December 22, 2009

Strong Home Sales Report

In a holiday shortened trading week, the major indices managed to post gains for the third consecutive day. Investors were positively influenced by a strong home sales report along with solid data referring to the continued growth in the nation’s economy.

In a tepid day of economic news, one of the few reports released showed a surge in existing home sales, which jumped 7.4% in November. The jump in sales can be directly attributed to the government’s support for homebuyers, which has pushed the monthly surge to its highest level in almost three years. November sales propelled the seasonally adjusted rate to 6.54M units, up from October’s pace of 6.09M.

Economists were looking for November’s sales to increase to an annual pace of 6.25M units. Although sales advanced, the median sale price of existing homes fell more than 4% year-over-year during the month to $172,600. The median price did increase 0.2% from October’s price.

The Commerce Department reported on Tuesday that the economy expanded at a 2.2% pace in the 3Q. Economists were looking for GDP to grow at a 2.8% rate. Although the reading came in below expectations, it marked the first quarter in a year that showed expansion.

The report also revealed that consumer spending increased at a 2.8% pace, slightly below the 2.9% clip that analysts were looking for. Furthermore, business spending advanced at a 1.5% rate, well below the 2.3% pace economists were estimating.

For the current 4Q, economists are looking for the economy to grow at a 4% clip. If that holds true, it would signify the strongest quarterly growth in GDP since a 5.4% rate in the 1Q of 2006.

In corporate news, Commercial Metals Co. (CMC), which is involved in the manufacturing, recycling, and marketing and trading of metals, announced before the bell on December 22 that the company posted a loss for the 1Q. The loss was attributed to weakened demand for steel and higher costs at the company’s fabrication and distribution divisions.

For the recent period, Commercial Metals recorded a net loss of $31.23M, or $0.28 per share, compared to a net profit of $62.01M, or $0.54 per share from a year ago. Results would have been worse if not for an after-tax gain of $17.3M, or $0.10 per share. Quarterly sales plunged to $1.45B, down nearly 39% from last year’s overall revenues of $2.37B.

Analysts, on average, were looking for Commercial Metals to post a quarterly loss of $0.04 per share on overall sales of $1.46B.

Murray McClean, CEO at CMC, commented on the company’s performance, "Our end-use markets ranged from weak to improving. We believe the worst of the economic crisis is behind us, yet the prospects for better days will be delayed by the traditionally weak winter season encompassing our second quarter."

Heading into the close of trading, shares of CMC were down nearly 6%, losing $0.94, to end the session at $16.23 per share. During the past 52 weeks, the stock has traded between $8.83 and $21.29 per share.

Also reporting before the opening bell was Lindsay Corp. (LNN), a company that manufactures and markets irrigation equipment including Zimmatic, Greenfield, Stettyn and Perrot center pivot, lateral move and hose reel irrigation systems and GrowSmart controls. Farmers use these products to increase or stabilize crop production while conserving water, energy, and labor.

Reporting for the 1Q, Lindsay managed to post net earnings of $6.7M, or $0.53 per share, compared to the prior year’s 1Q profit of $6.3M, or $0.51 per share, an increase in net income of more than 6%. Despite the increase in profits, overall sales dipped during the quarter, falling from $113.1M to $86M, a decrease in revenues of almost 24%.

On average, analysts within the industry were looking for the provider of irrigation systems and infrastructure products to post a quarterly profit of $0.24 per share on $77.4M in total sales.

Commenting on the company’s earnings release was Rick Parod, President and CEO, "Going forward, infrastructure spending continues to be uncertain due to delays in Congressional passage of a new federal highway bill. In the agricultural sector, farmer sentiment remains cautious toward capital equipment purchases. As a result, demand for the upcoming irrigation season remains unclear at this time."

Looking further inside the report, Lindsay posted an increase in gross margins, climbing from 25.3% to 30%, despite operating income falling from $11.8M to $11.2M. The company also saw a decrease in backlog orders, slipping from $40.1M in the same period a year ago to $36.1M.

With the sound of the closing bell on December 22, shares of LNN jumped more than 6%, adding $2.36, to conclude the day at $40.27 per share. Over the past year, the stock has traded as high as $47.02 per share, while dipping as low as $20.89 per share.

Lastly, Progressive Software Corp. (PRGS) revealed before the opening bell on Tuesday that the company’s 4Q earnings came in higher than a year ago, leading to an upwardly revised fiscal 2010 outlook. Progressive is a global supplier of application development, deployment and management technology, Internet and intranet enabling technologies and support services to business, industry and government.

For the recent period, Progressive posted a net profit of $16.67M, or $0.40 per share, compared to net income of $6.45M, or $0.16 per share, an increase in net earnings of 158%. Revenues for the quarter slipped marginally, falling from $139.43M to $136.79M, a drop in sales of 1.9%.

Analysts within the industry were looking for the business software maker to record a net profit in the 4Q of $0.55 per share based on total revenues of $131.9M.

As quarterly profits increased, that prompted the company to revise their 2010 yearly forecast. Progressive is now looking to post a yearly profit between $2.15 and $2.25 per share, up from a previously forecasted range of $1.72 to $1.74 per share. Revenues were also adjusted higher, to a range between $520M and $530M. The previous range was between $490M and $493M.

Analysts are looking for a yearly profit of $1.98 per share on total revenues of $528.03M.

At the conclusion of trading on December 22, Progressive shares added more than 7% in market value, gaining $1.99, to end the day at $27.88 per share. Over the course of a year, PGRS shares have traded as low as $14.69 per share, while establishing a new 52-week trading high of $28.50 per share in intraday trading.

In an announcement from the Organization of the Petroleum Exporting Countries (OPEC), output quotas remained unchanged, along with OPEC calling for greater compliance from contributing countries to curtail production as to not undermine efforts to support current prices. Output remains at 4.2 million barrels a day.

Stephen Schork, a commodities analyst and trader remarked, "The OPEC people, they follow this stuff. ... They know demand is still weak. They will take $75 a barrel. But given how precarious the situation is, they'd take $65 a barrel too if that would spur economic recovery in their clients."

James Cordier, President of Liberty Trading Group, commented, "If they can't get compliance back in the 60 and 70s (percent), oil is going to have a tough time rallying. When producing nations feel demand is good ... they comply with their quotas. When they are fearful of the future, they get oil out as fast as they can. And that's what's happening."

Following OPEC’s announcement, the price of crude remained relatively unchanged, as the February contract added $0.68 to settle at $74.40 a barrel. Monday’s session saw the January contract expire, but not before falling by $0.88 at $72.47 a barrel.

In additional NYMEX trading, gasoline added $0.02 to $1.8888 per gallon, while heating oil gained $0.008 to $1.9486. Natural gas climbed $0.046 to $5.715 per 1,000 cubic feet.

In the Forex markets, the U.S. Dollar advanced throughout Tuesday’s trading session, as the 16-nation Euro slipped against the greenback, falling to $1.4253, down from Monday’s price of $1.4289. It was the lowest price for the Euro versus the Dollar since September 1. The British pound retreated against the greenback as well, dropping to $1.5974 from $1.6052 the day before. Tuesday’s trading marked the first time since mid-October that the Sterling fell below $1.60.

In additional currency trading, the Dollar advanced versus the Japanese yen, climbing from 91.15 to 91.81. Moreover, the Dollar fell to 1.0579 Canadian dollars but climbed to 1.0485 Swiss francs from 1.0457 late Monday.

With the equity markets trading higher, investors were inclined to place their capital in riskier trades, pushing the safer, government-backed bond markets lower. By the sound of the closing bell, the benchmark 10-year note was down 18.32 to 96 30/32, as its yield advanced 0.07% to 3.74%.

Additionally, the longer maturing 30-year note was lower as well, falling 22/32 to 96 9/32, with its yield advancing from 4.56% to 4.60%. Lastly, the shorter maturing 2-year note was also down, slipping 3/32 to 99 22/32 with a yield of 0.90%, that is up 0.04% from the previous session.

As the December 22 concludes, the major indices all closed in the green, with the Dow Jones Industrial average gaining 50.79 points, or 0.5%, to finish at 10.464.93.

The S&P 500 index ended the session marginally higher, adding 3.95 points, or 0.4%, to conclude at 1,118.03, while the tech-heavy NASDAQ composite index pushed higher by 15.01 points, or 0.7%, to end Tuesday’s trading at 2,252.67.

2009 Better Trades Article

brought to you by

BRIAN MULLIN