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.
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.
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.
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.
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