August 8, 2009

Investors Hungry for Economic Data

The start of August’s trading was mixed by the close, as investors remain hungry for additional economic data to verify that an economic recovery is on the move. Following Monday’s increase in the markets, which extended the summer’s rally, the August 4 session failed to impress investors despite positive government reports.

With a recent rise in the markets over the past several weeks, consumers have taken notice that a possible stabilization within the economy, allowed buyers to be a little less frugal in June. In a report from the Commerce Department, consumer spending advanced 0.4% in June, posting back-to-back monthly increases, despite overall incomes declining sharply during the month.

As mentioned above, personal income for consumers retreated 1.3% during June, after increasing by the same amount during the prior montah. The decline was slightly higher than the 1% drop economists were anticipating.

A by-product of an increase in consumer spending is the decline in the personal savings rate, which decreased to 4.6% during June, after surging to 6.2% in May. May’s reading marked the highest reading since February 1995 and dipped to as low 1% at numerous times last year.

Continuing on a five-month streak, the National Association of Realtors confirmed that the pending home sales index advanced in June to 94.6, up 3.6% from May’s revised reading of 91.3. Today’s news is yet another encouraging sign that the housing market could be stabilizing.

The last time there were five successive monthly gains in pending home sales was in July 2003. Economists were looking for the sales index to come in at 91.2.

In corporate news, the nation's premier integrated pharmacy services provider, CVS Caremark Corp. (CVS), announced 2Q results in which profits advanced on the backs of higher revenues.

Combining one of the nation's leading pharmaceutical services companies with the country's largest pharmacy chain, CVS posted net earnings of $886.5M, or $0.60 per share, compared to the previous year’s profits of $771.2M, or $0.53 per share, an increase in net income of nearly 15%.

Quarterly revenues were the key catalyst to the company’s higher profits, climbing from $21.14B a year ago to $24.87B, an increase of almost 18%. On average, analysts within the industry were looking for the drugstore operator to post quarterly earnings of $0.64 per share on total sales of $24.41B.

"I'm very pleased with our second quarter results, which were at the high end of our expectations. We saw solid revenue growth and cost control across our businesses, which led to 8% operating profit growth after one-time costs for the Longs integration. This is shaping up to be a very good year and we expect an even better 2010," commented Tom Ryan, Chairman, President and CEO of CVS Caremark.

By the sound of the closing bell, shares of CVS traded relatively flat, adding $0.01 to end the day at $34.01 per share. Over the course of a year, shares of CVS have traded as high as $39.34 and as low as $23.19.

Considered a world leader in agricultural processing and fermentation technology, Archer Daniels Midland Co. (ADM) made it known before the opening bell on August 4 that the company’s profits for the 4Q plummeted year-over-year. The decline was directly attributed to external pressures placed upon the company by higher corn costs, weakened demand and lower selling prices.

For the recent period, ADM recorded net income of $64M, or $0.10 per share, in sharp contrast to a profit of $372M, or $0.58 per share a year ago, a decrease in earnings of nearly 83% year-over-year. Furthermore, quarterly sales retreated as well, falling from $21.78B to $16.53B, a drop in revenues of more than 24%.

"In the fourth quarter, we felt the impact of the global economic downturn, as we concluded a year of good performance overall. In this downturn, we used our strong balance sheet and cash flow to make strategic investments to build long-term value," stated Patricia Woertz, Chairman and CEO of Archer Daniels.

Analysts, on average, were looking for the agriculture commodities and products processor to post quarterly earnings of $0.45 per share on overall revenues for the period of $15.23B.

For the year, ADM’s net income slipped 5%, falling from $1.8B, or $2.79 per share, to $1.71B, or $2.65 per share. Annual sales inched lower as well, declining from $69.82B to $69.21B.

Shares of Archer Daniels dropped by the close of the markets on August 4, giving up $1.58, or 5.2%, to finish the session at $28.81 per share. Despite the down day, the stock remains only 10% below the company’s yearly high of $32.13.

With more than 5,000 characters in their library, Marvel Entertainment, Inc. (MVL) is one of the world's most prominent character-based entertainment companies. Prior to the opening bell on August 4, Marvel confirmed that profits for the 2Q receded due in large part to lowered license revenues.

During the quarter, Marvel posted net income of $29M, or $0.37 per share, versus the previous year’s profits of $46.7M, or $0.59 per share, a decrease in earnings of nearly 38%. Without revenues generated from last year’s blockbusters “Iron Man” and “The Incredible Hulk,” Marvel’s sales slipped almost 26%, from $156.9M to $116.3M.

In the meantime, analysts within the industry were looking for the movie, licensing and comic-book publishing company to book quarterly profits of $0.31 per share on total revenues of $105.8M.

Commenting on the company’s recent performance was Morton Handel, Chairman of Marvel, "Marvel's solid (second-quarter) operating results reflect the strength of our core businesses supported by the growing global exposure of our corporate and character brands."

Looking ahead, Marvel is looking to record yearly earnings between $1.25 and $1.35 per share, up from their previously stated range of $1.10 to $1.35. Annual sales are expected to come in between $465M and $485M, with their lower end being increased from $450M. Analysts, on average, are projecting yearly results from Marvel to be $1.35 per share on total sales of $484.6M.

Despite the company’s upwardly adjusted yearly expectations, investors were not influenced by their remarks, sending the stock lower by the close. With trading concluded, shares of MVL were down $0.36, or 0.9%, to finish the session at $40.05 per share.

Although the stock has traded as low as $22.82 over the past year, shares did manage to establish a new 52-week trading high during Tuesday’s session, reaching $41.74 per share, before slipping to its closing price.

Following a 3% surge in the price of crude during the August 3 trading session, the price of oil slowed the next day, as investors were content with taking profits prior to today’s trading. By the sound of the closing bell, the price for a barrel of light, sweet crude for September delivery slipped $0.16 to settle at $71.42 a barrel.

In additional NYMEX trading, gasoline for September delivery retreated $0.0126 to $2.0567 a gallon, while heating oil added $0.0301 to $1.9014. Natural gas for September delivery declined $0.03 to $4.001 per 1,000 cubic feet.

As the markets continue to pad their gains, the U.S. Dollar has begun to trade in the opposite direction. By late afternoon, the 16-nation Euro slipped to $1.4398, down from the previous day’s trading price of $1.4408, as well as lower than the $1.4445 price reached during the August 3 session.

Meanwhile, the British pound briefly reached a 10-month high of $1.7004, before scaling back to $1.6934, up from Monday’s price of $1.6922. It was the first time since October that the pound eclipsed the $1.70 mark.

In additional Forex trading, the greenback traded lower versus the Japanese yen, buying 95.22, down from the prior day’s closing price of 95.31.

Treasury prices declined on Tuesday, following the previous session’s losses and the government’s reports that revealed an increase in consumer spending and pending home sales. At the conclusion of trading, the benchmark 10-year note fell 11/32 to 95 15/32 while yielding 3.68%, up from the previous rate of 3.63%.

Meanwhile, the longer-termed 30-year note retreated as well, slipping 27/32 to 96 18/32, as its yield advanced from 4.40% to 4.45%. Lastly, the 2-year note inched lower, giving up 1/32 to 99 19/32 while yielding 1.20%, up from the prior day’s rate of 1.18%.

By the sound of the closing bell, the Dow Jones Industrial average gained 33.64 points, or 0.4%, to end the day at 9,320.19, adding to the previous session’s gain of nearly 116 points, or 1.3%.

The broader market indicators advanced on the day as well, as the S&P 500 index added 3.00 points, or 0.3%, to close at 1,004.80, the second consecutive day that the index has finished above the 1,000 level. The August 3 close marked the first time that the index ended above that level since early December.

Finally, the tech-heavy NASDAQ composite index remained near breakeven for much of the day, before ending the session marginally in the green, adding 2.70 point at 2,011.31.

2009 Better Trades Article

brought to you by

BRIAN MULLIN