Tuesday, January 22, 2013

Markets rise cautiously on earnings reports

Dow rose 62 with buying into the close, advancers over decliners 2-1 & NAZ was up 8.  The Financial Index added 2 to the 233s, another multi year high (although well below the 500+ record highs reached in the good old days).   The MLP index rose an astounding 5+ to 426 (up a staggering 48 this year) & the REIT index gained 1+ to 279, an over 4 year high.  Junk bond funds were higher & Treasuries edged up.  Oil increased to a 4-month high as German investor confidence climbed more than expected & intl optimism about equities gained.  Gold rose after the Bank of Japan announced stimulus measures, increasing demand for the precious metal as a store of value.  

AMJ (Alerian MLP Index tracking fund)

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Treasury Yields:

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Live 24 hours gold chart [Kitco Inc.]

Soft demand for a key industrial pigment & solar energy products, coupled with increased spending on growth initiatives, led to a sharp drop in DuPont, a Dow stock, Q4 income.  But results still beat the estimate of 7¢ on revenue of $7.2B.  CEO Ellen Kullman said the company is stronger than it was a year ago, having recorded nearly 2300 new product introductions in 2012, an increase of 30%.  "However, weakness in markets served by performance chemicals and electronics and communications provided significant challenges in 2012," she said.  "We've adjusted our plans to meet the changing market environment and grow our businesses in a slow-growth world economy."  EPS was 12¢, down from 40¢ in Q4 - 2011.  Revenue was flat at $7.3B, with currency effects & portfolio changes offsetting a 3% increase in global volumes.  Sales in Latin America grew 10%, with an 8% volume gain & a 7% increase in local prices.   A 6% increase in volume in the Asia-Pacific region, was offset by negative currency & pricing effects.  For 2012, EPS was $2.95 on revenue of $34.8B, down from the prior year's EPS of $3.68 on revenue of $33.7B.  Sales volume fell 2%.  The company expects operating EPS excluding significant items will range from $3.85-$4.05 in 2013, up from $3.77 per share last year.  Q4 performance was led by the agricultural unit, which saw sales increase 18% to $1.5B on 11% higher volumes & 7% higher prices.  Full-year sales for the agricultural unit were up 14% to $10.4B on 8% higher volume & 6% higher prices.   Agriculture remains a key focus in company growth initiatives.  The stock rose 83¢.

DuPont reports 4Q earnings dropped AP

DuPont (DD)

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Verizon Earnings Fall as Discounts Yield New Subscriber Record

Photo:   Bloomberg

Verizon, another Dow stock, missed earnings estimates after a record number of new wireless subscribers led to a surge in profit-squeezing smartphone subsidies.  Q4 EPS fell to 45¢, excluding one-time costs such as 7¢ in expenses from Superstorm Sandy.  Analysts had estimated EPS of 50¢.  Verizon Wireless, the company’s mobile-phone business, added 2.1M monthly contract users, with 87% signing up for smartphones.  VZ had warned this month that subsidies on the phones would cut into profit.  The company relies on the payouts to make high-end models more affordable & entice customers into signing up for 2-year contracts.  "We made a concerted effort to go after more business in wireless,” Chief Financial Officer Fran Shammo said.  “As a result, we posted historical net subscriber additions."   Q4 sales climbed 5.7% to $30B, in line with the $29.8B predicted.  The company posted a net loss of $4.23B, largely because of a pretax charge of $7.19B to cover severance & benefit expenses & adjust the value of pension liabilities.  6.2M iPhones were sold in Q4, double the number in Q3, along with 3.6M Android phones.  The stock went up 40¢.

Verizon Earnings Fall as Discounts Yield Customer Record

Verizon (VZ)

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Spanish Economy Minister Luis de Guindos said exceptional demand for a new Spanish 10-year bond today showed there was renewed confidence in the country's economy.  Demand for the bond had reached €24B ($32B) at midday, something that "has never been seen in the history of the Treasury."  But the Treasury has yet to disclose how much of the bond it will sell.  Spain's borrowing costs have dropped sharply over the past few months after the ECB offered to buy short-term bonds of those countries struggling with their debts if they apply for aid & submit to an economic reform program.  Spain hasn't applied but the possibility that it could, & get ECB help, has shored up the country's bond prices.  On the secondary market, the benchmark rate for Spain's 10-year bonds was down 6 basis points at 5.08%.  A few months ago, they were trading over 2 percentage points higher & around the levels that prompted other countries, such as Greece & Portugal, to seek an intl bailout.

Spain cheered by high demand for new 10-year bond AP

While stocks are higher, they are not rising in a convincing fashion.  Earnings reports are getting limited cheers because they are not all that good.  The idea is that higher sales are supposed to bring higher profits.  But that concept has been forgotten.  MLPs are flying.  The increase for the index this year already represents an outstanding year.  And we are only 3 weeks into the new year.  I like MLPs, but that kind of rise gets me worried about MLPs & the overall stock market.  Investors are chasing yields & higher prices are bringing the index yield below 6%.  That has indicated topping in the past.

Dow Jones Industrials

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