Barring a collapse in oil and gas, energy could prove to be one of the market’s top groups over the next year. Most of the stocks could easily rise 25% or more. Despite their strong prospects and the rise in petroleum prices over the past year, oil stocks sell at modest valuations. Prices of some have fallen substantially since 2007 ended. Many of the stocks are trading at levels that make them look like bargains for long-term investors, such as: BP (BP), Chevron (CVX), ConocoPhilips (COP), ExxonMobil (XOM), Marathon (MRO), Anadarko (APC), Apache (APA), Devon Energy (DVN), XTO Energy (XTO), Canadian Natural Resources (CNQ) and Suncor (SU). Given the sharply higher finding costs and the risks of dry holes, this could prompt a new wave of takeovers if the independents’ share prices don’t bounce back. Anadarko and Devon are viewed as prime targets.
Technology Trader: A theory on a break-up of Microsoft - Barron’s
This week’s column focuses on one unhappy investors thoughts on how to break up Microsoft (MSFT) and why the company should spin off the Xbox. A savvy contributor to voiceoftheshareholder.com, a Website where investors can anonymously share their analyses, recently posted a break-up analysis of Microsoft aimed at explaining why shareholders aren’t thrilled with the current state of affairs. The author, once worked for Goldman Sachs, then for a good-sized hedge fund, and now manages money on his own. His analysis, which strikes Barron’s columnist Mark Veverka as an honest and well-executed intellectual exercise, concludes that Microsoft’s entertainment and device business, primarily Xbox, is undervalued by the recent stock price of about $28. He proposes that the division, which accounted for 13% of FY08 revenues and 5% operating margins, be spun off to unlock its true value. The analyst estimates that the unit might fetch $4B in the open market. He also suggests that the money-losing online-services division, which would benefit most from a Yahoo! (YHOO) deal, also be spun off. That would leave what the contributor calls the Big Three: the business division, Windows client division and the server and tools division. The Microsoft business division and the Windows client division, he estimates the two units together are worth about $250B. The server and tools division, he pegs the value of the unit at $55B. Thus, he values the Big Three at $305B. Plus, MSFT has about $35B in cash, which raises the total value to $340B. Last, the author subtracts $79B for “other and corporate overhead,” which brings the total value of the Big Three, without entertainment devices and online services, to about $260B. That is slightly more than Microsoft’s current market valuation of $256B, which means shareholders are getting zero value for the entertainment and device outfit, the author contends.
Plugged-In: Tech bulls face a long wait - Barron’s
Some tech investors still like very long bets. Columnist Tiernan Ray says, with the current economic state of inactivity, bets on our wired future may unravel with less velocity and less fanfare, but the downward tug is once again growing notable. Ray referenced the a few situations in some of the big tech stocks - as reasons why Tech bulls will need to wait longer for a turnaround. On Google (GOOG), a question of the solvency of Google’s AOL investment raises…more questions. Answers must wait, however, until the time that either AOL is sold or the economy revives. Meanwhile, GOOG was up 5.5% on the week. On Sprint Nextel (S), the company reported yet another disappointing quarterly report, in which almost a million customers fled, sales fell 11%, profits missed expectations by a mile, and Sprint nixed its convertible offering. Sprint shares rose 7% last week. On Clearwire (CLWR), the company finds its long bets getting longer, as Clearwire said it will have no new subscribers for the rest of the year as it awaits the build-out of nationwide wireless network for high-speed mobile Internet access, based on new WiMax technology with Sprint. And lastly on SanDsk (SNDK), the company disclosed in its quarterly filing that it has broken covenants on $562M of leases for the equipment used in its joint venture with Toshiba to make chips. SNDK shares rose 14% for the week — proving that some tech investors still like very long bets.
Royal Bank of Scotland reportedly sells debt to private equity firms-FT
Royal Bank of Scotland (RBS) is selling up to $8B of its debt to private equity firms Blackstone (BX), Apollo, and TPG, inside sources said. The loans that Royal Bank is selling were used to finance acquisitions by private-equity firms. The private equity firms buying the debt could make a profit of up to 30% on the deals, according to Blackstone President Tony James.
Rule preventing naked short-selling is scheduled to expire tomorrow-FT
A rule preventing naked short-selling in 19 key financial stocks, including Fannie Mae (FNM), Freddie Mac (FRE), and Lehman Brothers (LEH), is set to expire tomorrow and the SEC has said that it will not extend the rule. The SEC is developing new proposals designed to prevent abusive short-selling in all stocks, but those measures cannot be implemented until October at the earliest.
Asian Markets Wrap-Up for Monday, August 11
Asian stocks advanced as inflation concerns eased as a result of from lower commodity prices…JAPAN: The Nikkei 225 Stock Average rose 262.50, or 2%, to 13,430.91, while the broader Topix index gained 20.07, or 1.6%, to 1,280.00. Honda Motor (HMC) was up 4.6% to Y3,630. Toyota Motor Corp. (TM) increased 4.1% to Y5,030. Sony (SNE) added 2.8% to Y4,380. Sumitomo Rubber jumped 6.4% to Y921. Toyo Tire & Rubber Co. increased 6.2% to Y310. Mitsubishi Chemical Holdings Corp. gained 5.7% to Y630. Zeon Corp.surged 10% to Y455. Fuji Heavy Industries added 6.9% to Y622. Hoya was up 6.5% to Y2,375…AUSTRALIA: The S&P/ASX 200 Index advanced 39.90, or 0.80%, to 5,026.10. Commonwealth Bank added 2.4% to A$44.48. Australia & New Zealand Banking Group (ANZBY) increased 2.5% to A$17.78. Newcrest Mining (NCMGY) dropped 8.1% to A$24.25…AROUND ASIA: In Hong Kong, the Hang Seng Index fell 25.87, or 0.1%, to 21,859.34. China Mobile (CHL) was down 1.1% to HK$99. China Shenhua Energy Co.slid 3.8% to HK$23.95. Chalco slipped 1.7% to HK$6.38. Jiangxi Copper Co. declined 3.7% to HK$11.06. Zijin Mining Group Co. lost 4% to HK$4.80. China Eastern (CEA) slumped 7.9% to HK$1.97…In Thailand, stocks advanced because of speculation that the former Prime Minister Thaksin Shinawatra will seek asylum in another country reducing political tensions.
Many consumers last to know about stolen credit card numbers-WSJ
Last week it was revealed that 40 million credit card numbers had been stolen from nine retailers. But at least two of them, Boston Market Corp. and Forever 21, failed to notify their customers, according to the Wall Street Journal. Three others, OfficeMax (OMX), Barnes and Noble (BKS), and Sports Authority, would not confirm or deny if they had. Those who almost immediately notified consumers were TJX Cos. (TJX), BJ’s Wholesale Club (BJ), DSW (DSW) and Dave and Buster’s. The U.S. has charged 11 people in the U.S. and four other countries, including the Ukraine and China, for stealing credit card numbers between 2003 and 2008.
Demand soars for Apple’s cellphone software-WSJ
“I’ve never seen anything like this in my career for software,” says Apple (AAPL) CEO Steve Jobs about the soaring demand for software for the iPhone on Apple’s new online software site, the App Store. In its first month over 60M programs have been downloaded. Many are free, but there still were over $1M a day in sales, according to the Wall Street Journal. “Who knows, maybe it will be a $1B marketplace at some point in time,” he added. LOL the recurring revenues in this biz model is outright sick!
U.S. equity futures point to a quiet open
U.S. equity futures are pointing to a quiet open as the markets digest last week’s gains. The fighting between Georgia and Russia has caused crude oil to tick higher but that would have been expected anyway given last week’s big price drop. This week’s economic calendar includes reports on advanced retail sales, CPI numbers, jobless claims, consumer confidence and oil inventory.
At UBS pressure grows for radical changes-WSJ
As UBS (UBS) prepares to report its second quarter results tomorrow, it’s write-downs for bad credit investments are expected to hit $43B, and on Friday it settled with U.S. regulators to buy back about $19B in auction rate securities.The overriding question is what the company will do to shake things up, according to the Wall Street Journal. For starters, it could sell its U.S. money management unit and separate off its investment bank.
Low short term rates are good for banks, but for how long?-WSJ
In light of the Fed’s decision last week to keep short term interest rates low–2%–means the Fed, as it has in past recessions, keeps rates low to help spur bank profits. But now, says the Wall Street Journal’s “Heard on the Street”, bank investors should remain cautious. For one, with little room to lower them anymore, the Fed could reverse course and raise short term rates.
