Caterpillar a Decent Bottom Fishing Stock

During a press conference held Thursday in Beijing, the location was very telling, Caterpillar Inc. (CAT) CEO James Owens gave an update on guidance by saying that the company expects total sales and revenue for 2008 to exceed $50 billion. Reuters had a good highlight of some noteworthy comments made; prolonged economic weakness into 2009 for western countries, U.S. housing won’t pick up until 2010 but the underlying and overriding story was the emerging country growth that would offset weakness- for instance, the fact that China revenue is expected to double to $4 billion by 2010. Recently basing, trading at $70.60, and at a forward PE that would dip into the single digits on another decline (probably unlikely given that value managers would be all over this before it happened), Caterpillar seems to be a decent bottom fishing stock in this market. There is a lot of overhead– 50-day ma at $70.85, a $72 technical stranglehold and the 200 day ma at $73.22, but if the Dow can catch a bid following the Labor Day weekend, then Caterpillar should too and could clear most, if not all of those near term resistance levels.

MasterCard Being Overlooked, Especially After Two Upgrades

Two upgrades in the past week or so, one from Goldman and then from William Blair and shares of MasterCard Inc. (MA) have barely budged despite having a pretty big haircut from its late May 52-week high of $320.30. According to Reuters, the analyst from William Blair & Co. tabs MasterCard as an investment opportunity with significant operating leverage. The brokerage expects revenue growth of 14% annually and earnings growth of 23% over the next five years and one can’t overlook the fact that it's less exposed to the weakening U.S. economy. Technically, along with a diminished valuation, the stock looks to have bottomed as well having bounced off its 200 day moving average of $232.45 twice in the past few days.

Google Nears July Lows, High Beta Stock Selling Overdone

Much has been made about investors being much more risk-averse in these turbulent, volatile markets and sending down high-beta stocks like Google Inc. (GOOG). In fact, the search behemoth has been creeping lower, falling as much to surprisingly close in on its July lows (while at the same time the major market indices have come off their lows), and is currently extending its losses, down in lunch hour trading close to double digits to $465 on mediocre volume of 1.6 million shares. But the selling seems overdone. Google is priced at a teenager-like PE on a forward earnings basis when it is expected to grow revenue by 26% and earnings by 23%. And its strong search position remains unchallenged, with Google accounting for 61.9% of July searches, up .4% from June according to comScore. There are only so few times when Google’s shares are at such a compelling valuation, and this is one of those times.

Las Vegas Sands: Putting Faith in Sheldon Adelson

"Put simply, Las Vegas Sands' U.S. liquidity appears tighter than we initially thought and published following earnings," Banc of America’s Shaun Kelley said in his Friday downgrade of Las Vegas Sands Corp. (LVS). But put simply, the market has already largely discounted a lot of those fears in the share price and the downgrade seems ill-timed. In the five trading sessions prior to the analyst downgrade, the stock was off by 38.6% while in the two days after the bearish comments, the casino stock actually moved higher by 1.2% to $41.89. And CEO Sheldon Adelson (the world’s twelfth richest person at $26 billion) emphatically assured during the second quarter conference call that although there were funding needs, there would not be any liquidity problems. This exchange during the call, courtesy of SeekingAlpha, says it all; “A friend of mine says that... I don't equal the height of Yao Ming or LeBron James or any of the basketball players. Ming isn't here, but LeBron James and Kobe Bryant and other top players are here in Macau. However, one of my closest friends says, Sheldon, don't worry about your height. You're the tallest person I know when you stand on your wallet. And I'm saying right now the company will not have liquidity problems.” The dialogue implies that in a worst case scenario, Adelson would back the company with his own money. Thus, you can put your faith in Adelson and bet that Las Vegas Sands is a pretty good bounce candidate at this level.

Amazon’s Reaction to Citi’s Kindle Note: Irrational Exuberance

Citigroup's Mark Mahaney is out with a note this morning regarding Amazon Inc.’s (AMZN) Kindle, saying the sleek and trendy electronic reader is the “iPod of the book world” and could be one of the top gifts this holiday season. The analyst has doubled his 2008 unit sales estimate of Kindle from 190,000 to 380,000. Revenue from Kindle is expected to be $1 billion, up from a previous estimate of $400 to $750 million. The news may be good, but the quick and early 9% move in the stock speaks of irrational exuberance.

MedcoHealth a Case of an Inefficient Market

MedcoHealth Solutions Inc. (MHS), a pharmacy benefits manager, recently raised full-year diluted guidance, excluding items, to a range of $2.30 to $2.33 – growth upwards of 28% compared to the last fiscal year, up from previous guidance of $2.27 to $2.31 per share. Looking a bit forward, the consensus analyst estimate for full year 2009 has been moved up to $2.74, implying somewhat lower growth at 19% (but still good), and for all that, the stock trades at a teenager-like PE. After touching a post-earnings high of $50.16 on Jul. 25, shares have languished, continually hovering just above its 50-day and 200-day moving average support at $47.42 and $47.89 respectively. Even with today’s 3% move that coincides with a major market rally, the stock still appears to be inexpensively priced. This could be a case of an inefficient market having its way with Medco.

eResearch Reassuring Conference Call Sparks Recovery

In the aftermath of a Leerink Swann mid-July downgrade that wiped out about 25% of EResearch Technology Inc. (ERES) market cap, the stock is trying to recover. In what could be called a reassuring conference call on Monday, management announced positive guidance – reiterating full year 2008 revenue of between $133 million to $140 million, said new bookings came in at $49.0 million for the quarter, an increase of 42.0% from the 34.5 million in the same period last year and most importantly, refuted the argument of competition to its cardiac safety services from automated methods, the main thesis for that analyst rating change to “underperform.” That is probably as good a reason as any for yesterday’s curiously delayed 9.1% post-earnings move up on heavy volume of 1.2 million shares. The gain puts eResearch shares back on track.

IBM One of the Few Strong Dow 30 Stocks

International Business Machines Corp. (IBM) continues to be one of the strongest Dow 30 performers and in fact is the largest percentage gainer (at 6.1%) and one of only six components that are up over the past three months, the other stocks being Johnson & Johnson, Wal-Mart, Proctor & Gamble and McDonald’s according to Index Arb. The recent catalyst has been IBM’s second quarter report which blew out analyst estimates – earnings rose to $1.98 per share compared to expectations of $1.81 a share on $25.9 billion in revenue. The underlying momentum has also been driven by the fact that management seems to be pretty confident in achieving $10 to $11 in earnings per share by 2010. There’s no reason why IBM can’t continue being a Dow 30 leader, especially since it still trades at a relatively inexpensive 13x earnings, and thus it should have no trouble breaching $130 resistance on the next market rally.

Symantec’s Third Consecutive Earnings Beat

Symantec Corp. (SYMC) had a great first quarter, beating the consensus by a nickel to post earnings per share of $.40 on revenue of $1.66 billion and moved up its outlook a bit. It’s something to take notice of because it’s the third consecutive quarter that the antivirus and internet security company has surpassed Street expectations, especially since there hasn’t been much appreciation for the name from the time that Symantec and Veritas announced their plans for a merger. The ability for Symantec to cross-sell and up-sell the breadth of our product portfolio was a major part of the earnings strength. Symantec signed 336 agreements worldwide versus 249 in the same period a year ago with a contract value of more than $300,000 each. According to the release, of the 336 agreements, 85 had a value of more than $1 million each versus 48 in the same period a year ago. Trading at a 52-week high and at long term technical resistance of $22 a share that dates back to 2006, Symantec looks well positioned to breakout.

Microsoft Share Buyback Solidifies Stock Bottom

Microsoft Corp. (MSFT) is planning on a share buyback of between $15 and $20 billion. If there is something that can get the stock headed in the right direction in the post-Yahoo failed acquisition era, especially in light of a recent Jul. 17 fourth quarter earnings miss and an outlook that was a bit light - at least a penny shy of the consensus, this would be it. Bloomberg ran a story this morning quoting UBS analyst Heather Bellini who expects Microsoft to complete such a share repurchase, notably five times larger than its average per quarter in the last fiscal year, over the next three months (Microsoft slowed the pace of repurchases to $12.4 billion in its last fiscal year). The buyback would come at a time when the stock is off nearly 20% since February while Microsoft is trading at the lowest estimate price-earnings ratio since the software maker went public 22 years ago, according to Bellini, and could lift earnings per share by as much as $.10 annually. If anything, the buyback will further solidify the floor on Microsoft shares and perhaps might even begin to change investor perception that the stock is dead money.

Pitney Bowes Shareholders Breath Sigh of Relief

Pitney Bowes Inc. (PBI) soared 10% yesterday on volume of 3.2 million shares almost touching $36, it’s biggest intra-day move since Nov. ’07 when the company plunged more than $5 after missing third quarter earnings by a wide margin. This time around, because actual earnings were feared to come in lower than expected and with the stock recently hovering near a 52-week low, all it took was a slight beat and a reiteration of full year guidance from the postage company to get the stock moving. Excluding items, Pitney Bowes beat by two cents, posting earnings of $.69 a share on revenue of $1.59 billion and reaffirmed 2008 earnings per share of between $2.80 to $2.90 on revenue growth of 6% to 9%. The only notable commentary from top management was that it again said that after concluding a strategic review of its U.S. Management Services operations, it decided to retain and grow this business, a good long term move but it does eliminate any short term catalyst for the shares. Trading at 12x P/E and with a 4.4% dividend yield, Pitney Bowes is as much a value stock as any out there and can finally claim a bottom with this earnings report. But whether there is significant upside beyond this point is another story.

Cisco Systems Still a Wait and See

Cisco Systems Inc. (CSCO) 7% jump in the after hours session Tuesday was initially led by the networking equipment supplier’s strong fourth quarter earnings report. Excluding items, the company beat the consensus estimate of $.39 per share and the revenue target of $10.3 billion. Allaying fears of prolonged economic weakness also helped spark some optimism as Cisco CEO John Chambers reiterated the company’s growth expectations of 12% to 17%. Macro observations made by Chambers were decidedly positive, saying that the economic slowdown would be a “relatively short challenge going forward” and that the period of economic trouble wouldn’t be of a “long duration.” Perhaps the most encouraging part of the conference call was when he said that there is progress in the U.S. enterprise market and that total overall enterprise growth is possibly stabilizing; “while growth still varies dramatically by industry, the large multinationals and financial institutions, which were the first ones to decline almost a year ago, in terms of their spending with us, now are doing dramatically better” (transcript provided by SeekingAlpha). Contrast this with the comments he made about a “lumpy” enterprise market in the fall of ’07 when Cisco shares traded above $32 and there is reason to be cautiously optimistic. But given the economic conditions, Cisco failed to offer a full year view and instead projected that revenue growth for the first quarter would be around 8% and for the second quarter around 8.5%. According to the consensus analyst estimate, that outlook would imply a slight miss on revenue. With rather tepid guidance and economic uncertainty hanging in the balance, Cisco is still a wait and see.