Replies to post #9065 on Sector Investing

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Weekly Recap - Week ending 17-Sep-10The major indices posted solid gains this week as tech shares rallied on some encouraging corporate items.

The S&P 500 climbed 1.5%, sending the benchmark index to a 0.9% gain for the year. Eight of the 10 sectors advanced. The tech sector spiked 4.4% thanks to several better-than-expected earnings reports and news of possible share repurchases and dividends. The defensive-oriented utility sector underperformed with a loss of 0.9%. Volume was light through Thursday, but spiked on Friday due to quadruple witching.

In earnings news, Best Buy (BBY) found support after it posted better-than-expected earnings and increased its profit outlook. Shares rose nearly 10% for the week.

Oracle (ORCL) and Research In Motion (RIMM) also reported better-than-expected earnings and issued strong guidance. Oracle climbed 9.7% and RIMM rose 5.9%.

But FedEx (FDX) missed earnings estimates and issued downside guidance. Shares slumped 2.2%

Companies continue to be active on the M&A front, with Dow components Hewlett-Packard (HPQ) and 3M (MMM) going shopping once again. Hewlett-Packard is scooping up ArcSight (ARST) for $43.50 per share. Separately, 3M offered $10.50 per share for Cogent (COGT).
Meanwhile, Hertz (HTZ) is paying $50 for each share of Dollar Thrifty (DTG).

M&A activity is expected to remain active as companies are flush with cash. Companies are also expected to increase their dividend payments and stock repurchases.

During a presentation, cash-rich Cisco (CSCO) hinted at possibly issuing a dividend. JPMorgan (JPM) said it plans to restore its dividend payout to range of 30-40%. MasterCard (MA) announced the approval of a $1.0 bln share repurchase plan. Texas Instruments (TXN) announced a share repurchase plan of $7.5 bln, representing a quarter of its market cap.

The Basel III international regulation for banks was released over the weekend. The new rules were not as stringent as some had forecast and gave plenty of time to ease in implementation, giving financial stocks a lift. The new capital requirements require an increase of the required common equity to 4.5% from 2.0%. The stricter requirements will be phased in over a nine year time span.

In economic news, August retail sales rose 0.4% in August, which was better than expectations for a 0.3% increase.

In commodity trading, gold hit a fresh all-time nominal high of $1282.50 per ounce.

In overseas news, as the strengthening yen threatens Japan's exporters, the country decided to intervene in the currency market to curtail the yen's strength. The yen fell 1.9% on the week.

 
 Index	  Started Week	Ended Week  Change  %Change  YTD % 
 DJIA	    10462.77	 10607.85   145.08    1.4    1.7 
 Nasdaq	     2242.48	  2315.61    73.13    3.3    2.0 
 S&P 500      1109.55	  1125.59    16.04    1.4    0.9 
 Russell 2000  636.46	   651.44    14.98    2.4    4.2

4:30 pm : High-quality quarterly reports from a couple of large-cap tech names positioned stocks for a strong start to the week's final session, but some disappointing data led to lackluster action and an anticlimactic close in the face of quadruple witching options expiration.

Better-than-expected earnings and strong forecasts from both Oracle (ORCL 27.48, +2.12 and Research In Motion (RIMM 46.72, +0.23) helped tech stocks climb 0.5% to lock in a weekly gain of 4.4% and record their eighth straight advance. Texas Instruments (TXN 25.72, +0.74) helped the sector with an announcement that it will add 8% to its dividend and earmark for share repurchases $7.5 billion, which is almost equal to a quarter of the company's current market cap.

Strength among tech issues helped the Nasdaq remain in positive territory for virtually the entire session, even after it was undercut by the preliminary Consumer Sentiment Survey for September from the University of Michigan. The Survey slipped to 66.6 from 68.9 in August. On average, economists polled by Briefing.com had expected that the September reading would come in at 70.0.

Consumer price data was generally disregarded. The Consumer Price Index (CPI) for August increased 0.3% month-over-month, while core prices went unchanged month-over-month. The consensus among economists polled by Briefing.com had called for a 0.2% increase in overall consumer prices and a tepid 0.1% increase in core prices.

Weakness among financials and energy stocks offset the tech sector's strength in the broader market. Financials (-0.5%) were bogged down by losses among diversified financial services stocks, which dropped 1.5%. Energy stocks (-0.5%) were primarily hampered by refiners, which fell 1.5%, though coal producer Massey Energy (MEE 29.94, -2.42) was a particularly heavy drag on the sector after it issued a disappointing outlook.

Mixed interest in the broader market left the S&P 500 to spend most of Friday's session near the neutral line after it had made an early move through key resistance levels to a new four-month high. The benchmark Index still managed to finish the week with a cumulative gain of 1.4%, though.

Share volume was extraordinarily robust. With more than 1.8 billion shares exchanged on the NYSE, this session's total was more than double the average daily count for the past 10 sessions. The surge in share count stemmed from a quadruple witching options expiration.

Despite the surge in share volume, volatility was contained. In fact, the Volatility Index was never up more than 4% and it ended the day just 1.3% higher.

Advancing Sectors: Industrials (+0.9%), Telecom (+0.6%), Tech (+0.5%), Consumer Discretionary (+0.3%)
Declining Sectors: Energy (-0.5%), Financials (-0.5%), Consumer Staples (-0.1%), Utilities (-0.1%)
Unchanged: Health Care, MaterialsDJ30 +13.02 NASDAQ +12.36 NQ100 +0.4% R2K +0.6% SP400 +0.3% SP500 +0.93 NASDAQ Adv/Vol/Dec 1546/2.57 bln/1116 NYSE Adv/Vol/Dec 1774/1.86 bln/1214

10:16 am ORCL Beats Q1 Analyst Expectations (ORCL)

Oracle (ORCL 26.99 +1.63) reported first quarter earnings per share of $0.42, above the consensus of $0.37.

Revenues rose 49.9% year-over-year to $7.59 billion, above the $7.27 billion consensus.

The company also reported first quarter operating margins of 39.0% above the consensus of 38.5%.

The company expects second quarter earnings per share to in the range of $0.45-0.47 constant currency, in-line with the $0.45 consensus. The company expects new software license revenue growth to be 9-19% in constant currency and hardware to be $1-1.1 billion in constant currency, which does not include support.

The company stated "We executed better than expected on both the top and bottom line for the quarter... Strong revenue performance plus disciplined business management enabled a 38% increase in non-GAAP earnings per share to $0.42."

09:58 am TXN to Repurchase Additional $7.5 Bln, Increases Dividend (TXN)

Texas Instruments (TXN 25.45 +0.48) announced that it will repurchase an additional $7.5 billion in stock, in addition to the $1.3 billion in repurchase authorizations remaining at the end of June 2010.

Additionally, the company announced plans to raise its quarterly cash dividend 8% or $0.01 per common share to $0.13 from $0.12, resulting in annual dividend payments of $0.52 per common share.

09:42 am RIMM Guides Q3 Above Expectations (RIMM)

Research In Motion (RIMM 48.10 +1.61) reported second quarter earnings of $1.46 per share, above the consensus of $1.35.

Revenues rose 31.1% year-over-year to $4.62 billion above the $4.47 billion consensus.

The company reported second quarter gross margins of 44.5% above the 43.9% consensus and previous 44% company guidance. The company reported second quarter units shipped of 12.1 million vs 11.6-12.1 million previous guidance and an approximate 11.8 million consensus estimate. Second quarter net subscriber addition of 4.5 million below the 4.9-5.2 million company guidance and approximate 5 million consensus estimate.

The company also issued upside guidance for the third quarter, seeing earnings per share of $1.62-1.70, above the $1.39 per share consensus. The company expects third quarter revenues in the range of $5.30-5.55 billion, above the $4.83 billion consensus, with gross margin of roughly 42% vs the 42.6% consensus and net sub adds in the range of 5.0-5.4 million.