 to $0.18 per share hit on declines related to net operating income. The company is also looking at a $5.4M, or $0.07 per share loss in development profits.

In other corporate news, Regency’s investment partner, Macquarie CountryWide Trust is in the process of selling a percentage of a co-owned investment, Macquarie CountryWide-Regency II LLC, for a reported $1.3B. The co-investment currently owns 86 shopping centers estimated at $1.73B.

Global Retail Investors LLC, a joint venture between the California Public Employees' Retirement System and an affiliate of First Washington Realty, Inc., has agreed in principle to acquire the majority of Macquarie CountryWide's stake. Regency does have the option to purchase the remainder of Macquarie CountryWide's interest.

As the first session of the new trading week concludes, shares of Regency managed to end the day in the green, adding $0.06, or 0.2%, to close at $29.49 per share. In the past 52 week, shares of REG have traded as high as $81.75 per share and as low as $20.72 per share.

2009 Better Trades Article

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BRIAN MULLIN