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With Dow at 11,000, will real estate cash move to stocks?
Saturday, January 14th, 2006NEW YORK - Bruce McMeiken has had a good run investing in real estate near his Orange County, Calif., home. Now, however, he thinks there’s a better place for his money: the stock market.
“I don’t think we’re all the way back yet in stocks, but I believe there’s some good bargains out there,” said McMeiken, a one-time dot-com executive. “Real estate’s been good, and I don’t think you’re going to see that bubble completely burst, but I think it’s time to look at stocks again.”
Like other investors in the first half of the decade, McMeiken had success investing in real estate. But with sales slowing and home prices flat, there’s a concern that the real estate market is cooling. And with bonds experiencing worrisome trends and increased volatility, and the Dow Jones industrial average topping 11,000 this past week, investors have increasingly focused on stocks.
“We’ve already seen individual investors showing some signs of interest in the fourth quarter, and something like Dow 11,000 just increases that interest,” said Jeff Kleintop, chief investment strategist for PNC Financial Services Group in Philadelphia. “This week could be the shot in the arm people need to really get back in again.”
Since the dot-com bubble burst in 2000-01, the housing market has taken off. The number of home sales climbed steadily since 2001, the last time the Dow was at 11,000. And while the Dow eventually fell to 7,286.27 on Oct. 9, 2002 – the nadir of the bear market – home prices have doubled or even triple in some areas, such as New York, San Francisco and southern California.
Yet recent evidence suggests the housing market is slowing. Existing home sales are expected to fall 4.4 percent in 2006 after years of record sales, while new construction is expected to drop 6.6 percent, according to the National Association of Realtors. And the median price of a home, forecast to rise 12.9 percent for 2005, is expected to climb just 5.1 percent this year – a solid increase, but small compared to the ones real estate investors have enjoyed over the past few years.
“Baby boomers are turning 60, and they’re working to build up those nest eggs for retirement. For some that are running behind, that means putting at least some of that nest egg into more aggressive investments,” said David Kelly, senior economic adviser at Putnam Investments in Boston. “For a while, that was real estate or high-yield bonds. Not anymore.”
Investor confidence in high-yield bonds has been shaken over the last year as the at-risk companies that issue them have struggled – just look at General Motors Corp.’s bonds, which tumbled in value, or those of Refco Inc., the one-time financial services darling that fell into bankruptcy after its chief executive allegedly hid $430 million in bad debts off the books.
Even government bonds have been volatile, with the yield curve inverting in the last week of 2005. Normally, long-term bonds like the 10- or 30-year yield more than a two-year or shorter-term note, because the government is borrowing the principal longer. But when the curve inverted, the two-year had better returns than the 10-year and increased investors frustrations.
That leaves stocks. According to Kleintop, earnings per share for companies listed in the Standard & Poor’s 500 index have risen 46 percent since 2001 and dividends per share are up 39 percent.
Yet a stock’s value, measured by comparing its price to potential earnings, has declined. In 2001, stocks were priced at about 22.2 times forward earnings, compared to 13.8 times forward earnings today, Kleintop said.
In other words, while a given stock may have risen or fallen over the past five years, stock investors could get more for their dollar overall on Wall Street.
There’s evidence that investors are already moving back to stocks. Mutual fund companies reported strong inflows through the second half of 2005. And in the first two weeks of 2006, E-Trade Financial Corp. said it has seen a 50 percent increase in walk-in traffic at its New York financial center. On Monday, when the Dow first topped 11,000, E-Trade’s trading traffic saw a two-year high.
“I definitely think you’re seeing more investor confidence in the marketplace,” said Michael Curcio, executive vice president for retail at E-Trade. “But it’s also a different kind of investor than we saw during the dot-com bubble.”
In the 1990s, investors jumped on anything in the tech sector, regardless of whether the companies even planned to turn a profit in the near future. That exuberance, which was all but destroyed when the tech-focused Nasdaq dropped 78 percent in just 2 1/2 years, has been replaced by a new appreciation of well established, profitable, dividend-paying companies.
“It’s not a sector play. There’s no real huge leader like tech was in the ‘90s,” Kleintop said. “It’s about finding the right company with a compelling story.”
Wall Street finishes at 4-year highs
Saturday, November 19th, 2005NEW YORK — A late rebound gave Wall Street modest gains Friday as two acquisitions and upbeat earnings from Hewlett-Packard Co. helped lift the major indexes to four-year highs. The major indexes had their fourth straight winning week.
Lower oil prices also help stocks, easing worries about consumer spending ahead of the holiday shopping season. But many analysts remain split over whether the market will have its usual year-end rally, and trading has become erratic as mixed economic and earnings data has left investors wondering about the economy’s health.
“You’ve had a pretty good run off the October bottoms,” said Russ Koesterich, senior portfolio manager at Barclays Global Investments. “But there really are no major catalysts to help support the market coming into these levels.
“You don’t want to read too much into a Friday of late November,” he added.
Crude futures fell to five-month lows although approaching winter weather still has many concerned about oil and gas supplies. A barrel of light crude dropped 20 cents to settle at $56.14.
Soros raises stake in Microsoft, Motorola
Tuesday, November 15th, 2005SAN FRANCISCO (AFX) – Billionaire George Soros’ investment fund reported major increases in holdings of Microsoft Corp and Motorola Inc.
Soros Fund Management LLC reported an increase in ownership of software giant Microsoft to about 1.85 mln shares in the quarter ended Sept 30, compared with 790,000 shares in the previous quarter, in its quarterly filing with the SEC.
Soros also reported owning almost 633,000 Motorola shares, up from 55,200 in the previous quarter.
Overall, the company reported a 2.6 bln usd portfolio of securities for the quarter ended Sept 30. That figure is up 44 pct from the previous quarter’s report of about 1.81 bln usd, according to SEC filings.
In health-related stocks, the portfolio reported owning 43,000 Pfizer Inc shares, compared with almost 250,000 the previous quarter.
The fund also reported owning almost 378,000 UnitedHealth Group Inc shares, up from 19,300 the previous quarter.
Company spokesmen weren’t available Monday night to explain the holdings shifts.
This story was supplied by MarketWatch. For further information see www.marketwatch.com.
U.S. incomes up 1.7%, inflation up 0.9%
Monday, October 31st, 2005U.S. incomes and inflation bounced higher in September on the impact of destructive hurricanes, the Commerce Department reported Monday. Incomes rose 1.7% in September after plunging a revised 0.9% in August. Excluding the impact of uninsured losses on property owners, however, incomes rose 0.5% in September after rising 0.3% in August. Meanwhile, prices soared on higher energy prices. The personal consumption expenditure price index rose 0.9% in September, the biggest increase since February 1981. Excluding food and energy prices, however, the core PCE price index rose a more moderate 0.2%. Adjusted for inflation, real spending fell 0.4% in September after dropping 1% in August.
This story was supplied by MarketWatch. For further information see www.marketwatch.com.
Home Depot ready for housing woes, Bear Stearns says
Friday, October 21st, 2005CHICAGO (AFX)—Home Depot Inc. shares reached their highest point in more than a month Thursday after an analyst said the company’s well positioned to handle the triple threat of a bursting housing bubble, higher energy prices and slowing consumer spending.
In upgrading the Dow Jones Industrial Average component , Bear Stearns analyst Dana Telsey pointed to Home Depot’s investments in technology as well as efforts to diversify its business as potential catalysts for sales and earnings gains.
She tagged the stock with a market perform rating, up from peer perform previously.
Home Depot’s shares added as much as 2.5% on an intraday basis before ending the session at $39.57, up 31 cents amid a broader market meltdown. Archrival Lowe’s Cos. wasn’t as lucky, finishing down 25 cents at $61.64 after gaining as much as 1.6% intraday.
Telsey credited Bob Nardelli, Home Depot’s chief executive, for implementing more sophisticated technology tools since he took the helm in 2000. That, of course, came with a hefty price tag—upwards of $1.25 billion.
“At the time he started, there was no way for management to directly communicate to all stores,” she noted. “However, earlier this year and for the first time in the company’s history, Home Depot receives sales and inventory data for all domestic stores before the start of business the next day.”
Read that as a huge help in better managing inventory and discounting, as well as holding a tighter rein on selling and administrative expenses.
Telsey also likes Home Depot’s successes with self check-out and improved check-out systems at manned registers.
As for diversification, Telsey repeated what other analysts have said in recent weeks: Home Depot’s girding itself well for a housing slowdown amid what she called “an ever-saturated U.S. home-improvement landscape.”
The company’s doing so, she said, by pumping up its builder, professional supply and maintenance, repair and operations markets—broadly referred to as Home Depot Supply.
In July, for example, Home Depot acquired National Waterworks Holdings, a distributor of products used in water and wastewater transmission systems.
“The attractiveness of these market places is a function of their high fragmentation, lower capital-investment requirement, and the ability to leverage the existing infrastructure and gain cost synergies,” she said.
Indeed, the parent is projecting that Home Depot Supply will see revenue rise at a 25% clip compared with total revenue forecasts calling for growth in a range of 9% to 12%. Telsey thinks the company will well exceed that forecast.
“In our view, revenues will continue to more than double the increase in retail revenues over the next few years,” she said.
But here comes the caveat. In Telsey’s view, profit margins generated by Home Depot Supply are generally below-average, meaning they will put pressure on the company’s overall gross margin. To overcome that, Home Depot is bundling certain services and products where price is not that big an issue for customers, which she thinks will help the company “avoid commodity-like margins.”
“Given integration efforts,” she said, “we believe that Home Depot Supply acquisitions will likely result in slight deterioration in the division’s operating margin initially and then expansion as economies are gained and integration hurdles are overcome.”
This story was supplied by MarketWatch. For further information see www.marketwatch.com.
MARKET SNAPSHOT: U.S. Stocks Edge Lower; Pfizer, EBay Disappoint
Thursday, October 20th, 2005By Mark Cotton
NEW YORK (Dow Jones) – U.S. stocks dipped Thursday as investors weighed a mixed batch of quarterly results and economic reports, with Pfizer a notable decliner after the drug giant cuts its 2005 profit outlook.
The Dow Jones Industrial Average (DJI) was off a morning high of 10,428.08 as it struggled to build on a triple-digit gain booked in the prior session.
The Nasdaq Composite Index (RIXF) and the S&P 500 Index (SPX) were both at their lows for the session.
“Earnings are supporting the market, with inflation still a concern,” said Barry Hyman, equity market strategist at Ehrenkrantz King Nussbaum.
Hyman said ,however, the fall in oil prices over the last week have helped take some of the edge off those inflation worries.
Crude prices extended a prior-session decline on expectations Hurricane Wilma will likely miss the bulk of Gulf’s energy facilities. Weekly data showing a rise in petroleum supplies as well as a drop in demand further weighed on crude.
The benchmark November contract was down 61 cents at at $61.80 in New York trading. The December contract, which becomes the lead contract after the market close, was off 36 cents at $61.15.
On the data front, first-time filings for state unemployment benefits fell to their lowest level in more than six weeks.
On a less positive note, a gauge of future U.S. economic activity declined in September for the third month in a row, indicating slower growth for the rest of the year, the Conference Board said.
Its index of leading economic indicators fell 0.7% in September, as the impact of the hurricanes in the Gulf began to be filter through. Economists had been expecting the index to fall 0.5%, according to a survey conducted by Dow Jones.
On the bond market, long-term Treasury prices fell, sending yields higher as the jobless data showed the economy in solid health, making it unlikely the Fed would pause or stop in its cycle of interest-rate hikes.
The benchmark 10-year note was down 7/32 at 98 2/32, with its yield at 4.49%.
On the currency markets, the dollar traded higher against its major counterparts, with the prospect of higher U.S. interest rates down the line supporting the currency.
The euro eased 0.25% to $1.1952. Against the Japanese yen, the greenback rose 0.2% to 115.53.
Gold futures edged higher, bouncing off a five-week low reached in the prior session. The benchmark December contract was up $1 at $466.80 an ounce.
Wall Street continued to take the pulse of corporate America as the nation’s companies rolled out their quarterly results.
Pfizer Inc. (PFE) tumbled as much as 8.2% in early trading after the world’s largest drugmaker posted a 52% decline in third-quarter profit and lowered its 2005 outlook. It also withdrew its forecasts beyond 2005, citing lower prescription growth and increased competition in key U.S. market. The stock, the most actively traded on Instinet, was down 5.1% at $22.74.
Fellow Dow component McDonald’s Corp. (MCD) posted an in-line third-quarter profit, but revenue came in ahead of analyst estimates, helped by demand for premium chicken sandwiches and an improving sales environment in Europe. The stock fell as much as 69 cents out of the gate.
Coca-Cola Co. (KO), another member of the blue-chip index, reported earnings and revenue that came in ahead of Wall Street expectations. The stock rose as much as 2.7% in morning trading.
Wrapping up earnings in the Dow, SBC Communications Inc (SBC) booked an adjusted third-quarter profit that topped analyst estimates. The telecom company said it added a record 528,000 high-speed Internet users in the quarter. The stock gained as much as 2.6% in early trading.
Nokia Corp. shares (NOK) tumbled more than 5% after the world’s largest maker of mobile phones posted forecast-beating quarterly earnings, but offered a less than upbeat outlook for its struggling network division. U.S-listed shares of the Finnish company were down 4.6% at $16.27 in pre-market dealings.
In the Internet space, shares of eBay (EBAY) lost as much as 3.8% after the online auctioneer offered up a profit view for 2005 that fell short of analyst expectations.
Ford Motor Co. (F) shares fell as much as 9 cents to $8.38 as Chief Executive Bill Ford warned the automaker will continue to face “many challenges” in an environment that remains competitive and difficult.
His warning came as the company posted a quarterly loss in line with analyst estimates. The auto maker also forecast 2005 earnings before special items at the low end of its prior guidance range of $1 to $1.25 a share. First Call had forecast earnings of $1.05 a share.
In broker action, shares of The Home Depot Inc. (HD) gained after Bear Stearns upgraded the home improvement retailer to outperform from peer perform, saying IT investments are driving margin expansion opportunities and earnings per share. The broker added its Home Depot Supply unit will provide the next leg of topline growth.
(END) Dow Jones Newswires
GLOBAL MARKETS-Shares rebound, dollar firm on rate talk
Thursday, October 20th, 2005By Lincoln Feast
LONDON, Oct 20 (Reuters) – European stock indexes jumped about 1 percent on Thursday after a rally on Wall Street and strong earnings helped them recoup some of the previous day’s losses, while interest rate talk again supported the dollar.
Government bonds dipped as stocks recovered, and oil prices steadied as the threat of Hurricane Wilma damaging key U.S. production and refining facilities in and around the Gulf of Mexico receded.
Forecasting-beating numbers from software maker SAP (SAPG.DE: Quote, Profile, Research) and food giant Nestle (NESN.VX: Quote, Profile, Research) led stock gains, but mobile phone giant Nokia (NOK1V.HE: Quote, Profile, Research) dipped after its third-quarter results failed to impress investors.
The FTSEurofirst300 index of leading European shares was up 1.1 percent at 1,186 points, rebounding after suffering its biggest one-day points fall in more than a year on Wednesday.
SAP added 3.9 percent after raising its full-year outlook after a forecast-beating third-quarter.
Nestle was up 3.2 percent after its nine-month underlying sales growth of 5.8 percent topped expectations but Nokia dipped 1.3 percent after posting third-quarter earnings broadly in-line with forecasts.
British retailers were little moved by data showing sales rose at more than twice the expected rate last month, with analysts saying the figures further reduced the chance of an interest rate cut from the Bank of England in November.
Early indications were for a softer start on Wall Street, where a host of top companies are reporting, including Ford (F.N: Quote, Profile, Research), McDonald’s (MCD.N: Quote, Profile, Research) and Pfizer (PFE.N: Quote, Profile, Research).
U.S. stocks surged after the close of European markets on Wednesday, on the back of strong results from the likes of banking heavyweight JP Morgan Chase (JPM.N: Quote, Profile, Research).
Asian stocks also rose, with the Nikkei average closing up 0.5 percent to snap a six-day losing streak.
China was in focus after data showed its economy grew a faster-than-expected 9.4 percent in the third-quarter, and after sources said China Construction Bank [CCB.UL] raised $8 billion in the world’s largest IPO in four years.
DOLLAR FIRM
The dollar held near a two-year high against the yen and was firm against the euro after several Federal Reserve officials again reiterated that U.S. interest rates will need to rise further to control inflation.
The dollar has risen more than 10 percent this year, extending gains this month on interest rate expectations, but investors said much was in the price already.
“The message from the Fed is still hawkish and inflation pressure is building up. But it is not news any more that the Fed wants to raise rates,” said Johan Javeus, currency strategist at SEB Merchant Banking.
“There is also quite a strong resistance level around $1.19 against the euro. It takes some time for the market to break that level.”
The dollar was buying around 115.4 yen while the euro hovered around $1.1970, down about 0.1 percent.
TREASURIES DIP
U.S. Treasuries dipped as money moved back into equities and following comments on interest rates overnight from Fed officials including Fed Governor Donald Kohn.
Kohn said: “We are considerably closer to where policy needs to be than we were sixteen months ago, but we are not yet at a point where we can stop and watch the economy evolve for a while.”
Benchmark U.S. 10-year yields were trading at around 4.46 percent.
Yields on comparable 10-year euro zone government bonds rose to 3.30 percent as the market absorbed fresh supplies of bonds from Ireland, Spain and France.
U.S. crude oil futures were down slightly around $62 a barrel, having fallen on Wednesday after U.S. inventories data showed a surprisingly large build in crude and gasoline stocks.
News that Hurricane Wilma was downgraded to a Category 4 storm and looked to be heading east towards Florida helped to calm the market.
Gold hit a three-week low below $463 an ounce as stocks rebounded and oil prices fell before rebounding.
Newkirk Realty sets IPO at 20 million shares
Tuesday, October 18th, 2005NEW YORK (AFX)—Newkirk Realty Trust Inc. on Tuesday said it plans to offer 20 million shares at $19-$21 a share in a bid to raise $400 million. The Maryland-based real estate investment trust plans to trade on the New York Stock Exchange under the ticker “NKT.” Bear Stearns and CS First Boston are underwriting the deal.
This story was supplied by MarketWatch. For further information see www.marketwatch.com.