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From Briefing.com: 6:07PM Swing Trader: Is Fear A Factor Yet? : -Technical- The SPY experienced another wave of selling on Wednesday, making for the 8th consecutive down day without a higher high. It's not exactly rocket science to realize majority of stocks are looking in bad shape here this October and are due for some type of bounce activity. The question is how much and how long will a rally last as the market faces 4-months of overhead resistance. (continued)

Close Dow -36.26 at 10216.91, S&P -7.19 at 1177.68, Nasdaq -23.62 at 2037.47: Yet again, the market started the day on positive footing, only to quickly fade and position itself within a trading range well below the flat line. The fourth quarter has gotten off to the worst start in ten years, largely due to a lack of leadership that today's session continued. Crude's action further curbed enthusiasm, while a relatively disappointing fiscal Q4 earnings report from Apple (AAPL 49.21 -2.38) and a Prudential downgrade of the semiconductor sector further drove buyers to the market's margins. Despite the aforementioned uptick in oil, the Energy Services sector (-1.8%) fared worst today, especially refiners. The S&P's year-to-date top performer served as the weightiest drag, but selling was broad and left each of the sector's 29 issues in the red. Utilities' 1.6% decline placed next, as the second best-performing sector on a year-to-date basis similarly fell victim to traders' profit-locking attempts. Battered by consumer spending concerns, the Consumer Discretionary sector added 1.1% onto its 11.3% year-to-date decline, but at the same time, was home to one of the day's brightest spots. Ahead of the bell, motorcycle manufacturer Harley Davidson (HDI 46.90 +1.30) delivered Q3 earnings that surpassed analysts' expectations and sent the group to the top of the market. On account of continued weakness in banks, which hit a 52-week low yesterday, and traders' focus upon the flattening yield curve and the 10-year's 4.45% yield, Financials slid 0.5%. Matching that loss, the Technology sector also spent the day submerged - sunk particularly by Apple and semiconductors. Intel (INTC 23.22 -0.20) represented a pocket of weakness today, suffering a downgrade at Prudential to Underweight from Neutral Weight and helping drag the Nasdaq to a 4.9% quarter-to-date loss. Upon reports that it may sell its sensors and controls unit, Texas Instruments (TXN 30.02 +0.65) did, however, help limit the Tech sector's slide. Healthcare (+0.2%) finished the day with the only gain, supported by Pfizer's (PFE 24.76 +0.46) favorable Lipitor-related court ruling and a Merrill Lynch upgrade of Schering-Plough (SGP 20.62 +0.78) to Buy from Neutral. Although the economic calendar was a blank one, Fed Chairman Greenspan spoke earlier this morning to the National Italian-American Foundation on the topic of economic flexibility. His prepared remarks mirrored those of his last speech and had no significant effect on trading. The remainder of the week features a plethora of economic data, ahead of which buyers may find additional reason to lie low. Economists expect the second-worst trade deficit ever to be reported tomorrow; meanwhile, Sept. CPI data will hit Friday's wires.DJTA -1.65, DJUA -1.97, DOT -1.16, Nasdaq 100 -1.18, Russell 2000 -1.35, SOX -0.40, S&P Midcap 400 -1.30, XOI -2.08, NYSE Adv/Dec 689/2635, Nasdaq Adv/Dec 739/2307

4:06PM Komag boosts Q3 outlook, cites favorable mix shift (KOMG) 27.82 -1.09:KOMG expects total revs of about $180 mln vs. $175.14 mln consensus; co says finished disk shipments will be about $27.5 mln. Co cites a favorable product mix shift to a higher percentage of 100GB and above high capacity 3.5-inch disks, which led to an increase in A.S.P.s. KOMG says it expects net margin to be about 17-18%, vs. previous co guidance of about 16%.

10:31AM Microsoft and Yahoo! confirm Agreement to connect consumer Instant Messaging communities globally (MSFT) 24.50 +0.09:YHOO and MSFT announce an agreement to connect users of their consumer instant messaging services on a global basis. The industry's first interoperability agreement between two global consumer I.M. providers will give MSN Messenger and Yahoo! Messenger users the ability to interact with each other, forming what is expected to be the largest consumer I.M. community in the world, estimated to be more than 275 mln strong.

3:45PM Harley-Davidson (HDI)
46.83 +1.23: The road traveled has been a rocky one for Harley Davidson's shares. After slashing its FY05 shipment targets, the stock lost over ten dollars in a single day back in April. Shares reversed course, gaining lost ground, but now remain stalled once again at the April lows. The market is grappling with concerns over slower consumer spending and a more moderate growth picture for Harley, against what can only be described as a solid third quarter result.

Third quarter profits increased 16% to $265.0 mln, on revenues of $1.43 mln on strong demand for Harley's branded motorcycles and market share gains. Harley bested the consensus estimate by six cents, generating earnings per share of $0.96. The top line expanded by 10%, led by impressive sell-throughs of motorbikes in the US of 12%. Both Europe and Japan enjoyed similar growth rates, gaining 11.5% and 13%, respectively. Harley shed most of its 2005 products, making way for newer 2006 models. Year-to-date sales have grown by 7%. A better product mix of Touring bikes, now accounting for 34% of sales, widened profit margins. Gross margins improved by 20 basis points to 39.2%. Consistent with the gross margin expansion, operating margins improved to 25.6%.

In April Harley lowered its shipment target from 339,000 units to 329,000. It stands behind this objective, after selling 87,585 units in the third quarter. Motorcycle revenues jumped 11.4% to $1.11bln, as wholesale shipments rose 8.7% y/y. Parts & Accessories revenues grew a mild 3% to $231.2 mln, while General Merchandise sales rose 5.1% to $64.5 mln. HDFS operating income declined 5% from a year ago, including the sale of $650 mln in loans for a gain of $9.2 mln. The financial arm is facing a challenging environment with higher interest rates and competitive pressures. Credit losses are still within its target range of 1%, but have risen to 0.97% in the first nine-months from 0.69% last year.

The stock initially jumped on the upside headline number, but has subsequently faded back as the market digests Harley's moderate growth forecasts. In today's press release, the company set a more realistic growth target for wholesale units of 5-9% annually, down from a lofty 7-9%. Further, acknowledging headwinds that include "uncertainty related to consumer confidence, increasing fuel prices and rising interest rates," it set a shipment target range of 348,000 to 352,000 for FY06, implying a growth rate of 6-7% y/y.

Strong sales overseas were impressive considering economic weakness in Europe, although a strengthening economy in Japan may help support further gains. The performance was attributed to new products and improved distribution. Across the pond, US retail inventories rose incrementally, which management attributed to a higher number of new models in the current model year. The company said it was comfortable with the level and noted that new products were a driver of sales for the quarter. This indicates the Milwaukee, WI-based company is enjoying some momentum going into the fourth quarter.

Now that shares are back at a discounted level compared to the luxury vehicle group, the stock appears to be attractively valued. Given this fact and the degree of today's upside, we would have expected the stock to react more strongly today, yet caution prevails. This speaks volumes to the degree of pessimism out there regarding HDI's growth prospects. The bull argument is based on Harley's superior brand name, a dominant market share, and strong financial position, yet the company is operating in a maturing industry. It will take time for the market to readjust to Harley's more moderate growth outlook. As we have said in the past, Harley-Davidson's fate rests on its customer base. The average age of its riders is 46 years. Considering this generation's vast numbers, large discretionary spending base, and the fact that people are living longer, Harley's growth prospects are well intact. Over the longer-term, however, it does need to draw in younger riders, as well as women, considering its existing owners account for half of sales. In the near-term, given all this uncertainty, we would remain on the sidelines waiting for the right time to jump on board. ---Kimberly DuBord, Briefing.com

3:00PM Apollo Group (APOL)

62.03 -0.60: Although Apollo Group tempered its outlook last month, the for-profit education provider on Wednesday reported a sharp rise in fourth quarter earnings, helped by higher degree enrollments and stock-related charges in the year-ago period. Net income for the fourth quarter, excluding non-recurring items, increased to $118.2 million, or $0.65 per share, from $93.1 million, or $0.52 per share, in the year-ago period - in-line with the consensus estimate. Meanwhile, revenue for the period, which narrowly missed analyst expectations, increased by 20.1% to $591.8 million, as compared to $492.8 million last year. The University of Phoenix accounted for 86.6% of the $550.7 million in net tuition revenues from students enrolled in degree programs.

The top-line growth in the fourth quarter resulted primarily from a 20% increase - compared to street expectations of 22.5% - in consolidated degree enrollments. The Company had approximately 307,400 students enrolled in degree programs at the end of August. According to Todd Nelson, Apollo's Chairman and CEO, online enrollment paced the advance with growth in the upper 30% range, while off-line was around 8%.

Gross margin, however, excluding a settlement charge associated with the Department of Education program review, was down about 150 basis points year/year as result of mix shift towards Western International University (WIU) online - a program of study that has a lower average price point than Apollo's other programs. In addition, an increase in bad debt expenses helped to constrict margin expansion. Although it may take several quarters, Apollo noted that it remains encouraged that bad debt expenses will return to its prior low levels. It also said that the forward guidance provided in September includes such expectations.

Last month, Apollo trimmed its forecast for the fourth quarter, citing a shift in enrollment mix, with more students enrolling in WIU, as well as the assumption of bad debt. Furthermore, the company lowered its full-year target by $0.04, due to the impact of Hurricane Katrina, and issued financial guidance for the first quarter below analyst expectations. Reaffirming its earlier outlook, Apollo continues to see Q1 earnings of $0.72 per share, excluding the cost of stock options, on revenue between $635 and $640 million. Analysts had projected EPS of $0.71 on $639.6 million in revenue. For the full-year, earnings are pegged at $3.06 per share on revenue of $2.69 to $2.75 billion, compared to the consensus estimates of $2.98 and 2.69 billion, respectively.

Separately, the company said its board of directors has approved a $300 million share buy-back program.

Apollo has seen its shares fall more than 25% year-to-date, as the maturing company struggles to maintain steady growth and control bad debt expenses. Historically, the company has met or surpassed expectations in every quarter for the past five years, with the most recent shortfall being the first in recent memory. Although, Apollo continues to demonstrate astounding growth, it remains to be pressured by a maturing growth rates, weak expense controls, and increased competition in the for-profit education market. Given the associated earnings risk, APOL's premium multiple of 21x forward earnings, as compared to its peers, does not present a favorable investment opportunity. As the company's growth rate continues to normalize, investors should refrain from committing new money. --Richard Jahnke, Briefing.com

11:13AM Adv. Micro Devices (AMD)

21.94 -2.06: Advanced Micro Devices continued its positive momentum, as the world's second largest chipmaker beat Wall Street expectations on strong demand for PC chips and improving results from its memory products group during the third quarter. Investors responded to the better-than-expected results announced late Tuesday by lifting shares $0.31, or 1.3%, in after hours trading. However, the stock, which has gained over 50% since mid-January, has languished during the regular trading session on valuation concerns, as well as ongoing uncertainty surrounding the company's flash memory business - formally known as Spansion.

AMD's flash memory business incurred an operating loss of $50 million during the quarter, compared with a profit of $15 million for the same period last year and a loss of $90 million in the second quarter. Revenue for the group, at $516 million, was down 4% year/year, but approximately 12% higher on a sequential basis, due to record unit sales and greater demand by wireless OEM customers. Even though the flash business continues to be an overhang on more meaningful growth, the planned IPO of the money-losing unit, which is expected sometime in the fourth quarter or early first quarter, should help improve the overall outlook for AMD.

In contrast, the company continued to gain strong momentum in its chip business, with sales advancing more than 44% year/year and 26% sequentially to $969 million. "Exceptional customer demand for our server, mobile, and desktop processors helped drive microprocessor sales growth," said Robert Rivet, AMD's CFO. "We established new quarterly records in unit and dollar sales, gross margin and operating income." In light of the solid demand, AMD expects fourth quarter microprocessor sales to grow between 7% and 13% from the most recent quarter, which equates to a 42% to 50% year/year increase. The company refrained from providing guidance for its flash memory business ahead of the Spansion IPO - a joint venture between AMD and Fujitsu.

On the whole, AMD said sales grew 23% compared to the year-ago period and 21% sequentially, driven by the better-than-expected quarter for its chip business. At the same time, the company earned $76 million, or $18 per share, for the quarter. That is up from a profit of $0.12 per share for the fourth quarter last year and $0.03 per share for the second quarter. On average, analysts were expecting the Silicon Valley-based company to earn $0.08 per share on sales of $1.38 billion, according to Reuters Estimates.

Further highlighting the results, AMD posted gross margin of 41% compared to 40% a year earlier and 39% in the previous quarter. The increase in margin was due to improved gross margin in both the microprocessor and flash memory business.

AMD's third quarter report marks the second straight quarter of profits, as strong server and notebook demand continued to offset the company's exposure to the volatile flash market. While AMD is well positioned to extend its success in the chip business, the uncertainties surrounding the completion of the Spansion IPO remain a significant hurdle and will likely impede greater near-term share gains. Any delay in the spin-off could potentially harm the strong performance of AMD's chip business and its stock. In addition, the recent run-up in shares have raised concerns over the company's valuation. At the current price level, AMD is trading at roughly 67.2x forward earnings, as compared to 15.8x for its larger rival Intel Corp. (INTC). Given the lofty valuation for the stock, investors should be mindful of the added risk associated with such high expectations. --Richard Jahnke, Briefing.com

10:12AM Apple Computer (AAPL)

"One more thing...." This is Apple CEO Steve Jobs's famous trademark end to a press conference that is a lead-in to something important. Today, Jobs will utter those words in San Jose at an invitation-only event. The new "thing" must be something compelling in order to reverse the sell-off sparked overnight when Apple reported fourth quarter revenue and iPod sales that fell well short of expectations.

This was the first time in three years Apple has missed sales forecasts. While the company reported record sales of $3.68 bln, up an impressive 56.5% year/year, the figure was below the market's consensus estimate of $3.74 bln. Further, as the main driver of the stock's rise from $10 to $50 in two year's time, iPod sales missed the low end of expectations. Apple sold 6.45 mln units, well below the consensus estimate of 7.45 mln, and even the lowest end of the 6.7-8.5 mln range.

In the quarter, which ended on September 24th, Apple earned $430 mln, or $0.50 per share. There were numerous one-off items that skewed the results, including tax benefits and a lower tax rate. Excluding items, Apple earned $0.38 per share, narrowly surpassing expectations by a penny. The shortfall in revenues was the result of lower iPod shipments and sales. iPod revenues increased 126% y/y to $1.2 bln - up 220% y/y and 5% q/q. During the quarter, Apple transitioned from the popular Mini to the latest and smallest generation iPod, the Nano. The newest installment has been hugely successful with Apple shipping a whopping million units in just seventeen days. Apple continues to experience overwhelming demand for the product. The product transition and supply constraints for the Nano are likely causes for the shortfall in sales.

Apple shipped 1.24 mln units, or $1.6 bln worth of PCs in the quarter, up 47.8% y/y and over 3x the growth rate for the industry. Inventories for the Mac ranged from 3-4 weeks, in the comfort zone of where they should be after the key back-to-school season. This quarter Apple enjoyed strong notebook and vertical educational sales. It shipped 602k desktops (+56% y/y) and 634k notebooks - a new single quarter record. The trend towards a higher makeup of portables vs. desktops helped widen margins as portables carry a higher average selling price. The iPod "halo effect" is in full force, as the digital audio player draws in consumers to Apple's Mac suite of products, which represent 60% of total revenues. Management noted that new Mac customers improved by 50 basis points sequentially to 45% at retail. What this suggests is that Apple will continue to take a bigger bite out of the PC market as the conversion rate to Mac endures.

Gross margins of 28.1% beat guidance by 40 basis points due to an improved portable mix and component cost environment. Operating expenses declined 70 basis points to 16.8% of sales. The two cent upside in guidance for the first quarter will do little to quiet concerns of further erosion in iPod sales. Apple expects to earn $0.46 per share in the first quarter on $4.7 bln in sales versus the current consensus of $0.48 on $4.53 bln. The weak top line number reported after Tuesday's close spread like a virus through the technology stocks in Asia and in Europe, as it prompted concerns about a slowdown in consumer spending.

Apple is a victim of its own success, as the market is demanding more and more in terms of growth. Shares tumbled over 8% in pre-market action, but have been paring their losses in regular trading. The market will be waiting anxiously to see just what is Apple's next big thing. Many predict it will be a video iPod, which would bring on more licensing opportunities than the digital audio player. Knowing Apple, it could be anything. We would argue investors take advantage of exaggerated weakness as the strength of Apple rests in its imagination and innovation. The company is entering a seasonally strong period with the holidays approaching, which will drive sales for all of its products, from the Nano to the Mac mini. Shares are trading at 34.2x trailing twelve month earnings vs. the 5-yr historical average of 60.0x. --Kimberly DuBord, Briefing.com

8:47AM Page One - Valuation Becomes Compelling

On as-reported earnings, the P/E will drop to about 17.9.

It can be argued that these P/Es are high relative to historical standards, but they are very low for the current interest rate environment. Most models assess stocks as very undervalued.

This can partly be explained by the extreme pessimism over the economic outlook. Real GDP has risen at an above average rate for the past ten quarters. It is likely to do so for both the third and fourth quarters of this year. Yet, there is surprisingly little confidence in the economic outlook amongst investors.

There also appears to be significant concern over the earnings outlook. This too is surprising given that third quarter earnings growth will accelerate to about 20% for as-reported earnings and 15% for operating earnings. Growth will undoubtedly slow in future quarters simply because the past two years rates are mathematically unsustainable. But solid growth will continue.

Interest rates are likely to rise. That compresses valuation. The current concerns over inflation and interest rates are overdone, however. The 10-year note yield is not likely to rise to 6% any time soon, which is what is implied by current stock valuations.

The stock market right now is close to assuming the worst in terms of inflation, the economy, and earnings. If that does not develop, these mid-October valuations may prove as much of an opportunity as back in back in April when pessimism was also at a peak. Then, in the middle of earnings season, a rally started in which the S&P rose nearly 9% in a little over three months.

Such rallies don't usually start until further along in earnings season. Next week, the reports start to come in heavy. It will take a while to assess overall trends.

Today, the focus is on Apple, which has been a high flyer. Its report of fewer than expected iPod sales has hit the stock and the overall Nasdaq. Other reports include good ones from Advanced Micro Devices, Harley-Davidson, MGIC Investment, M&T Bank, and mixed reports from Monsanto and Host Marriott.

Stock futures suggest a lower open today as the pessimism persists, but this too will pass. Valuations signal to anyone with a positive view of the US economy that long-term investments will pay off. -- Dick Green, Briefing.com

9:24AM TXU Corp (TXU) Goldman Sachs initiates IN-LINE. Goldman Sachs believes TXU is likely to rally near term ahead of mgmt restructuring actions likely to be announced by early November. However, firm is initiating with an In-Line rating because even if TXU were to lock in gas/power prices at the current 5-yr strip, TXU would be trading at 11.4x 2008E EPS, a 10% peer discount, an appropriate level considering the above avg risk vs other utilities.
9:24AM Blue Nile (NILE) RBC Capital Mkts initiates SECTOR PERFORM. Target $31. Firm expects the co to continue to gain share and grow at about 20%-25% per year, but they believe shares appear fully valued at over 20x 2006 EBITDA, especially given the inflationary environment in its most important cost component (diamonds) and potential onset of competitive forces. They note that the co is currently the low-cost provider and does not have to protect offline prices, as do retailers like TIF and ZLC. However, they believe the competitive environment is starting to intensify, especially with AMZN launching its ring-creation feature on August 2005.

9:23AM Provide Commerce (PRVD) RBC Capital Mkts initiates OUTPERFORM. Target $31. Firm thinks the co is a leader in the online floral category, gaining share from fragmented, predominantly-offline competitors and believes its direct-from-grower-to-consumer model allows it to price aggressively and maintain high gross margins. Firm thinks shares are likely to move substantially higher given modest valuation of 9x 2006E EBITDA and 2- year revs and EBITDA CAGRs of 21% and 27%.

9:23AM American Eagle (AEOS) FTN Midwest downgrades Neutral to SELL. Target $20. Firm is concerned with the following: 1) major private-label denim supplier indicates AEOS is canceling orders; 2) vendors remain cautious on denim buildup; 3) markdown activity continues to increase at AEOS; and 4) co cycling peak operating margin -- EPS risk building. Firm recommends investors avoid AEOS despite the recent sell-off as they anticipate further downward EPS revisions to follow.

9:22AM Innovo (INNO) Fulcrum downgrades Buy to NEUTRAL. Downgrade follows Q3 results, saying they now believe private label in FY06 will be significantly weaker than their previous estimate. Despite the fact that they continue to believe in the strength of the Joe's premium brand, at a revised lofty P/E of 31.3x, they can no longer recommend this stock, even as a speculative buy.

9:21AM Cavalier Homes (CAV) Avondale Partners upgrades Mkt Underperform to MKT PERFORM. Firm says that given the co's low tax rate and low capacity utilization prior to the hurricanes, they believe incremental margins and earnings could exceed their forecast. For 2006, they anticipate meaningful improvement in revs, margins, and pretax earnings.

9:21AM PPD Inc. (PPDI) Jefferies & Co upgrades Hold to BUY. Target $54 to $67. Firm expects strong earnings and record backlog growth when the co reports next Monday. They say the results come 10 days before dapoxetine PDUFA, which represents only near-term concern. Firm thinks the stock goes up first.

9:20AM Intl Rectifier (IRF) Sanders Morris Harris downgrades Buy to HOLD. Downgrade follows pre-announced September-qtr results. Firm thinks IRF valuation now appears much less attractive than it did based on their previous numbers. On top of the valuation issue, they think the pre-announcement exposes an operational risk at the co that is significant.

9:19AM Titanium Metals (TIE) Longbow upgrades Neutral to BUY. Target $50. Upgrade follows co's raised guidance as they see significant upside to the co's earnings power based on the increasingly favorable momentum in global titanium market fundamentals.

9:19AM Evergreen Solar (ESLR) First Albany reiterates BUY. Target $7.25 to $15. Firm takes a more long-term view and remain confident in global solar growth prospects, ESLR's competitive positioning, and mgmt's ability to execute on its expansion strategy. Firm thinks near-term trading will likely remain volatile, as numbers remain lumpy during capacity ramp; however, they believe ESLR remains ideally positioned within the industry, and view any potential undue weakness from quarterly results as a long-term buying opportunity.

9:18AM True Religon (TRLG) Wedbush Morgan downgrades Buy to HOLD. Target $22 to $17. Firm cites the following: 1) Slowdown in the rate of top and bottom line expansion in 2006 versus 2005; 2) Transition to predominantly same store sales growth; 3) Peaking margins; and 4) Some perceived slowdown in brand popularity. Although they still believe the co can grow earnings in the 100%-plus range in 2005, they believe EPS growth will sharply decelerate to approximately 25% for the next two years, and with the stock up 97% YTD, believe TRLG has become more fully valued.