November 3, 2009

Warren Buffet Buys Burlington Northern Santa Fe

The markets trended lower during much of the November 3 trading session, despite news that financial mogul, Warren Buffet, and subsequently Berkshire Hathaway, would purchase one of the nation’s largest railroad operators, Burlington Northern Santa Fe (BNI) for a reported $34B. Investors were also not swayed by a positive reading for factory orders, which in the long run, is one of the largest contributors to an economic recovery.

In economic news, the Commerce Department announced early Tuesday morning that orders to U.S. factories increased 0.9% in September, marking its fifth advance in the past six months. The increase, which came in slightly better than the 0.8% advance economists were looking for, may ignite hopes within the manufacturing industry that may aid in the economic recovery.

Demand for both durable and non-durable orders increased during the month, with durable orders jumping 1.4%, while non-durables gained 0.6%, after slipping 0.9% in August. The push higher in demand for factory orders was led by the need for heavy machinery, which surged 7.9%, its largest one-month gain within the past year-and-a-half.

A full slate of company earnings were released on Tuesday. Announcing before the opening bell, Archer Daniels Midland Co. (ADM) revealed that the world leader in agricultural processing and fermentation technology witnessed net profits plummet during the recent quarter. Despite the continual battle with the global recession, the economic woes of the world were too much to overcome, as demand for crops and ethanol weakened.

For the 1Q, Archer Daniels posted a net profit of $496M, or $0.77 per share, a far cry from last year’s 1Q earnings of $1.04B, or $1.62 per share, a decrease in year-over-year net income of 53%. Revenues during the period fell from $21.16B to $14.92B, a decline in overall sales of more than 29%.

Analysts, on average, were looking for ADM to post a quarterly profit of $0.57 per share on total revenues of $17.92B. Trading within a range between $20.00 and $32.13 per share over the past year, Archer Daniels’ stock advanced by the close of the November 3 session. Shares added $1.39, or 4.6%, to conclude the day at $31.91 per share.

One of the world’s most renowned companies in the design, marketing and distribution of premium lifestyle products, Polo Ralph Lauren Corp. (RL), confirmed that net earnings increased over last year’s results, thus prompting the company to reaffirm full-year projections. Reporting for the 2Q, Ralph Lauren booked a net profit of $178M, or $1.75 per share, up from the previous year’s earnings of $161M, or $1.58 per share, an increase of almost 11%.

Net sales dipped year-over-year, falling from $1.43B to $1.37B, a decrease in overall revenues of just over 4%. On average, analysts within the industry were looking for the fashion company to post a quarterly profit of $1.31 per share based on overall sales of $1.31B.

Roger Farah, Polo's President and COO, commented on the company’s results, “Our results have exceeded our expectations for the first half of the year, reflecting market share gains across products and regions and disciplined operational management. We are raising our sales expectations for the remainder of the year, but we continue to be cautious with our outlook and are planning accordingly."

With the day’s trading concluded, shares of Polo Ralph Lauren added more than 2% by the close, gaining $1.76 to end the session at $78.47 per share. Over the course of a year, the company’s stock price has ranged between $31.22 and $80.45 per share. The day’s closing price sits a little more than 2% below the company’s 52 week high, which was established during the final trading week in October 2009.

Providing a critical economic link among financial institutions, businesses, cardholders and merchants worldwide, MasterCard Inc. (MA) made it known prior to the commencement of trading that the company recorded a profit during the 3Q, after a net loss in the same period from a year ago. Results were influenced greatly by the company’s continued effort to reduce costs, as well as an increase in the number of transactions processed.

For the period, MasterCard booked a net profit of $452.2M, or $3.45 per share, compared to the previous year’s net loss of $193.6M, or $1.48 per share. Last year’s loss reflected an $827.5M charge regarding an antitrust settlement. Revenues during the quarter inched higher, climbing from $1.34B to $1.36B. Transactions processed, which helped revenues, increased by 8% to total more than 5.8B, while operating expenses declined 13% to $685M.

Analysts were looking for the world’s second largest credit card corporation to post a quarterly profit of $2.94 per share based on total sales of $1.35B. Despite the better-than-expected earnings results, shares of MasterCard slipped in trading. By the sound of the closing bell, MasterCard’s price fell nearly 2%, or $3.45, to end the session at $219.20 per share. During the past year, the stock has traded as high as $232.25 and as low as $113.05 per share.

The price of oil continues to trade sporadically, as investors remain cautious as to the strength of the economic recovery, which most definitely affects crude demand. Following a jump of $1.13 per barrel on Monday, Tuesday’s trading surged as well, as the December contract gained $1.47 to settle at $79.60 per barrel.

In additional NYMEX trading, heating oil added $0.0273 to $2.0733 a gallon, while gasoline for December delivery gained $0.0132 to $2.0035 a gallon. Natural gas for December delivery advanced $0.098 to $4.922 per 1,000 cubic feet.

Peeking inside Forex trading, the U.S. Dollar advanced for the most part against the world’s currencies, as potential restructuring within the major banks in Europe added to the attractiveness of the greenback. Heading into the early evening hours, the 16-nation Euro slipped to $1.4716, down from Monday’s price of $1.4753. Meanwhile, the British pound increased in value against the Dollar, as the Sterling bought $1.6419, down from the previous session’s price of $1.6383.

In additional currency trading, the Dollar retreated to 90.33 Japanese yen from 90.35 yen, while the greenback slipped to 1.0673 Canadian dollars from 1.0791 late Monday. However, the Dollar managed to advance to 1.0263 Swiss francs from 1.0236 francs.

Despite the equity markets trading in negative ground throughout the majority of the session, investors still shied away from the safer, government-backed securities. At the close of trading, the benchmark 10-year note slipped 16/32 to 101 8/32, while yielding 3.47%, up from the previous session’s rate of 3.41%.

Additionally, the longer maturing 30-year note retreated as well, falling 1 7/32 to 102 22/32, as its yield advanced to 4.33%, up from Monday’s 4.26%. Lastly, the shorter 2-year note was marginally higher, up 1/32 at 100 5/32, with its yield slipping 0.01% to 0.92%.

By the sound of the closing bell on November 3, the markets were mixed after trading in negative ground for the majority of the session, with the Dow Jones Industrial average falling 17.53 points, or 0.2%, to conclude the session at 9,771.91.

The NASDAQ composite index advanced by 8.12 points, or 0.4%, to finish at 2,057.32, while the S&P 500 index gained 2.50 points, or 0.2%, to end at 1,045.41. Last Friday’s loss pushed the S&P to a 2% loss in October, but remains more than 53% above its 12-year low back in March.

2009 Better Trades Article

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BRIAN MULLIN