Thursday, April 17, 2014

Markets inch higher ahead of the long weekend

Dow was off 16, advancers over decliners 3-2 & NAZ rose 9.  The MLP index jumped 2+ to the 482s for a new record (up 20 YTD) & the REIT index lost 1 to the 289s.  Junk bond funds were little changed to lower & Treasuries retreated.  Oil advanced to near its highest level in the last year.  Gold fell as signs of gains in the US economy eroded demand for the metal.

AMJ (Alerian MLP Index tracking fund)

Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLK14.NYM....Crude Oil May 14....104.29 Up ...0.53 (0.5%)

Live 24 hours gold chart [Kitco Inc.]

Google isn’t immune to setbacks caused by the global shift to mobile computing.  Costs are rising & it said yesterday that revenue, excluding sales passed on to partners, was $12.2B in Q1, another stumble as the company missed a projection for $12.3B.  GOOGL’s audience is migrating to smartphones, where the company gets less ad money for marketing spots than on desktops & tablets.  While CEO Larry Page boosted the number of promotions by 26%, average prices slipped 9%.  EPS was $5.04, slightly ahead of $4.97 a year earlier.  CFO Patrick Pichette said that the increase in operating expenses was largely tied to legal costs & other spending related to acquisitions, especially of home-automation service provider Nest Labs.  The search company is in good shape amid rising revenue and healthy profits, he said.  “There you have it: strong results -- and the optimism that provides us the confidence to fund strategic growth opportunities,” Pichette added.  Still, smartphones are dragging down prices for digital ads, with smaller screens limiting the number of promotions that can be displayed, while marketers are becoming more selective in using them.  The cost per click for search advertising on smartphones dropped 35% in the US during Q1, according to researcher IgnitionOne.  Tablets, which have larger screens & are more like traditional desktops, saw ad prices rise 29%.   The stock dropped $20+.  If you would like to learn more about GOOGL, click on this link for Trend Analysis: 

Google Sales Miss Underscores Challenges of Mobile Transition

Google (GOOGL)

Pepsico, a Dividend Aristocrat, boosted profit more than estimated in Q1 & increased revenue for snacks & beverages globally, excluding the negative impact from currency fluctuation.  The results will help the company fend off calls to separate its dominant snacks business from the struggling North American beverages unit.  The company’s board has stood firm against pressure to split up, allow more focused marketing & spur faster growth.  The company responded with a pledge to improve performance & cut $5B in costs over 5 years starting in 2015, extending a plan already under way.  Organic revenue, which strips out currency fluctuation & the effect of structural changes, rose 5% for snacks globally & 3% for beverages.  EPS excluding some items totaled 83¢, beating the estimate of 75¢.  “Investors are likely to be very happy with what they are seeing out of PepsiCo right now,” CFO Hugh Johnston said.  “I don’t know why you’d want to disrupt it.”  Revenue advanced 0.3% to $12.6B, beating the $12.4B estimate & EPS increased to 79¢ from 69¢ last year.  PepsiCo Americas Beverages volume was little changed, an improvement from a 3% decline a year ago.  A 1% soft drink decline was offset in part by a 2% increase in non-carbonated beverages in North America.  In Latin America, declines in Mexico spurred by new soft drink taxes depressed volume by 1%.  The stock rose 78¢.  If you would like to learn more about PEP, click on this link for Trend Analysis:

PepsiCo Quarterly Net Rises 13%, Giving CEO Respite From Peltz’s Pressure

Pepsico (PEP)

General Electric's, a Dow stock, new focus on oil and gas equipment helped the company to post strong Q1 results.  Lower overall net income than a year ago was due to the sale of NBC Universal.  The industrial divisions, especially oil & gas, performed well & that the global economic environment was improving.  "U.S. gets a little bit better every day. Europe is improving. The growth markets continue to expand and will provide growth during the year even with volatility," said CEO Jeff Immelt.  The company earned $3B on revenue of $34.18B, down from $3.5B on revenue of $34.94B during last year.  On a per share basis, EPS was 30¢.  Adjusted to reflect continuing operations & remove the effect of one-time charges, EPS was 33¢.  GE calculates that EPS rose 9% compared with last year, when the sale of NBC Universal & other items are removed.  Analysts expected EPS of 32¢ on sales of $34.45B.  GE sold its remaining interest in NBC Universal last year as part of a new focus on building & servicing big, complicated industrial equipment such as aircraft engines, power plant turbines & oil & gas drilling equipment.  The next step in that direction will be to complete a public offering of its consumer credit card division, expected later this year.  Operating profit from industrial operations rose 12%, as strong growth in their bigger units made up for lackluster results in smaller ones.  Oil & gas profit rose 37% to $446M.  GE had been a relatively small player in oil & gas equipment until it started buying companies 5 years ago.  The company is still working to cut costs in what it calls a "simplification" effort.  It expects to cut costs $254M in Q2, on its way to a goal of cutting $1B in costs for the year.  The stock rose 44¢.  If you would like to learn more about GE, click on this link for Trend Analysis:  

GE 1Q earnings fall, outlook strongAP

General Electric (GE) 

stock chart

Traders were not anxious to take major new positions going into a 3 day weekend with Putin on the loose.  There was buying today on hopes that situation is calming down, but I don't think so.  Putin is calling the shots with the US & euro powers only following him.  Earnings came in a little better today, although sluggish revenue growth is a nagging problem that is not going away.  Dow remains down about 270 YTD.

Dow Jones Industrials

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Markets rise cautiously after weak earnings from Dow stocks

The Dow inched up pennies, advancers ahead of delciners almost 3-2 & NAZ added 11 after recent weakness.  The MLP slipped 1 to the 479s & the REIT index lost 1 to the 289s.  Junk bond funds went up while Treasuries pulled back.  Oil & gold fluctuated.

AMJ (Alerian MLP Index tracking fund)

Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLK14.NYM...Crude Oil May 14...103.89 Up ...0.13 (0.1%)

GCJ14.CMX....Gold Apr 14........1,301.00 Down ....2.10  (0.2%)

The number filing for unemployment insurance last week hovered near the lowest level in almost 7 years, showing the job market is making progress.  Jobless claims increased only 2K to 304K from a revised 302,K in the prior week (the lowest since Sep 2007), according to the Labor Dept.  The forecast called for an increase to 315K.  The total number receiving benefits fell to the lowest since the last recession began.  Dismissals are on the decline as companies, already lean from recession-era job cutting, gear up for rising sales as the economy strengthens.  Even with the improvement, Federal Reserve Chair Janet Yellen said yesterday that policy makers must be mindful of how short the US still remains of achieving its goals of full employment & price stability.  The 4 week average dropped to 312K, the lowest since Oct 2007, from 317K in the week.  Claims may be in for some bigger swings in coming weeks as the Easter holiday can complicate the adjustment of claims data for seasonal variations.  The number continuing to receive jobless benefits declined 11K to 2.74M, the fewest since Dec 2007.  The unemployment rate among those eligible for benefits held at 2.1%.

Jobless Claims in U.S. Hover Near Lowest Level Since 2007

Cloud Services
Photo:   Bloomberg

IBM, a Dow stock, Q1 revenue slid 3.9% to $22.5B, falling short of estimates amid declining demand for hardware & waning sales in developing countries. Adjusted EPS fell to $2.54, in line with estimates.  Now, the computer-services provider has to make up more ground to end the year with an increase in profit as it shifts its business from hardware to cloud computing & data analysis.  IBM reiterated its projection for 2014 adjusted EPS of at least $18, even as sales fall.  Analysts had estimated $22.9B in sales.  Profit was hurt by an $870M charge for job cuts.  The company is banking on a strong comeback.  In each of the past 3 years, Q1 earnings have made up 18% of full-year results.  If IBM stock earns $18 this year, Q1 will have represented just 14% of the total.  By the end of Jun, IBM will be 38% toward its profit goal, similar to last year, CFO Martin Schroeter said.  That implies Q2 EPS of $4.21-$4.39 a share, compared with the estimate of $4.39.  The company didn’t raise its profit goal for 2014 even though it cut its forecast for this year’s tax rate to 20% from 23%.  IBM is targeting adjusted EPS of $20 by 2015, up from $11.67 in 2010.  To get there, the company has tried to shift the focus to cloud services & data analytics to keep up with changes in the industry.  Technology customers are increasingly storing data & software on cloud-computing networks, rather than onsite, limiting their need for servers & mainframes.  IBM spent more than $1B to create a new group around its Watson technology, which analyzes large troves of data in plain English.  Cloud revenue grew more than 50% in Q1, & cloud offerings delivered as a service are now at an annual run rate of $2.3B. But that’s still a fraction of total $100B in revenue last year.  The stock sank 7.40.  If you would like to learn more about IBM, click on this link:

IBM Sales Fall Again, Pressuring Rometty’s Profit Goal

International Business Machines (IBM)

UnitedHealth, another Dow stock, Q1 profit fell 7.8%, hurt by cuts to its Medicare Advantage program for elderly & disabled Americans.  EPS decreased to $1.10 from $1.16, a year earlier.  But EPS beat by a penny the $1.09 estimate.  UNH has derived growth from Medicare & has the biggest program among publicly traded insurers, with 3M enrollees.  This month, the gov implemented a 2nd round of cuts to Medicare Advantage, insurers’ private version of the program, as required under Obamacare.  Its actuaries have said the cuts will result in a decline in enrollment for the first time since 2004.  The cuts, along with the impact of sequestration & other health reform fees, reduced EPS by about 35¢.  UNH estimates that total cuts to Medicare Advantage in 2015 will be 3-3.5%, CEO Stephen Hemsley said, calling the final rate cut “somewhat disappointing.”  Revenue rose to $31.7B from $30B a year ago, as its Optum technology business helped to offset the Medicare Advantage cuts.  While it has limited exposure to the public exchanges, its Optum unit has been credited with helping to fix the federal website for Obamacare plans, & has since been hired by several state websites.  Revenue from the Optum unit jumped 29% to $11.2B.  The stock fell 2.53.  If you would like to learn more about UNH, click on this link:

UnitedHealth First-Quarter Profit Falls on Medicare Cuts

UnitedHealth (UNH)

Stocks lost the forward momentum from the earlier this week.  Earnings from big name companies have disappointed with more mentions of lower sales.  Overall, earnings are mixed & Putin is out there threatening peace in eastern Europe.  Anything can happen over the long weekend & with the markets closed tomorrow,  traders will be adjusting positions today.

Dow Jones Industrials

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