Morning Coffee with TradingMarkets

  • January 10, 2008
  • David Penn

Good Morning!

Stocks Rally…Alcoa Posts Huge Fourth Quarter…ECB, Bank of England Leave Rates Unchanged…DuPont’s Improves Guidance…Capital One Lowers 2007 Profit Forecast…Hewlett-Packard Ready for Recession…Citi, Merrill Seeking More Capital from Foreign Governments…Poole: Fed Can Ease Without Inflation…UPS Steps Up Stock Buyback…Fed Chief to Speak on Economy Today…Asian stocks down…European stocks down…Dollar moving higher against the pound…And the futures are trending lower in the hour before the bell.

Retail sales among today’s economic announcements, with many stores already reporting lower same store sales before the open. Initial jobless claims will also be on focus for investors today. Yesterday’s market saw impressive gains in smokestack stocks like Alcoa and DuPont, companies that rely as much or more on growth in overseas markets as they do on growth in the United States. Recession-proofing was the theme of the day as companies like Hewlett-Packard worked to reassure investors that their companies earnings would be able to withstand an economic slowdown.

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TradingMarkets 5 Business Stories You Need to Know

Alcoa Profits Surge 76% – Associated Press

Shares rise the most since 2003 as sharply higher profits on lower revenues surprised analysts and easily beat expectations. Plan to sell its packaging and consumer businesses hailed. Company expects its growth to come largely from developing countries, including China and India. The Aluminum industry, with a low PowerRating of 2, is one in which investors may want to be cautious about investing. Based on their ratings, there may be better–and worse–stocks for investors in that group than Alcoa.

DuPont Boosts 2007, 2008 Estimates – New York Times

Growth in the fourth quarter and expectations of continues strong sales in developing markets had DuPont raising guidance not just for 2007 for but for 2008, as well. Higher prices for raw materials and sluggish housing market not seen as obstacles to earnings growth, according to DuPont CEO and chairman Charles Holliday. Although the industry group PowerRatings for Agricultural Chemicals suggest the group as a whole may disappoint, DuPont is one of a few just-above-average stocks that should hold its own.

Fed’s Poole: Lower Rates Without Inflation Possible – Reuters

St. Louis Fed President Poole said that the relative mildness of inflation expectations means that the Fed has plenty of room to cut rates without risking a major increase in inflation. Says odds of recession in 2008 are “high enough to worry about.”

Earnings Confidence Buoys Hewlett-Packard – Bloomberg

Without predicing recession, Hewlett-Packard says that its diversity of products will help the company withstand an economic slowdown. World’s largest maker of both personal computers and printers gets approximately two-thirds of its sales from outside the United States. When it comes to investing in this group, Hewlett-Packard is not bad. But there is an 8-rated Diversified Computer Systems stock that stands an even better chance of being higher one year from now.

Capital One Lowers Forecast – Bloomberg

Growing loan losses force company to lower profit forecast for the year by 20%. Approximately $1.9 billion in loan-loss provisions and $80 million in legal reserves were significant impact on fourth quarter earnings. Capital One is a member of the Credit Services industry, an industry with an especially high PowerRating. As such, there may be better bets in that group than Capital One for investors to consider.

» For more stories as they happen, go to our Breaking News section.

TradingMarkets 7 Stocks You Need to Know for Today

Here are 7 stocks for traders for today from TradingMarkets.com:

» For a list of today’s highest PowerRating stocks, click here.

TradingMarkets 5 Top PowerRatings Stocks for Today

Company
 Symbol PowerRatings
Savient Pharmaceuticals SVNT 10
TiVo TIVO 9
Warner Music Group WMG 8
Temple-Inland TIN 8
Sinovac Biotech SVA 8

» View More Stocks

TradingMarkets Tracking the Wizards

Hedge Fund Bets on ETrade Looking Better – Boston Globe

Investments in E-Trade by Citadel and Blackrock starting to pay off as the discount brokerage sells $3 billioin in mortgage-backed securities and municipal bonds in capital raising effort. Losses of $5 million on the sale were viewed as modest.

Meet the New Bear Stearns CEO – New York Times

An interview with Bear Stearns new CEO, Alan Schwartz, courtesy of CNBC.

Mysterious Death of Hedge Fund Manager Becomes More Mysterious – New York Times

Lurid tale of the death of former hedge fund manager Seth Tobias now includes the appearance of a “voodoo princess” along with a male go-go dancer called “Tiger” and allegations of drug-laced pasta.

» View Portfolios of Prominent Investors

TradingMarkets Playbook

Once again the issue is follow-through. While the market could move sideways and still count as a win for the bulls, a higher close would go a long way toward mending a psychology that has been battered for going on three months. The market’s most recent selling felt, to coin a phrase, “so 2007” and the way buyers stepped in out of nowhere yesterday was a very positive sign.

Larger cap stocks seem to be the place to be, with CNBC Fast Money contributor Karen Finerman of Metropolitan Capital Advisors going so far as to suggest a long SPY/short IWM strategy for weathering the first several weeks of the new year (though she admitted her fund was short both at the time). That said, the number of high PowerRating blue chip stocks, from Altria, Anheiser-Busch and Johnson & Johnson (which we own as part of our Blue Chip Portfolio, up more than 10% since inception on August 1) to Costco, Google (another holding in our Blue Chip Portfolio) and Research in Motion supports the idea of their being opportunity in the bigger names.

In the short term, any bounce in the market means that strong stocks will be finding support and weak stocks will move closer and closer to resistance. Larry Connors’ primer, “Five Mistakes To Avoid in a Market Trading Below its 200-Day Moving Average”, is a worthwhile re-read if you need a reminder that not all stocks are out of the woods yet.

David Penn is Senior Editor at TradingMarkets.com.

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