The $19 billion WhatsApp deal could become the Facebook founder's legacy . . . or his albatross.
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In a slow economic recovery, the company keeps up pricing pressure. That will mean earnings growth when volume picks up.
In the current slow-growth economic environment, I'm looking for shares of companies that can turn modest top-line growth in unit volume into better-than-expected bottom-line earnings growth.
And that's exactly what DuPont (DD) reported on July 28 for its second quarter of 2011. Earnings of $1.37 a share were two cents a share above consensus, and revenue climbed 19% from the second quarter of 2010 to $10.26 billion, above the Wall Street estimate of $9.9 billion.
But to see what I mean, look at how DuPont got that 19% increase in revenue. Just two percentage points came from higher volumes, while a whopping 11 percentage points came from higher local prices. (Exchange rates and a shift in the company's sales mix toward higher-margin products account for the rest of the revenue gain.)
Although Congress is moving toward an agreement to raise the debt ceiling and trim the budget deficit, we're not out of the woods yet.
As I write this, Congress is moving toward a budget deal that would slash spending by at least $2.1 trillion over 10 years while raising the U.S. Treasury's borrowing limit by $2.4 trillion -- enough to get us past the 2012 presidential election.
By all indications, the bill will pass. The House approved it Monday evening, and the Senate -- which was expected to OK it as well -- scheduled a vote for Tuesday morning.
And as I outlined on Friday, this couldn't come soon enough. Economic growth is waning and investor confidence fading. As the once unthinkable -- a default by the United States government -- suddenly became a very real threat, it took the wind out of the sails of the recovery just as it was building some momentum after a spring slowdown.
But with GDP growth slowing to a crawl and factory activity essentially unchanged in July, is it too late? Has too much damage already been done? Maybe. But the bigger problem is that the deal doesn't go far enough. And that risks America's losing its vaunted AAA credit rating at a time of economic vulnerability. Here's why.
The end of 'unlimited' as we know it.
Things are going full throttle at AT&T (T), and I don't mean that as a compliment.
The telco giant announced Friday that it will begin to slow down the heaviest data drinkers on its unlimited wireless data plans. The move may shake out money-losing wireless customers, but it will also inevitably sink the carrier's already sullied reputation even deeper.
Come October, AT&T will flag 5% of its biggest consumers of data. Multiple notices will go out. An initial grace period for first-time bingers will be extended. In the end, the largest pigs at the data trough will be slapped with slower access until the next billing cycle begins.
In short, this buffet is about to begin discriminating against heavy eaters.
As Chinese labor costs skyrocket, one manufacturer thinks a robot army will be more affordable.
Foxconn Technology Group (FXCNY), known best for building Apple's (AAPL) products, wants to put 1 million robots to work in the next three years, Reuters reports. That's almost the same number of human workers that Foxconn currently employs.
The biggest reason for this change is, of course, money. Chinese labor is no longer as cheap; some experts say that wages in key manufacturing regions have risen by a third in the last year. In the first quarter, 13 provinces in China raised the minimum wage by an average of 21%. "Workers' wages are increasing so quickly that some companies can't take it longer," one fund manager told Reuters.
Another reason for the change is, to put it candidly, that robots don't commit suicide.
The resolution of the budget debate doesn't mean its hangover will go away soon.
By Joe Mont, TheStreet
It isn't over yet.
What does it all mean for average consumers abd investors, and what moves should they make, or avoid, given continued uncertainty?
People looking to take advantage of the drop in housing prices may do best to ride out the debt crisis for a bit longer.
Even with a resolution, the nation's debt crisis could lead to a downgrade in its creditworthiness that could make getting a loan more expensive in the weeks ahead.
Investors are starting to notice S&P 600 stocks that are projected to have double-digit increases in sales and earnings.
A stock that has received recent notice on Wall Street is Zoll Medical (Zoll) which designs, manufactures and markets an integrated line of proprietary, noninvasive cardiac resuscitation devices, external pacemaker/defibrillators, disposable electrodes, mobile ECG Systems and EMS data management solutions. The recent price momentum has been a result of upgrades in the projections for sales and earnings.
Barchart technical indicators of recent price momentum:
- 100% Barchart technical buy signals
- Trend Spotter buy signals
- Above it's 20, 50 and 100 day moving averages
- 4 new highs and up 20.06% in the last month
- Relative Strength Index is 74.72% and rising
- Trades around 69.00 which is above its 50 day moving average of 57.45
- Barchart calculates a 61.99 support level
Time Warner Cable sees a drop in video-on-demand revenue, with adult films seeing the biggest decline.
That's a question Time Warner Cable (TWC) and other on-demand video providers are struggling with. The cable provider said recently that its video-on-demand segment, which includes its adult film collection, saw a revenue drop of 13.5%, or $14 million, in the second quarter.
"The biggest piece of the year-over-year decline was, in fact, in the adult category," TWC president Robert Marcus said on a conference call with analysts, according to The New York Post.
The company didn't explain why the business has gone soft, but there's a pretty obvious candidate: the Internet and its plethora of free adult videos.
As Americans focus on budget negotiations in Congress, the US may be headed toward another recession.
By Frank Byrt, TheStreet
While Americans focus on debt and budget negotiations in Congress, the nation's already fragile economy may be heading toward another recession.
As an example of how bad things are, the Institute for Supply Management said Monday that its index of manufacturing activity dropped to a reading of 50.9 in July from 55.3 in June. Economists had expected the gauge to remain unchanged.
The Commerce Department also said last week that gross domestic product (GDP) growth -- a measure of all goods and services produced in the U.S. -- rose at a meager 1.3% annual rate in the second quarter, well below economists' projected 1.8% growth. A year ago, the economy expanded by 3.8%.
While the S&P 500 struggles amid fear and uncertainty in the US, these Asian funds show strong chart patterns and good fundamentals.
The technical action at June's lows looked quite promising, but the rally ended much sooner than expected when the market finally gave up on lawmakers' ability to solve anything. Now that it seems a deficit-reduction plan is in place, stock futures are sharply higher in early trading and the oversold readings suggest we could still go higher.
Since the June 24 closing low in the Spyder Trust (SPY), the fund is now up just 2%. The three consecutive lower monthly closes have clearly dampened investor enthusiasm as we enter the most difficult of the summer months.
Still, there are three global ETFs that have more than doubled the performance of SPY, which show positive relative performance versus the MSCI World Average. These global ETFs could be start performers when we enter the much stronger fourth quarter for stocks.
Funds tracking media, solar energy and real estate will be in the spotlight as major holdings report earnings.
By Don Dion, TheStreet
Here are five exchange-traded funds to watch this week.
Top media companies -- including CBS, Discovery Communications (DISCA), Time Warner (TWX), Viacom (VIA.B), DirecTV (DTV) and Comcast (CMCSA) -- will report earnings this week, providing investors with insight into the state of the media industry.
PBS appears well-suited to defend against the possibility of future shakeups at Rupert Murdoch's media empire, however. Although it can be found among the fund's 10 largest holdings, shares of NWSA account for less than 5% of its index.
Like other subsector products, PBS is best suited for aggressive investors. Any exposure to this fund should be kept small and focused.
Last week was a debacle, but corporate earnings are strong. Look for a recovery rally.
Stocks are poised to rally this week as a resolution to the debt debate lifts investors' spirits.
While the attention was intensely focused on Washington, D.C., companies were busy reporting earnings. With 75% of those businesses reporting results beating Wall Street expectations, stocks are extremely undervalued.
It might pay to go against the crowd with respect to stocks this week.
Every once in a while, you get those weeks of trading that just need to be erased from memory. Last week was one. With the Dow down 4% and many more stocks down even further, the action made little sense.
Like many sell-offs, this one shall pass. In most cases, stocks will rebound quickly, replacing losses with gains. The ETF to own for strength is iShares S&P North America Technology and Multimedia Fund (IGN).
The financial sector has seen lots of job cuts, and Wall Street should brace for more -- perhaps 80,000 by year's end.
By Jeff Reeves, Editor, InvestorPlace.com
In July, as financial-sector layoffs mounted, a top executive search firm estimated as many as 80,000 jobs might go in this coming round of financial layoffs.
"This is kind of like the beginning of a tsunami," said Richard Stein of Caldwell Partners. "You don't get it in one go -- it comes in sort of short shock waves."
Well, those shock waves have kept coming, with Monday's brutal announcement from HSBC (HBC) in London that by 2013 it will cut an additional 25,000 jobs on top of 5,000 posts already being eliminated. But if recent news is any indication, the layoffs are far from over.
Sell your debt-resolution plays and focus on stocks that won't be derailed by a US default.
Back to individual stock picking -- for now. That's how I view this debt ceiling deal, which I believe will pass simply because every single reporter says it will, and I have to trust the consensus like everyone else or be run out of town on a bull.
To me, if you bought "exposure," meaning deep-in-the-money calls or some higher-beta stocks on Friday, as I suggested here, you sell them into strength, take the profit. You didn't get to build the position, but you did get to make the money.
Then I would just wait. I would wait for the people who have to come out and say:
1. Didn't matter, too small, we will eventually be downgraded.
2. Nothing's changed. We are still dysfunctional.
3. Things are even worse because now there will be less spending to prop up the economy.
4. It's too late, as the second half has been killed by this wrangling.
5. The deal does not clarify taxes enough to make companies feel good enough about spending.
6. China is still slowing, although not as fast as we would like, because the tightening goes on.
10. Country to be named later
It’s all about the debt-ceiling debate right now, and mounting fears have caused damage. Use any short-lived rally as a chance for selective selling.
Congress could take a page from these companies' debt-slashing efforts
The U.S. debt ceiling talks are sputtering along, with the deadline for addressing the country's dwindling amount of available credit fast approaching and legislators bickering over how to address the problem.
By all accounts, the process has been painfully slow, with both sides proving to be better at political posturing than at legitimate compromise.
Perhaps they could learn something from Corporate America. While a myriad of companies went into the financial crisis of 2008 leveraged to the hilt, many have used the last three years to chip away at -- or, in some cases, altogether eliminate -- their high piles of debt. To be sure, they didn't have to deal with the same sort of political machinations that U.S. policymakers have to deal with. But they can nonetheless provide a bit of much-needed "get-it-done" inspiration -- not to mention good opportunities for investors.
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Chipotle is an extremely well-run company in the midst of robust growth. But its stock, like Wal-Mart's a decade ago, may nonetheless be hitting its peak.
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[BRIEFING.COM] The major averages remain near their early lows with the Nasdaq (-0.6%) seeing the largest decline.
The index lags amid weakness in technology (-0.6%) and biotech. The iShares Nasdaq Biotechnology ETF (IBB 257.50, -1.43) trades lower by 0.5%. Similar to the biotech ETF, the health care sector holds a loss of 0.5%.
With stocks on the defensive, traditional safe-haven assets remain in demand. Gold futures trade up 1.5% at $1366.60/ozt while Treasuries sit ... More
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