The Stock Trader's Almanac

[Stock]

Biotechs, Semis & Truckers Lead Nasdaq to Jan Effect Gain

Thursday , January 04, 2007 13:47ET

The blue chips (Dow -45) are lower, but for the second session the Nasdaq (+0.5%) is outperforming in classic "January effect" trading. January is the best month of the year for the tech-heavy index, averaging a 3.7% gain according to the "Stock Trader's Almanac". The January effect is based on a tendency for year end losers to rebound in the new year. That is certainly the case with the biotechs (BBH +2.1%) and semis (SOX +0.9%) which were losers in 2006. Truckers (+1.7%) tumbled 21% from their July 3 peak. eBay (EBAY +3.3%) was also a big laggard last year. Commodity and Consumer sector names are mostly lower. The Dow laggards are MCD, XOM, T, AA and DD.

ECONOMY

Jobless Claims: +10K; +1K expected
Dec ISM Non-Mfg Index: 57.1; 57.5 exp; 58.9 in Nov
Nov Factory Orders: +0.9%; +1.3% exp; -4.5% (rev from -4.7%) in Oct
Nov Pending Home Sales: -0.5% M/M; -11.4% Y/Y; -1.7% M/M in Oct
Weekly EIA oil stocks (-1.3M bbl): +930,000 bbls exp; -8.1M bbls prior week
Weekly EIA gasoline: +5.6M bbl; +1.1M bbls exp; +3M bbls prior week
Weekly EIA distillates: +2.0M bbl; +1.08M bbls exp; +500,000 bbls prior week

MATERIALS

(-) Gold: Gold miners (XAU -1.5%) are laggards in the materials sector as the market settles down from its whipsaw trading on Wednesday. Gold is down modestly (-$1.20) but silver is trading highher.

Specialty Chemicals:
(-) ASH: Ashland was cut to Mkt Perform from OUtperform at William Blair.

Copper:
(-) PCU: Southern Copper is Bear Stearns' top pick among copper miners.

CONSUMER CYCLICALS

+ Apparel Retailers: Shares have run into elevated expectations. Several retailers warned.
++ ARO (52-wk high): Aeropostale upped its Q4 non-GAAP EPS view by 2c to 91-93c.
++ ZUMZ: Zumiez Dec comps +11.5% vs. the +6.5% FC est.
+ GES (52-wk high): Guess Dec comps +9.6%, above the 5% consensus.
+ JOSB: Jos A Bank Dec Comps +1.4%; Ryan Beck upped JOSB to Outperform from Mkt Perform. Price tgt lifted to $39 from $33.
+ MW: Men's Wearhouse backed its Q4 EPS view of 72-76c, in line.
+ ANF: Dec comps (-1%)
+ CHS: Chico's FAS Dec comps (-2%), Sees Q4 EPS of 12-15c, WELL BELOW the 21c estimate.
(-) AEOS: Dec Comps +13%; Q4 EPS guidance boosted by 1c to 64-65c, but Reuters mean estimate was 66c.
(-) GPS: Gap Dec comps (-4%)
(-) CTR: Cato comps (-6%); Sees 34-36c in Q4, WELL BELOW the 43c Reuters mean estimate.
(-) HOTT (-20%): Dec comps (-5.1%); WARNS Q4 EPS seen at 20-22c, down from prior 33-38c guidance.
(-) LTD: Dec comps +4%, below the high single digit guidance
(-) PLCE: Children's Place Dec comps +5%, BELOW the 8.2% consensus.
(-) WLSN: Dec comps (-23.1%)
(-) CTRN: CitiTrends Dec comps (-0.1%)
(-) WTSLA: Wet Seal Dec comps +1.3%

Dept Stores:
+ JWN (52-wk high): Nordstrom Dec comps +9% doubling the 4.3% consensus.
+ SKS: Saks Dec comps +11.1%, double the 5.3% FC estimate.
-- BONT: For Carson's and Bon-Ton combined, Dec comps were +0.3%.
-- FD: Dec comps +4.4%, sees Jan comps up 1.5% to 3%.

Broadline Retailers:
+ COST: Dec comps +9%
+ DG: Dollar General Dec comps +7.1%, above the 3.9% consensus.
-- TGT: Dec comps +4.1%, +4.5% expected
+ WMT: Wal-Mart Dec comps +1.6% (in-line); WMT sees January comps at +1-2%, affirmed quarterly earnings guidance.

Specialty Retailers:
(-) HVT: Haverty Furniture Dec comps (-9.2%).
(-) ODP: Office Depot was cut to Mkt Perform from Outperform at William Blair.
(-) ZLC: Dec comps +2.3%, Zales WARNED its sees Q2 EPS of $1.85-1.90 (excl derivatives), this is below the $2.19 Reuters mean estimate. Comps +1.5% in Dec.

(-) Hotels: Thomas Weisel downgraded Hilton (HLT), Starwood (HOT) and Marriott (MAR) to Underweight from Market Weight citing high expectations and deteriorating fundamentals.

Media/Broadcasters:
-- TWX: The NY Times reported Warner Brothers plans to announce next week a videodisc that can play videos in both Blu-ray and HD-DVD formats.

Restaurants:
+ RUTH: Ruth's Chris Steak House (RUTH) reported a preliminary Q4 revenue expectation of $83.8 and $84.0 million, ABOVE the $82.7 million Reuters mean estimate. Dec sales comps were up 7.4%. RUTH is Bank of America's top small cap pick for 2007.
+ PNRA: Panera Bread reported Q4 revenue rose 25% to $233 million, above the $230.7 million Reuters mean estimate.
(-) MCD: McDonald's is the Dow laggard at mid-session, and is 2 sessions removed from its latest high.

CONSUMER STAPLES

+ Tobacco:
+ MO: Altria is Jim Cramer's (CNBC TV) #1 value stock for 2007. He sees the long awaited corporate breakup adding 30 points for MO shareholders.

Food Products:
(-) KFT: Bank of America cut Kraft Foods to Neutral from Buy, $36 tgt.

-- Soft Drinks: Bear Stearns downgraded the US beverage industry to Market Underweight from Market Overweight. The firm says defensive rotation into the group is over. However, Bear retained its Outperform ratings for Pepsi (PEP), Coca-Cola (KO) and Pepsi Bottling Group (PBG).

Services:
-- JTX: CIBC any Jackson Hewitt weakness to the low 30's is a buying opportunity.

-- Alcohol:
(-) STZ (-11%): Constellation Brands (STZ) missed and warned. For Q3 STZ reported 58c vs. 52c (non-GAAP) on inline revenue, missing the 60c consensus estimate. For the fiscal year ending February, STZ revised its fiscal 2007 comparable basis diluted EPS outlook to $1.65 to $1.70 from the company's previous estimate of $1.72 to $1.76. Consensus estimate is $1.75.
(-) BUD, SAM, TAP: Brewers are also trading lower.

Consumer Nondurables: Bank of America reiterated its buy rating on Kimberly Clark (KMB) and Procter & Gamble (PG). Both are just off their 52-week highs. Procter & Gamble (P&G) is seen exploring a broad-based alliance with the Bangalore-based health sciences company, Sami Labs, for new product innovations in the cosmetics space. (The Economic Times, India)

ENERGY

Crude oil (-$1.66 to $56.66) and natural gas (+12c/MMBtu) are moving in opposite directions. Unleaded gasoline is 4c/gal lower on today's report of a surprisingly strong 5.6 million barrel inventory build last week.

(-) Services: Calyon downgraded the oil & gas services industry due to the pressure facing natural gas prices from warmer than normal winter weather.
+ BHI, SLB: Calyon said Baker Hughes and Schlumberger remain Buy rated.
(-) BJS, ESV, WFT: Wachovia cut BJ Services, Ensco and Weatherford to Mkt Perform from Outperform on a trading basis.

(-) E&P: Calyon downgraded the exploration & production industry due to warmer than normal winter weather in the U.S.
(-) APA, APC: Calyon's top picks in the E&P industry, Apache and Anadarko are lower with the sector.
(-) ME: Mariner Energy (ME) was cut to Add from Buy at Calyon.
(-) BEXP: RBC Capital cut Brigham Exploration to Sector Perform from Outperform, tgt to $9 from $12.

(-) Refining: Bear Stearns says margins are declining, but they would add to refining positions opportunistically on the belief a margin rebound is coming in the spring.
+ VLO, SUN: BSC reiterated their Outperform ratings for Valero and Sunoco.
(0) FTO, WNR, TSO: Frontier Oil, Western Refining and Tesoro are rated Peer Perform at Bear Stearns.

(-) Coal:
(-) CNX: Consol Energy was cut to Outperform from Strong Buy at Raymond James.

FINANCIALS

(-) Banks: Credit Suisse upgraded Wachovia Bank on valuation, but reiterated its cautious overall view of the regional bank group.
+ WB: Wachovia was upped to Outperform from Neutral at Credit Suisse, $64 tgt.
(-) SOV: Bear Stearns cut Sovereign Bancorp to Underperform from Peer Perform.

(-) Brokers:
+ GS: Jim Cramer (CNBC TV) called Goldman Sachs its #2 value stock for 2007 (behind MO).

Asset Managers:
+ TROW: T Rowe Price was upped to Outperform from In Line at Fox-Pitt.
(-) LM: Legg Mason was cut to In Line from Outperform at Fox-Pitt.

HEALTH CARE

+ Biotech +2%:
+ MON: Monsanto handily topped the 10c Q1 estimate, reporting 16c vs. 11c on a +1.2% revenue surprise.

+ Big Phrama:
+ MRK: Merck is up for a second day in the wake of its upgrade to Outperform by Bear Stearns.
+ VRX, PFE (up on bad news): The WSJ reported drugs marketed by Pfizer (PFE) and Valeant (VRX), that were once widely used to treat Parkinson's disease, sharply increase the risk of heart-valve damage.

+ Devices: Wachovia upgraded the orthopedics industry to Overweight from Market Weight. The company cited stable pricing, a more positive reimbursement picture, and improved product cycles. Outperform-rated Styker (SYK) and Wright Medical Group (WMGI) are Wachovia's favorite names in the group.
+ ZMH: Wachovia upped Zimmer Holdings to Outperform from Mkt Perform.

Providers:
-- PSYS: Psychiatric Solutions (PSYS) announced the acquisition of Three Rivers Behavioral Health, an 86-bed inpatient psychiatric facility headquartered in Columbia, South Carolina with $12.2 million in 2006 estimated revenue. Terms were not disclosed.

INDUSTRIALS

+ Trucking: On Wednesday the DJ Trucking index soared 4.6% to lead the overall market. Today, Wachovia upped the group to Market Weight from Underweight.
+ CNW, CVTI: Wachovia upped Con-Way (CNW) and Covenant Transport (CVTI) to OUtperform from Mkt Perform.
+ JBHT, ODFL: Wachovia reiterated its Outperform ratings on JB Hunt and Old Dominion.
+ ABFS, HTLD, WERN, XPRSA: Wachovia upped Arkansas Best (ABFS), Heartland Express (HTLD), Werner (WERN) and US Xpress (XPRSA) to Mkt Perform from Underperform.

TECHNOLOGY

+ Semis +1%:
+ INTC/AMD: AG Edwards expects Intel to gain microprocessor share in 2007.
+ LRCX: UBS expects Lam Research will win Intel's silicon etcher business.
+ SIRF: SiRF Tech (SIRF) was started at Outperform by RBC Capital.
+ SIMG: Silicon Image was initiated at Sector Perform by RBC Capital.
(-) MU, MRVL: UBS cut its 2007 PC growth forecast to 12% from 14% due to weaker desktop sales. In a related move target prices for Buy rated Micron (MU) and Marvel (MRVL) were cut to $20 from $22 and $28 from $30 respectively.

Comm Tech: Am Tech is a bull on mobile video technology for 2007. Beginning with the CES nest week where it expects MediaFLO launch announcements next week.
+ QCOM: Am Tech sees Qualcomm benefiting from the growth in mobile video technology above.
-- CSCO: Cisco Systems Inc. (CSCO) agreed to buy IronPort Systems Inc., a network-security start-up, for $830 million in cash and stock. (WSJ)
-- OCPI: Matrix cut Optical Communication Products to Strong Sell from Sell.

Hardware: AG Edwards sees stable host bus adapter (HBA) growth in 2007. The firm also anticipated an increasingly competitive environment for SAN switching. AG Edwards reiterated concerns over Brocade (BRCD) and Emulex Corp (ELX).
+ DELL: Dell will place a shared corporate headquarters in Singapore.

Software:
(-)/+ MANH: Manhattan Assoc (MANH) was cut to Sell from Hold on valuation, $25 tgt, at Cantor Fitzgerald. Think Equity reiterated its positive view of Accumulate-rated MANH.

TELECOM

Wireless Content (China): WR Hambrecht has a dim view of the group due to the leverage wireless carriers have over the content providers. Hambrecht initiated coverage of TOMO & KONG at Sell. LTON and HRAY were started at Hold.

UTILITIES

-/+ DUK: Merrill Lynch cut Duke Energy to Neutral from Buy following the Spectra Energy spin-off. Duke Energy was upped to Outperform from Mkt Perform at BMO Capital who cited valuation.

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