September 1, 2009

Data Shows an Upward Reversal

Although the markets opened in the red prior to the release of government reports before the noon-hour, investors were momentarily stimulated by influential signs from the housing markets, as well as from the manufacturing industry.

Following the announcement of several economic reports, a brief upward reversal in the markets came from data involving the manufacturing sector. In a report released by the Institute for Supply Management (ISM), the manufacturing index posted a reading of 52.9 in August, up from July’s reading of 48.9.

Tuesday’s reading marks the first time since January 2008 that the index has eclipsed a reading of 50, a number in which economists believe indicates economic expansion. The reading also signals the highest level since June 2007. Analysts were anticipating a reading of 50.5.

Another positive reading relating to the health of the nation came from the National Association of Realtors (NAR), which released their findings that showed pending home sales advanced more than expected in July, to a level not seen in more than two years.

The NAR’s index of sales contracts finalized in July for once occupied homes increased to a reading of 97.6, up 3.2% from June’s tally. July’s reading marked the sixth consecutive increase in pending home sales, while posting a 12% jump in sales from the same period a year ago.

Analysts were looking for the index to post a reading of 96.5.

On the downside of the economy, the Commerce Department made it known that construction spending in July retreated marginally, despite a stellar showing in home building in more than 10 months. The decline in spending was exacerbated by substantial weaknesses in government projects and non-residential construction.

For July, spending slipped 0.2%, which comes in on the heels of June’s marginal increase in spending of 0.1%. Economists were anticipating a flat reading for the month. July’s decline could not be overcome, despite a 2.3% increase in the construction of apartments and homes during the month. Nevertheless, residential construction remains nearly 28% below levels from a year ago.

In a light day of company earnings, one of only a handful of reports came from Plato Learning Inc. (TUTR), a leading provider of computer-based and e-learning instruction for kindergarten through adult learners. The company offers curricula involving reading, writing, mathematics, science, social studies, and life and job skills.

For the 3Q, Plato recorded net income of $184K, or $0.01 per share, compared to last year’s 3Q loss of $2.1M, or $0.09 per share. Last year’s results involved a $0.04 reduction in earnings related to restructuring charges. Revenues, meanwhile, dropped more than 10% year-over-year, falling from $18.6M to $16.7M.

In order to reverse last year’s losses, Plato took action, cutting their operating expenses by nearly 17% to $9.4M, while also seeing the cost of subscriptions, license fees and services decline to $7.1M, a drop of 23%.

On average, analysts were looking for the education software maker to post quarterly profits of $0.01 per share.

Vin Riera, President and CEO responded to the company’s report, "Our fiscal third quarter occurs during the primary buying season in the education market, and we are pleased to report strong financial results for this important period in our business. Compared to our third quarter last year, subscription orders and revenues grew at double-digit rates, gross margins improved, operating expenses declined, cash balances grew, and we achieved our third consecutive quarter of profitability."

As the first trading day in September ended, shares of TUTR were up nearly 1%, adding $0.03 to trade at $4.44 per share. Over the past year, Plato’s shares have traded as low as $0.81 per share and as high as $4.79, which was achieved during the day’s trading.

Operating as one of the largest automotive retailers in the U.S. focused entirely on the `Buy Here/Pay Here` segment of the used car market, America’s Car-Mart Inc. (CRMT) announced before the opening bell that the company’s profits for the 1Q surged as cash-strapped consumers look to the used car market for their vehicle purchases.

For the recent period, CRMT stated that the company posted a quarterly profit of $7M, or $0.60 per share, in sharp contrast to last year’s earnings of $5.3M, or $0.45 per share, a jump in net income of more than 32%. Overall earnings were bolstered by a jump in total sales that climbed from $75.7M to $83.8M, an increase of nearly 11% year-over-year.

Sales were aided by overall retail unit sales reaching more than 8,100 vehicles sold in the quarter, up nearly 11% from last year’s 1Q unit sales of just over 7,300 vehicles. Analysts, within the industry, were looking for the automotive dealer to post quarterly profits of $0.41 per share based on total revenues of $78M.

CEO William Henderson remarked on Car-Mart’s quarterly performance, "The significant infrastructure investments we have made over the last few years will allow us to support higher sales volumes at existing locations and to continue our 'grass-fire' growth approach in adding new locations,"

Henderson later added, "We believe that the tight consumer credit markets will continue to push more people into our markets, where they will find Car-Mart to be the choice for their next car purchase."

Heading into the close of the September 1 trading session, shares of CRMT surged more than 16%, adding $3.45, to end the day at $24.05 per share. Throughout the past year, Car-Mart’s stock has traded as low as $6.88 per share and as high as $23.39 per share, reached during today’s session.

Within the crude markets, the price of oil slipped during the September 1 session, giving up $1.91 to settle at $68.05 a barrel. The October contracts plunged $2.78 to settle at $69.96 a barrel to close out August’s trading.

In additional NYMEX trading, gasoline for October delivery slipped $0.0277 to settle at $1.7822 a gallon, while heating oil dropped $0.0496 to $1.7589 a gallon. Meanwhile, natural gas retreated $0.156 to $2.821 per 1,000 cubic feet.

As the markets traded lower throughout the day, the majority of bonds traded higher, as the major indices could not maintain their upward trend during the mid-morning session. By the close of trading, the benchmark 10-year note was up 9/32 to 102 4/32, while yielding 3.37%, down from the previous day’s rate of 3.40%.

The shorter 2-year note was higher as well, adding 4/32 to 100 5/32, as the yield rate slipped from 0.97% to 0.91%. Bucking the trend was the 30-year note, which slipped 8/32 to 105 7/32, while yielding 4.19%, up from yesterday’s rate of 4.17%.

Currency markets witnessed the U.S. Dollar trade higher against the major currencies on Tuesday, as the 16-nation Euro decreased in value versus the greenback, buying $1.4216, down from the previous day’s trading price of $1.4329. The Dollar also managed to gain on the British pound, as the Sterling traded at $1.6156, up from Monday’s price of $1.6266.

In other Forex trading, the Dollar traded higher lower the Japanese yen, buying 92.90, down from yesterday’s price of 92.99. However, the greenback advanced versus the Swiss franc and the Canadian dollar, buying 1.0660 and 1.1044, up from 1.0596 and 1.0946 respectfully.

By the sound of the closing bell on September 1, the major indices were all lower at the conclusion of the day, as the Dow Jones Industrial average slipped 185.68 points, or 2.0%, to end the session at 9.310.60.

Meanwhile, the S&P 500 index concluded in the red as well, falling 22.55 points, or 2.2%, to finish at 998.05, while the tech-heavy NASDAQ composite index lost 40.17 points, or 2.0%, to close at 1,968.89.

2009 Better Trades Article

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BRIAN MULLIN