Replies to post #421 on Sector Investing

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From Briefing.com: 1686 - that is the June trading range top for the Nasdaq, and on Friday, it served as the line in the sand for tech participants as a slight breach of that level early in the session stirred a renewed round of buying interest that didn't face any interruption for the remainder of the day, with the exception of the closing bell.

There was broad-based participation in the move, but for the most part, it was a rally driven by large-cap issues. To say the least, it was a good way to end the week for bullish-minded participants despite the fact that the relatively light volume (1.58 bln shares at Nasdaq) didn't offer any significant proof that there was a whole lot of conviction behind the buying efforts. Be that as it may, the seemingly instant reversal at a notable support level, along with encouraging economic data in the form of the Durable Orders and New Home Sales reports for June, likely spurred some short covering that exacerbated the upside move.

For the week, the Nasdaq added another 1.3% to bring its year-to-date gain to 29.6%. Briefing.com, of course, has maintained that the path of least resistance for the tech sector over the near-term is to the downside, and Friday's stealth rally notwithstanding, we still feel that is the case given the low levels of volatility and bearish sentiment. In fact, the VIX Index, at 19.94, closed at its lowest point since March 2002 and is at a level that, historically, has been associated with at least short-term market tops.-- Patrick J. O'Hare, Briefing.com

4:22PM Weekly Wrap :
What happened this week? Well, quite a bit happened, but you wouldn't know any better by looking at the S&P 500. For the week, it was essentially flat. The inability to get anywhere will be seen by some as a sign that the party is over, and by others, as a sign that the party is simply at a standstill as the punch bowl gets re-filled.

Briefing.com thinks it's time to take a break from the partying, but overall, we would encourage investors not to lose the celebratory spirit. Put another way, it is our contention that a period of consolidation is in order, but that the long-term outlook for stocks still remains favorable. Both views, ironically, tie back to the current earnings reporting period.

Our assessment of the earnings season thus far is that it has been a good one as operating earnings this quarter should be up about 7.0%. Critics, of course, would suggest that isn't very strong, but when taking into account the hurdles of inclement weather and the war with Iraq, it is better than one had reason to expect. Now, with both of those items behind us, the tax cut impact starting to hit home in paychecks, and interest rates remaining low, there is a good foundation for even stronger growth in the economy, and corporate profits, in coming quarters.

Nonetheless, the market didn't get much distance this week out of the reassuring earnings news or from anything else for that matter - and it had plenty around which to rally. Initial claims dipped below the key 400K mark for the first time in 23 weeks, durable orders increased 2.1%, and new home sales hit a new record high. On top of that, there was a psychological gain in the news that U.S. troops killed Saddam Hussein's sons, Uday and Qusay.

The inability to make much headway against a backdrop of favorable news suggests to us, along with sentiment and volatility indicators, that the path of least resistance over the near-term is still to the downside. Be that as it may, recent developments on the economic, geopolitical, and earnings fronts all bode well for the long-term outlook, which is why we believe interim weakness will continue to be viewed as a buying opportunity provided there isn't a material increase in interest rates.

Looking beyond the performance of the major indices, the growing sense of optimism about economic prospects was reflected this week in the outperformance of the cyclical stocks, the jump in copper prices, the Dow Jones Transportation Average breaking out to a new 52-wk high, and the weakness in the bond market.

For a look at next week's happenings, be sure to read Briefing.com's Story Stock that is appropriately titled, Looking Ahead.-- Patrick J. O'Hare, Briefing.com
YTD chart of major stock indexes

 
 Index      Started Week Ended Week Change % Change YTD  
 DJIA        9188.15       9284.57  96.42  1.0 % 11.3 %  
 Nasdaq      1708.51       1730.70  22.19  1.3 % 29.6 %  
 S&P 500      993.32        998.68   5.36  0.5 % 13.6 %  
 Russell 2000 464.76        468.88   4.12  0.9 % 22.4 % 

Close Dow +172.06 at 9284.57, S&P +17.08 at 998.68, Nasdaq +29.28 at 1730.70: Today's trading action must've raised a few eyebrows, but there we have it... In the midst of a quiet day in terms of corporate news and research, the market started off in positive territory, declined into negative territory, but advanced and finished the day with gains of 1.7-1.8% for the session and 0.5-1.3% compared to last Friday's levels... But first things first... The leading indicator of manufacturing activity, the Durable Orders report, checked in at 2.1%, above the consensus of 1.2%, and provided the impetus for the slightly positive bias in the early trade...
The uptick, however, was short-lived as the small dip in Existing Home Sales report to 5.83 mln versus the consensus of 6.0 mln was used as an excuse to book profits, forcing all of the major averages into negative territory... As an aside, the simultaneously reported New Home Sales report checked in at 1.16 mln versus the consensus of 1.11 mln... The selling pressure abated after the Nasdaq and the S&P 500 retested and held at their technically significant levels of 1686 (June range top) and 978.75 (50-day moving average)...

From that point on, there was no looking back for the market as all of the major indices were on a one-way street heading north... As a result, winning sectors were abound and the only laggards of note was the steel sector... Interestingly, despite the large point move, breadth figures were only slightly favorable and volume on the light side of things... Additionally, the majority of the move could be attributed to large-cap issues as the S&P 400 and the Russel 2000 underperformed the S&P 500 on a relative basis with gains of 0.78%... Elsewhere, the 10-year note closed the day near its worst levels of the session at -4/32, with its yield at 4.18%...NYSE Adv/Dec 2132/1123, Nasdaq Adv/Dec 1828/1298

4:00PM Qualcomm sues Texas Instruments for breach of patent agreement :

3:47PM Weekly Losers List : Stocks over $5 posting the largest percentage loss this week include: NTIQ -29%, GSPN -25%, IDCC -24%, UCI -22%, CPSI -21%, SKX -21%, HCM -20%, MED -20%, QSFT -20%, MOBI -19%, ASIA -19%, DSTM -18%, CPKI -18%, VIRL -18%, FCN -17%, CBM -17%, SIMG -17%, AAII -17%, ULTE -17%, PTEC -16%, HTCH -16%, BSTE -16%, LAB -16%, HITK -15%, AFCO -14%, MACR -14%, EME -14%.

3:46PM Earnings Calendar : Monday morning, watch for earnings reports from ABRX, BMC, MCH, NOC, RDWR, RCL, XRX, and ZBRA. During the session, AXP will report results.

3:39PM Top Weekly Performers : Stocks over $5 that have topped the weekly percentage gainers list includes: CVNS +61%, SMMX +50%, MAXF +49%, EQIX +47%, TTN +43%, UHAL +42%, AV +38%, PFI +37%, RFMI +32%, THER +31%, QLTI +31%, PCLN +30%, KYPH +30%, ARDI +29%, TASRW +29%, IFLO +29%, SSRI +29%, TLCV +28%, LCAV +26%, ASKJ +26%, MNST +24%, CELL +23%, BOBJ +23%, SIE +23%, CLRS +22%, FLML +21%, GOLD +20%.

10:38AM Celestica upgraded at RBC (CLS) 14.78 -0.17: RBC Capital upgrades to Outperform from Sector Perform based on valuation; stock is trading nearly 40% below its historical 14.2x EV/EBITDA multiple, and firm believes that the co's new share buyback provides downside support. Target is $18.

8:58AM Benchmark Elec target raised to $52 from $45 at Needham (BHE) 37.78: The increased target is based on higher EPS estimates for 2004 and the possibility of further upside EPS leverage.

9:52AM Integrated Silicon (ISSI) 7.32 +0.42: Soundview Technology initiates OUTPERFORM. Target $12. Firm cites consistent execution, new products, a healthy balance sheet, and improving gross margins.

9:51AM Kulicke & Soffa (KLIC) 9.00 +0.56: Soundview Technology upgrades Neutral to OUTPERFORM. Target $5 to $12. Cites co's stronger than expected Q3 operating margin as well as data points that suggest industry is in early phase of broad-based recovery.

http://finance.yahoo.com/mp?q

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RobBlack.com MarketWrap

http://www.robblack.com/rb_marketwrap.shtml

Telephone stocks rang in positive returns, with AT&T jumping almost 2-points and Verizon a point-sized winner. Ma Bell got an upgrade from CS First Boston, and yield was a consideration. The S&P 500 lost 2 points (-0.2%) to 996, with financial stocks contributing the most to the decline. Telecom shares had the biggest advance of the benchmark's 10 industry groups. The DJIA fell 18 points (-0.2%) to 9266. The Nasdaq Composite rose 4 points (+0.3%) to 1735, for its fourth gain in five days. The Treasury Market fell once again, pushing the 10-Year Note Yields to the highest since December. The Government will announce plans to sell a record amount of debt to finance a growing budget deficit. The Yield on the 10-Year Note rose 10-basis points to 4.27%. At some level, a rising Treasury Yield will translate into higher mortgage rates, and begin to slow the housing market. Today, home builders like Ryland, Hovnanian, and Beazer Homes were point-sized losers.

Strong Sectors: health care facility, biotech, wireless, semiconductor, defense

Weak Sectors: drug, gold, homebuilding, tobacco, casino

Top Stories . . . U.S. Treasuries declined in New York trading, pushing benchmark 10-year note yields to the highest since December, as investors anticipated the government today will announce plans to sell a record amount of debt to finance a growing budget deficit.

American Express, the fourth- largest U.S. credit card issuer, said quarterly profit rose 12 percent as customers charged more on their cards and loan losses declined.

Citigroup and J.P. Morgan Chase., the two biggest U.S. banks by assets, agreed to settle state and federal investigations into their role in Enron's collapse.

Xerox, the world's biggest maker of copiers, said second-quarter net income fell about 1.5 percent because of fees to end credit agreements.

Northrop Grumman, the world's largest naval shipbuilder, said second-quarter net income rose 13 percent, lifted by the acquisition of satellite-sensor maker TRW. The company raised its full-year profit forecast.

Credit Suisse First Boston upgraded AT&T., the biggest U.S. long- distance company, and recommended shares of local-telephone service providers.

Gurus . . . Mike Santoli, Barron's columnist, looks for some subtleties in the market advance, and finds that liquidity, free money, and a washed-out market predicated the move, and until the momentum and the money are spent, the trend could remain friendly. Admittedly, the 100-basis point back-up in rates has diminished, to some extent, the highly favorable relationship of stock returns to bond returns. Nevertheless, rates are historically low, and the Corporate Bond Market is keeping companies flush.

Barron's interviewed Buzz Zaino, whose Royce Funds have been up 13.28% on avg for the past 5 years. The fund manager believes the economy is beginning to show signs of recovery citing the earnings announcements of Yellow Corp, Wal-Mart and Regal Beloit as encouraging indicators. The fund has had exposure to DSL-component-supplier companies and retailers with most of his portfolio focuses on turnaround situations. Mr. Zaino is positive on WRNC, VOL and NWK.

Bear Stearns global economist David Malpass expects the U.S. economy to accelerate to a sustainable 4 percent growth rate in the second half of the year and sees Treasury bond yields rising "in fits and starts" as growth picks up, though he believes that a "good portion" of the bond bubble unwound in July. He anticipates higher commodity prices as the U.S. economy gains traction and also thinks that growth in Europe and Japan will strengthen in 2004. But Malpass expects the euro and yen to "weaken a bit" against the U.S. dollar in coming months.

Lehman Brothers upped its bond allocation to 27 percent from 25 percent while diminishing its cash allocation in a model portfolio to 3 percent from 5 percent following the surge in the 10-year Treasury's yield over the past month. Lehman said that the end of the bull market in bonds does not necessarily mean that equities will follow suit. Historically, except during periods of high inflation, Lehman notes that stocks have performed well during bond bear markets.

Edward Keon, quantitative strategist at Prudential, believes there is "strong evidence" of and earnings recovery. Based on the quarterly reports from the 60 percent of the S&P 500 companies that have reported results, earnings improved 6.9 percent over year-earlier levels, which so far has "far exceeded" his target.

Prudential chief investment strategist Ed Yardeni raised the recommended equity allocation to 80 percent from 70 percent, versus a benchmark of 65 percent. His bond and cash allocations were both reduced to 10 percent from 15 percent, versus a benchmark of 25 percent and 10 percent, respectively. Yardeni feels that based stocks are still undervalued when analyzing the current price to earnings ratio of the S&P 500 relative to Treasury bond yields. He feels the S&P 500 could still reach 1,200 by the end of the year, which would represent a 20 percent rise from current levels.

Barron's interviews Robert Marcin, an iconoclastic investment manager whose picks are up 56% on average. The investment manager recommended some controversial names last fall such as EDS, Cendent and Yum Brands with "tech specs" that included Openwave and Artysyn Tech. Mr. Marcin's picks are up 56% on average with ATSN nearly tripling. However, he is now cautious on the market and is net short tech stocks believing investors are willing to pay any price for speculative stocks. He is bearish on Amazon, Ask Jeeves and Pixar and bullish on Tyco, Washing Mutual and a new "tech spec" called MRV Communications.

Bonds or Stocks . . . Banc of America strategist Thomas McManus said a further rise in bond yields would not derail the current stock market rally, given that earnings expectations for the S&P 500 have risen enough to "take the sting out of the sharp increase" in interest rates. He added that stocks are still undervalued considering inflation, and that the rate rise reflects an increase in real yields rather than in inflation.

Dividends of Note . . . Meanwhile, talking about pools of money, what about dividends? Shareholders will pocket $9.2-billion more from S&P 500 companies in the next year, thanks largely to the dividend tax cut. Since President Bush signed the tax reduction into law in May, 54 members of the S&P 500 have either raised quarterly dividends, or started making a payout. Jeremy Siegel, Wharton finance professor, says the S&P 500 dividend yield may rise as high as 3% in the next year, as companies respond to the new tax law change. The S&P 500 currently yields around 1.7%.

Bond Rout . . . Treasury bonds extended their declines after a rout last week that took bellwether yields to their highest levels in about seven months. Growing evidence that the U.S. economy is on the mend, coupled with signs that demand and earnings growth is improving for Corporate America has hit the Treasury market hard over the past month.

Financials . . . Mellon Financial was picked to manage about $5 billion of domestic and international stocks for the Alaska Permanent Fund Corporation. The fund is a public savings account that invests the state's oil royalty payments for the benefit of current and future residents of Alaska.

Countrywide was upgraded at Morgan Stanley. The firm raised 2004 estimate well above consensus, and raises their target to $96 from $83;. The firm says the stock is undervalued, as marke share gains and variable cost mgmt could be worth almost $3 in EPS upside in 2004. Also, conservative MSR valuations and rapid growth in high-return segments (insurance, banking, capital mkts) suggest returns will be higher than consensus expectations.

American Financial Realty Trust reported a second-quarter loss of $12.9 million, or 30 cents per share, compared with a loss of $9.98 million, or 23 cents per share in the year-ago period. The real estate investment trust went public earlier this year.

American Express reported net income of $762 million, or 59 cents a share, up from $683 million, or 51 cents a share in the year-earlier period, and above the average analyst forecast. Revenue rose 7 percent to $6.36 billion, exceeding analyst projections of $5.98 billion. The financial and travel related services company said double-digit percentage growth in cardmember billings and lending, as well as the benefits of improved financial markets on revenue at its financial advisors division, helped offset the negative impact of the Iraq campaign and the outbreak of severe acute respiratory syndrome. The company added that it expects full-year earnings to top analyst expectations of $2.26 a share, but not to exceed $2.29 a share due to its plan to increase investment spending.

UBS downgrades Allstate, PartnerRe, RenaissanceRe to Neutral from Buy. The downgrade is based on their belief that property & casualty investors tend to discount the cycle early, and may place a lower multiple on the currently strong earnings performance of property and personal lines-oriented company's; as the insurance cycle matures, firm favors more casualty-focused underwriters such as RE, XL, and ACE.

Diversified . . . United Technologies reaffirmed its 2003 earnings outlook of $4.55 to $4.80 a share and said it continued to expect cash flow from operations, before pension contributions and after capital expenditures, to be equal to or potentially exceed net income for the year. First Call pegs full-year earnings at $4.65 a share.

Oil & Gas . . . Smith Barney upped its view on the chemicals group to an "overweight" rating from a "market weight" and also upgraded two stocks in the group: Dow Chemical and Eastman Chemical. The brokerage said the two firms managed to report upside surprises in the first quarter despite high and volatile energy prices and replicated that feat in the second quarter, despite the weak volume environment after the war in Iraq. Smith Barney said it still sees 40 percent to 50 percent upside over the next 24 months, noting that a falling U.S. dollar could boost earnings by 10 percent.

Lehman Brothers recommends they increase exposure to the oil sector while reducing their weightings in the bank sector. Strategist Ian Scott upped his exposure to the global oil sector to 7 percent from 4 percent while reducing financials to 28 percent from 31 percent. Lehman cited the recent underperformance of oils relative to banks as reason for the move, noting that it has rendered the valuation of global oil companies more appealing. In valuation terms, the oils now sell on a forward P/E premium of just 11%, the normal premium has been 44%.

Rohm & Haas reported a loss from continuing operations of $3 million, or 2 cents per share, compared to earnings from continuing operations of $92 million, or 41 cents per share, in the year-ago period. Sales rose eight percent to $1.57 billion. The company's second-quarter loss included $94 million, after tax, or 43 cents per share, for restructuring and asset impairment charges. Without charges, the company would have earned 41 cents per share. Analysts forecasted earnings of 39 cents per share and revenue of $1.62 billion.

Energy . . . Dynegy said that more than 99 percent of its lenders have approved the company's proposed long-term restructuring and refinancing plan. The previously announced transactions will help the power generator reduce debt and extend maturity due dates.

Williams Energy Partners said net income was $18.86 million, or 75 cents per share, compared with $24.63 million, or $1.05 per share in the year-ago period. Excluding transition costs, diluted earnings were 99 cents compared with $1.05 last year. Revenue rose to $107.9 million vs. $104.1 million last year. A survey of analysts forecasted earnings of 85 cents per share and revenue of $114.4 million. Excluding transition costs, the energy firm said it expects earnings of 76-79 cents for the third quarter vs. 83 cents expected by Wall Street. It's targeting earnings of $3.45 and $3.50 for the full-year 2003 excluding transition costs. Current analyst expectations for 2003 average $3.45 excluding transition costs. Transition costs are expected to be approximately 2 cents during the third quarter and 5 cents in the fourth quarter.

Entergy increased its quarterly dividend by 10 cents a share, or 29 percent, to 45 cents a share. The new dividend will be paid on Sept. 1 for shareholders of record on Aug. 12. The energy company also said it was aspiring to achieve a 9 percent return on invested capital in the near term and earnings growth of 8 to 10 percent.

Alliant Energy reported net income of $32.2 million, or 35 cents a share, versus $6.3 million, or 7 cents a share in the same period a year ago. On a continuing operations basis, earnings were 13 cents a share, versus last year's loss of 6 cents, as an improvement in non-regulated results offset lower utility earnings. Total revenue rose 19 percent to $646.3 million, slightly above the consensus analyst forecast of $614.8 million, according to Reuters Research. The utility company maintained its full-year outlook for earnings from continuing operations of $1.45 to $1.65 a share, which surrounds analyst forecasts of $1.50.

Paper . . . MeadWestvaco reported a net loss of $7 million, or 4 cents a share, versus a loss of $8 million, or 4 cents a share in the year-earlier period. Excluding charges related to asset writedowns and gains on the sale of forestlands, the loss was 6 cents a share, versus the average analyst forecast of a profit of 8 cents. The paper and packaging company demand and cost challenges at its mill-based businesses and continued high energy and raw materials costs offset strength in consumer packaging and office products businesses. Net sales for the latest quarter were flat at $1.92 billion, and below analyst expectations of $2 billion.

Office . . . Xerox reported net income of $86 million, or 9 cents a share, down from 11 cents a share in the same period a year ago. Excluding a charge for credit facility fees, earnings were 14 cents a share, topping the average analyst forecast of 12 cents, due to continued improvement in equipment sales and cost controls. Total revenue dipped 0.8 percent to $3.92 billion amid declines in post-sale revenue from its older light lens technology, but topped analyst forecasts of $3.87 billion.

Defense & Aerospace . . . Northrop Grumman raised its 2003 earnings forecast to $4 to $4.25 a share from $3.80 to $4.20 a share, citing expectations of growth provided by the U.S. Department of Defense's 21st century transformation agenda. Revenue is now expected to be $25 billion to $26 billion. Analysts are currently expecting earnings of $4.02 a share and revenue of $25.56 billion, on average. For the second quarter, the company net income from continuing operations of $207 million, or $1.09 a share, versus income of $181 million, or $1.52 a share in the year-earlier period amid a 37 percent increase in the number of diluted shares outstanding. Revenue rose 57 percent to $6.6 billion. Analysts had been projecting earnings of 86 cents a share and revenue of $6.33 billion. Pension expense for the quarter was $140 million, versus pension income of $22 million a year ago.

InVision was cut to Neutral from Strong Buy at Davenport.

Transports . . . Atlantic Coast Airlines set up a low-fare airline because its deal to fly United Airlines routes is ending.

US Airways reported second-quarter net income of $13 million, or 25 cents a share, versus a loss of $248 million, or $3.64 a share in the same period a year ago. Excluding unusual items, such as a $214 million in government reimbursements under the Emergency Wartime Supplemental Appropriations Act, the loss for the quarter was $154 million. The air carrier said results improved lower passenger revenue and higher fuel costs were offset by cost reductions put in place during its bankruptcy reorganization. Total operating revenue fell 6.6 percent to $1.78 billion, with passenger revenue declining 11 percent. The company added that its cash position improved by $157 million during the quarter to $2 billion.

Atlantic Coast Air cut to Underweight from Strong Buy at BB&T. The firm believes the company's decision to make a go of it as an independent carrier makes sense in the long term, thinks it will be challenging road ahead, particularly in such a difficult environment. Firm sees better opportunities in the group, mainly Mesa Air and Sky West.

Food & Beverage . . . Tyson Foods reported earnings of $79 million, or 23 cents per share, down from its year-ago profit of $107 million, or 30 cents per share. The latest results include items that increased earnings by 3 cents per share. Sales rose in the latest three months to $6.3 billion from $5.9 billion in the same period a year earlier. Five analysts were looking for a profit of 21 cents per share in the period, on average. The chicken and pork products firm said it's on track to meet or exceed its debt to capital goal of 50 percent or below by the end of 2003.

Kellogg reported net earnings of $203.9 million, or 50 cents a share, up from 42 cents a share in the year-earlier period, and above the average analyst estimate of 47 cents a share. Net sales increased 5.8 percent to $2.25 billion, just ahead of analyst projections of $2.18 billion, with foreign currency translation contributing growth of 3.1 percentage points. The cereal and convenience foods company's U.S. sales increased 2 percent while international sales surged 15 percent. Based on its performance for the first half of the year, Kellogg adjusted its full-year earnings forecast to $1.88 to $1.90 a share from $1.86 to $1.90 a share.

Consumer Products . . . Avon Products target raised to $75 from $65 at Fahnestock. The firm expects acceleration of operating profit growth in the next two quarters. Notes that Avon is the only co in the group with double-digit organic sales growth, and projected acceleration of top- and bottom-line growth. The $75 target is based on a 25x multiple on 2004 estimated EPS of $3.02.

Retail . . . Wal-Mart said its July U.S. sales were tracking at the "high end" of the 2 percent to 4 percent range thanks to brisk sales of seasonal products. The firm said that the Northeast region was the strongest in terms of sales in the latest week. The company will unveil its second-quarter results on August 13. First Call projects earnings-per-share of 50 cents for the second quarter.

A.G. Edwards upgraded Federated Department Stores to "buy" from "hold," on the belief that the company's "timely" markdowns will improve will improve earnings "Walks through Federated's stores from Seattle to San Francisco to Los Angeles to Memphis to Baltimore to Miami suggest to us that this retailer is today leading the department store pack - including Kohl's and J.C. Penney - in terms of taking its markdown medicine in a timely manner," Analyst Robert Buchanan said.

Bear Stearns raised Leapfrog to $37 from $33 following stronger than expected Q2 results. The firm says the comany is positioned extremely well for the critical second half of the year with new product launches, new target audiences, expanded shelf space, new distribution channels, and new geographic markets fueling demand.

Michaels Stores target raised to $51 at Adams Harkness and reiterated their Strong Buy rating. The firm's visits with management and new facilities confirms their view that MIK is making the right moves to sustain long-term growth of sales and profits with new store formats and continuous improvement in merchandising and operations. The firm also believes the stock is attractively valued at 15.7x their 2003 EPS est, and believes the co is positioned for a strong finish to 2003.

Heathcare . . . Triad Hospitals reported net income of $38 million, or 51 cents a share, up from 44 cents a share in the same period a year ago, and above the average analyst forecast of 49 cents a share. Revenue rose 9.9 percent to $953.8 million, topping analyst expectations of $944 million, amid an 11 percent increase in patient revenue, which offset a 9 percent decline in non-patient revenue. Looking ahead, the hospital operator adjusted its full-year earnings forecast to $2.14 to $2.20 a share from $2.08 to $2.20 a share, versus analyst projections of $2.16 a share.

Humana reported net income of $69.3 million, or 44 cents a share, up from 28 cents a share in the year-earlier period. Excluding non-recurring items, earnings were 37 cents a share, above the average analyst estimate of 29 cents, driven by increased operating margins in its commercial business and greater than expected Tricare revenue adjustments. Total revenue rose 7 percent to $3.03 billion. Looking ahead, the health insurance company expects adjusted earnings for the full-year to be $1.44 to $1.47 a share, above current analyst projections of $1.40.

Wachovia upgrades HCR Manor to Outperform from Market Perform based on an improved earnings outlook into 2004 due to a more positive outlook for Medicare payments next year. The firm raised 2004 est above consensus, and sees valuation range at $35-$38.

Drugs . . . ISTA Pharmaceuticals said the U.S. Food & Drug Administration issued it an approvable letter for its ISTALOL glaucoma treatment. ISTA holds exclusive marketing rights to ISTALOL in the United States under an agreement with Senju Pharmaceutical. The company added that no additional clinical studies were requested.

Goldman Sachs says would be buyers of Pfizer today as stock remains its top pick in the U.S. pharma industry. In firm's view, the current low relative valuation (market multiple on 2003 and 2004 earnings), should deserve premium to group and market based on 1) earnings transparency & growth (LT growth rate of 12% and no other US pharma company has 2004 EPS guidance 2) product breadth and 3) pipeline opportunity.

Baxter was downgraded at Buckingham to Accumulate from Strong Buy. The downgrade was based on valuation; ultimately, firm believes Advate will prove to be a winner for BAX, but investors will lack any incremental data to support this conclusion in the near-term (BAX will not begin marketing for 3-6 weeks, and sales data will not be available for perhaps one month after the beginning of marketing).

Baxter target raised to $35 at UBS. The firm is saying Friday's approval of Advate represents an important real and psychological catalyst for BAX shares; firm says the addition of Advate is a positive for margin expansion, and will enable BAX to reduce its sale of human-derived Factor VIII, which is a higher cost blood fraction that carries the risk of infection.

Biotech . . . Oxigene said that its experimental thyroid cancer therapy had been granted orphan drug status. The designation means that the drug would have seven years of U.S. market exclusivity if it wins FDA approval.

Human Genome upgraded at JMP based on their belief that the co's anthrax treatment ABthrax could represent a significant mkt opportunity that has not been fully reflected in HGSI's share price. Target is $17.

Invitrogen announced plans to offer $300 million worth of convertible notes due 2023 to qualified institutional buyers. The company will also grant the initial buyers of the notes an option to purchase and additional $45 million worth of notes. The company intends to use the proceeds from the sale for general corporate purposes, including the paydown of outstanding debt.

Seattle Genetics granted orphan status for SGN-30 Hodgkin's treatment . SGN-30 is a monoclonal antibody that is in an ongoing phase I/II clinical trial for the treatment of CD30-positive hematologic malignancies, including Hodgkin's disease, anaplastic large cell lymphoma and other types of lymphomas.

Media . . . SoundView Technology upgraded Walt Disney to an "outperform" rating from a "neutral" and lifted its price target to $28 from $17. The firm feels the Dow component will benefit from a number of catalysts, including stabilization of theme park attendance and a margin enhancement story that will play out in 2004 in all its major business units.

James Goss at Barrington Research lifted his rating on AOL Time Warner to "outperform" and upped his price target to $20. The analyst cited a "strong possibility" that the company will be able to maintain most of its dial up subscriber base and management's aggressive attempt to address the broadband add-on service option. "Should the company be successful in addressing this issue, the valuation assessment is likely to rise considerably," Goss said.

Walt Disney is in talks with telecommunications companies about entering the wireless market using several of its brands to market cell phone service including sending video and audio clips.

Hotel & Leisure . . . Royal Caribbean Cruises said net income for the second quarter declined to $55.7 million, or 28 cents per share from $66.7 million, or 34 cents per share. Revenue for the second quarter rose 10 percent to $905.8 million. "The increase in revenues was primarily due to a 15.5 percent increase in capacity, partially offset by a 4.6 percent decline in gross yields," the cruise operator said. Shares of Carnival, a second cruise operator, were up 3.86 percent in London. Looking ahead, Royal Caribbean said: "While we will continue to feel the effects for the rest of this year, we remain focused on building our brands and look forward to recovering net yields lost from the unfortunate events of the past two years."

Hilton Hotels was upgraded at Fulcrum to Buy from Neutral. The upgrade is based on their belief that estimates have come down sufficiently to mirror the industry-wide challenges for 2nd half 2003, attractive relative valuation, and their belief that the co is the safest and simplest cyclical play on improving 2004 (and beyond) lodging operating fundamentals; target is $18.

Telecom . . . CS First Boston upgraded AT&T on expectations of improved cost management and valuation for its move to an "outperform" rating from a "neutral" rating. The stock is now up 62 percent from its lows.

The Wall Street Journal reports MCI, which was formerly Worldcom, has recently been the recipient of new allegations by its rivals suggesting fraud. Verizon, AT&T, and SBC have been actively lobbying to put the co out of business ever since it announced an accounting scandal which has grown to over $12 billion. Now, these rivals are suggesting the co has been rerouting phone traffic, making long distance calls appear to be local calls to avoid having to pay steeper access fees since 1994. This practice is known in the industry as "laundering calls".

Vodafone saw 2.5 million organic net additions in first quarter ending in June for a total proportionate customer base to 122.7 million, largely in line with some of the analyst expectations. Vodafone said its blended annual ARPU (average revenue per subscriber) was up €4 to €351 in Italy, up £5 to £297 in the UK, stable at €313 in Germany and down Yen 976 at Yen 86,183 in Japan, compared to March 2003. It said data revenue increased to 15 percent of controlled service revenues for the year to June 2003. Looking ahead, the company said the figures "are in line with or s0lightly better than our expectations when we provided our outlook for the financial year. In particular, we are well on track to achieve more than 10 percent growth in average proportionate customers and a similar growth in revenues."

Network Equipment . . . After the close Friday, Qualcomm announced that it filed suit against Texas Instruments (TXN) for breach of a Patent Portfolio Agreement. WR Hambrecht believes the suit is directed at preventing TI from launching a CDMA 1X merchant market solution. While firm cannot comment on the validity of the claim, it believes the suit could put a serious damper on TI's ability to launch a competitive CDMA chipset, or at the very least delay the process, either of which could be a meaningful positive outcome for QCOM. Moreover, QCOM could also stand to receive compensation for damages. As a result, firm expects QCOM shares to react positively in today's trading.

Cisco is due to report earnings on August 5th after the close. Based on recent checks, announcements by several resellers, component suppliers and other major IT vendors, we believe the data networking market continues to stabilize with a slight up-tick in the dormant U.S. market. In the case of Cisco, the July quarter will show a slight sequential up-tick with most of the strength going into backlog. Revenues will be driven by continued market share gains (particularly on the low-end), the service provider business (just over 15% of revenues) as well as advanced technologies. The financial, media and SME (small/medium sized enterprises) drove orders. The company likely benefited from the end of year push. The book to bill will be greater than 1. Analysts are currently forecasting flat sequential EPS of $.15. There is likely to be a penny upside driven by slightly higher revenues and continued management of operating expenses. We don’t expect any major change to the gross margin levels. Consensus expectations are for EPS of $.15. Valuation is slightly aggressive overall (taking into account stock option dilution and peak gross margins) but on a relative basis (compared to other tech bell-weathers and data networking peer group) fairly valued. Overall, see some slight upside to the current quarter. However, the company will build backlog as much as possible. The backlog number is published only once a year in their 10K. Based on checks, business is showing some signs of life. Some of the strength in the past quarter may be as a result of the end of the quarter push. May was slightly weaker than April. June likely improved from May while July has also been strong. Given that 2nd quarter is Cisco’s fiscal year end, some seasonal strength usually occurs.

Therefore, investors shouldn’t be surprised to see positive trends. Given that the quarter will only likely be slightly up, we believe the company should be able to push some business out into a slightly weaker seasonal quarter (1st quarter 2004). Therefore, expect Cisco to guide to at least flat sequential revenues to possibly slightly up (in-line with current expectations). The expectations are the opposite of last quarter when Cisco was going into a seasonally strong quarter much of the street and investors were looking for a slight sequential decline.

Most of the tech bell-weathers have already released results. Most have reported in-line with expectations with flat sequential revenues (IBM, Microsoft, EMC). The smaller component vendors with exposure to Cisco reported mainly inline to slightly higher numbers for 2nd quarter with slightly disappointing guidance (Xilinx, PMC Sierra, Integrated Decvice). Cisco will continue to be conservative with guidance and likely guide for flattish to slightly up guidance. Investors will feel comfortable with the guidance, as book to bill will likely be slightly above 1.

Cisco remains the name to own within telecom equipment. However, many of the larger tech bell-weathers are trading at similar valuations with stronger growth trends. Therefore, if Cisco does not begin to show strong growth trends, there is likely to be limited upside to the current price.

Foundry reported revenues on July 24th. Foundry is also a competitor of Cisco with the majority of its business being layer 3 switches to enterprises. Revenue of $95.7 (up 5% sequentially) and EPS of $.13 were ahead of consensus expectations. North America was strong, up 20% sequentially. Federal was also strong and remained at 30% of revenues. Even without some one time benefits, Foundry’s gross margins were up above 62% versus slightly below 59% last quarter. This strength likely shows that pricing at the high-end is not a major issue. Book to bill was greater than 1. As has been the case of the past several quarters, Foundry management did not provide any guidance. The strength in Foundry’s business is a positive for Cisco.

Juniper announced a relatively strong quarter on July 10th. Juniper is competitor of Cisco and supplies IP solutions to service providers. Revenues were up 5% sequentially with a book to bill above 1. Gross margins continue to be strong, well above 60%. This could point to stable pricing and also benefit Cisco. The company guided to flat revenues versus $165 million this quarter. Assuming no major market share gains for Juniper, we believe these results represent a slightly positive data point for Cisco.

Nortel reported results within the enterprise segment that were weaker than expected. The enterprise business was down 11% sequentially. Nortel appears to be losing market share both on the data networking and telephony side.

Distributors / Other Major IT Solution Providers effects on Cisco . . . IBM reported July 16th. The company is a major IT provider and reseller of Cisco equipment. IBM management stated that the IT spending environment remains difficult. The company did say that small/medium sized businesses were an area of relative strength. Europe was weak. This data point appears neutral to Cisco.

Sun Microsystems reported results on July 22nd. Results were slightly disappointing. In terms of impact for Cisco, this reaffirms out thinking that the higher end of the market is weak while strength comes from the low-end. IBM made comments in-line with BellSouth. Larger enterprises remains somewhat cautious related to their IT spend.

EMC reported results on July 16th. Results were in-line with expectations but revenue guidance was slightly below consensus expectations. In constant dollar terms, there did not appear to any major disparity in growth from Europe and North America both were up slightly in the quarter. Asia was slightly stronger.

Semiconductor Equipment . . . Friedman Billings Ramsey reiterates their Underperform rating on CREE ahead of tomorrow's results; firm continues to be concerned about rising competitor LED capacity (particularly in Asia). The firm also believes the number of shareholder lawsuits, the suit by former Chairman Eric Hunter, and the informal SEC inquiry will weigh heavily on the stock until all are resolved; in addition, firm suspects that Street expectations will be modified to reflect rising legal expenses in the coming quarters.

Semiconductors . . . Anadigics reported a net loss of $13.8 million, or 45 cents a share, versus a loss of 29 cents a share in the year-earlier period. Excluding an acquisition-related charge, the loss was 39 cents a share, wider than the average analyst loss forecast of 36 cents a share. Net sales fell 22 percent to $18.04 million, exceeded the $16.2 million expected by analysts, amid strength in shipments of power amplifiers and cable infrastructure products.

Broadcom was cut to Underperform from Market Perform at USB Piper. The firm's checks indicate that Intel's upcoming chipsets have been designed in at both Dell and HP across the entire 2004 server platform. Piper estimates that SeverWorks contribution, direct and indirect, could drop from $450 million in 2003 to $250 million in 2004 with a more dramatic impact to earnings. Firm believes stock is fairly valued at a mkt multiple on 2004 estimates or $15.

AMD announced its reached an agreement with Dawning Information Industry of China to use the AMD Opteron processor in an effort to construct the fastest supercomputer. The expected speeds of the proposed Dawning 400A supercomputer will be at 10 trillion operations per second or 10 Tflops. In addition, it will also be expected to be the first supercomputer made in China which would rank amongst the most powerful in the world.

Boxmakers . . . According to Bear Stearns, IDC revised upwards its Worldwide PC unit sales estimate for Q2 from the preliminary forecast on July 16 to 7.6% to 9.5% year/year growth to 33.83 million units. Overall, the upside from Bear Stearns' forecast came from stronger than expected sales of portables.

Software . . . BMC Software said first-quarter earnings excluding special items were $6.6 million, or 3 cents per share, compared with 8 cents per share last year. Revenue rose 2 percent to $309.9 million. The company beat by a penny the forecast of 2 cents per share in a survey of analysts. Including items, the company posted a first-quarter loss of $6.1 million or 3 cents per share, vs. earnings of $5.2 million or 2 cents per share. The software maker forecasted second-quarter revenue to increase from the first-quarter level, with EPS of 4-6 cents vs. 7 cents forecasted by Wall Street.

Roxio will launch a new version of the Napster music service. Roxio intends to have a paid version of Napster, with a library of 500,000 songs available for individual downloads, by monthly subscription, through Internet radio, or in a combination of those options, by Christmas.

Roth reits Sell on Roxio and $4 target. The firm anticipates that the co will face intense competition in the online music biz, with numerous rollouts by media and e-commerce titans such as America Online, Apple, Real Networks, Amazon, and Buymusic.co. The firm says their $4 target represents a significant discount to the company's peer group, but is warranted because of weakness in the co's core software business, a deteriorating balance sheet, and limited visibility in the nascent online music market.

CyberGuard upgraded at Wedbush to Buy from Hold based on increasing confidence in the resilience and growth of the proxy firewall. Price target is $10.50.

RW Baird reits Outperform on Documentum following the stock's 2nd quarter shortfall-induced selloff; firm believes the Q2 shortfall has better positioned DCTM to deliver in-line 3rd quarter results, as: 1) the couple of large deals that slipped out of Q2 should close in 3rd quarter, 2) existing DCTM customers that delayed add-on sales pending release of the 5.2 upgrade will be free to move forward, 3) signed consulting contracts provide visibility for sequential growth in 3rd quarter Services rev, and 4) the DCTM sales force will be able to sell Collaboration and Records Mgmt to their existing customers for the first time.

Acclaim granted 180 day listing extension by Nasdaq.

The FDA will standardize on Documentum ECM platform and is deploying Documentum eRoom, Documentum's enterprise collaboration solution. A longstanding customer, the FDA will standardize on Documentum for creation, management, delivery and archival of all types of content, including collaboration, records, web content and documents.

Radware reported earnings of $0.07 per share which was $0.01 better than the consensus. Revenuess rose 24.5% year/year to $13.2 mln vs the $13.0 mln consensus.

Ariba ESM selected by British Airways to help cut costs and improve its bottom line.

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