Shares of D.R. Horton Inc. (NYSE: DHI), the largest U.S. home builder, were plunging in premarket after the company reported a large second quarter loss this morning. Its quarterly numbers were dragged down by the slumping housing market which forced the homebuilder to take hefty charges to write down the value of its inventory.
The company reported a loss of $1.31 billion, or $4.14 per share . The income figures were definitely nothing to cheer about. During its second quarter last year, the company had a profit of $51.7 million, or 16 cents per share, but that number was slashed this quarter as the homebuilder took pretax write-down charges of $834.1 million.
Wall Street analysts expected the company to have a quarterly loss of "only" 39 cents per share. So with the actual numbers, D.R. Horton is looking for a pretty bad day in today's session.
Altria Group (NYSE: MO) shares are trading higher after the company announced it is cutting promotional discounts and raising prices on cigarette brands starting today. This move was made to stem losses from lower cigarette volumes. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on MO.
After hitting a one-year low of $19.47 in July, the stock hit a one-year high of $24.55 in January. MO opened this morning at $20.75. So far today the stock has hit a low of $20.50 and a high of $20.86. As of 12:40, MO is trading at $20.79, up $0.36 (1.7%). The chart for MO looks bearish but improving, while S&P gives the stock its highest 5 STARS (out of 5) strong buy rating.
For a bullish hedged play on this stock, I would consider a September bull-put credit spread below the $19 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 26% return in just four and a half months as long as MO is above $19 at September expiration. Altria would have to fall by more than 8% before we would start to lose money.
MO hasn't been below $19 at all in the past year and has shown support around $20 recently. This trade could be risky if investors rotate out of historically defensive stocks, but even if that happens, this position could be protected by the support the stock might find around $20, where it bottomed out both this past week and back last fall. Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither controls bullish hedged positions in MO.
Warren Buffett's Berkshire Hathaway (NYSE: BRK.A) reported a 64% drop in quarterly profit late Friday. At the company's annual meeting this past weekend, the legendary investor said that while a Berkshire unit has bought portfolios of subprime mortgages (and has frozen resets that were due to send interest rates on those loans higher) he warned investors that housing-market weakness isn't over yet and predicted more losses for banks. At the same time, Buffett said Sunday he will consider investing in the insurance business of U.K. banking giant Royal Bank of Scotland (NYSE: RBS) and is close to buying a medium-sized company in the country.
Hovnanian Enterprises Inc. (NYSE: HOV) estimated on Monday it would take $225 million to $275 million of land-related charges for the that fiscal second-quarter and said that home deliveries dropped 21% to 2,494 homes in the period. The company also turned cash-flow positive faster than it expected and tripled its full-year estimate of cash flow.
After being rejected by Continental Airlines Inc. (NYSE: CAL) last month, United Airlines parent UAL Corp. (NYSE: UAUA) is intensifying merger talks with US Airways Group Inc. (NYSE: LCC), according to The Wall Street Journal. A deal is said could emerge in as soon as 10 days. In light of rising fuel costs, the more than $1.5 billion in potential cost savings and revenue enhancements the companies see from joining forces is no doubt appealing more and more.
Shares of the nation's largest food and beverage maker, Kraft Foods Inc. (NYSE: KFT), have been surging in morning trading despite posting a decline for its first-quarter profit, as its earnings numbers were better than analysts had forecast.
For the quarter, Kraft Foods announced that its profit dropped 13% to $608 million, compared with $702 million a year earlier, dragged down by higher expenses for ingredients. The 2007 earnings results included a one-time interest benefit related to the spin-off from Altria Group Inc. (NYSE: MO). On an adjusted basis, the company posted quarterly earnings of 44 cents per share, slightly higher the 40 cents per share that analysts expected.
The food giant posted solid growth in its first-quarter revenue, which climbed to $10.37 billion, up from $8.59 billion reported in the same period a year ago. Analysts had forecast lower revenue of $9.77 billion in the quarter, according to Thomson Financial. The increase in revenue came as the company benefited from both the weak dollar and gains related to acquisitions.
I've received a few chuckles for investment directions I've suggested in the past, but if you care to review a couple of my previous generalities, I believe that my record has held up fairly well.
I submit for approval the following investment angles for the balance of 2008 and possibly beyond:
Have I suggested investments in water holdings? Yes, I do believe that I have. I believe that going long in water stocks could be an investment hedge of the decade. I also suggest a look into the desalination technology from General Electric Co. (NYSE: GE).
I'd think it's a good idea to stick with the railroads, such as Burlington Northern Santa Fe (NYSE: BNI). I claim that, with all things given, for now, railroads can't fail. Conversely, I think it's a good time to back away slowly from trucking. I think misery lies ahead there.
EMC Corp. (NYSE: EMC) said its first-quarter profit dipped 14% on acquisition-related charges, but it posted a 17% revenue gain to $3.47 billion that beat Wall Street forecasts. Excluding items, EMC's profit was $477.3 million, or 23 cents per share. Also, VMware (NYSE: VMW) reported a 5% profit rise on faster-than-forecast sales growth. The company is mostly held by EMC. EMC shares are up about 5.5% in premarket trading. VMW shares are up 13.75% in premarket trading.
Philip Morris International Inc. (NYSE: PM), spun off last month by Altria Group Inc. (NYSE: MO) reported first-quarter earnings this morning, posting a 29% increase in profit to $1.87 billion, or 89 cents a share as new varieties of Marlboro cigarettes such as clove flavored ones as well as acquisitions spurred sales in Indonesia, Pakistan and Mexico. The weak dollar also helped boost the bottom line. Revenue climbed 18% to $15.6 billion. The results beat the 78 cents analysts were looking for. Altria reports quarterly results Thursday. While Altria now does all its business in the U.S. where smoking has been on the decline, cigarette companies tend to do well in a weak economy.
Last night we heard that eBay Inc. (NASDAQ: EBAY) is suing Craigslist for unfairly trying to dilute eBay's 28% stake in it by more than 10%. Craiglist today is firing back, saying the online auctioneer's actions are unethical and smelling of a hostile takeover.
JP Morgan downgraded Altria (NYSE:MO) from "overweight" to "neutral" according toBriefing.com. The news service also reports that Morgan Stanley downgraded SLM (NYSE:SLM) to "underweight" from "equal weight."
Lehman Bros. started coverage of NutriSystem (NASDAQ:NTRI) with an "underweight" rating, according to the AP.
Douglas A. McIntyre is an editor at 247wallst.com.
When I saw the news of NTT DoCoMo (NYSE: DCM)'s new mobile phone that emits fragrances, I began wondering what other oddities today's corporate powerhouses may be working on. No financial advice here, these are just some ideas I came up with:
Apple Inc (NASDAQ: AAPL) will unveil headgear that doubles as both headphones and a personal masseuse, giving tantalizing head, neck and shoulders massages.
In an attempt to help with falling click-through rates, Google Inc (NASDAQ: GOOG)'s new mobile phone will be offered free as long as you sign Google's activation agreement requiring you to click on a mobile ad every hour, even while you sleep.
Today's headlines could have read, "Rally on Financial Write-Downs, Go Figure!" Last night we saw a $3 billion preferred offering out of Lehman Brothers Holdings, Inc. (NYSE: LEH) that became a $4 billion offering. Shares were down on the news but after the dust settled the market decided this was a net-net good and shares rose almost 18% to $44.34. Even UBS AG (NYSE: UBS) rallied a sharp 14% to $33.01after it said it was going to take a $19 Billion additional writedown charge and its chairman left the company. Go figure.
The Institute for Supply Management said its index of national manufacturing activity rose to a reading of 48.6 in March, which is still a contraction but not as bad as estimates of about 47.5 from economists. There may be hope that the de-leveraging being seen by financial firms and tightened trading standards may be taking some steam out of the greatly inflated commodities. Crude oil fell $0.74 to $100.84/barrel, but briefly each barrel traded back under the $100 mark. Even gold dropped back below $900.00/ounce level after having seen north of $1,000.00 just last month. Below are the unofficial closing averages for US market index readings:
MOST NOTEWORTHY: AU Optronics, General Steel and Sequenom were today's noteworthy initiations:
Jefferies initiated AU Optronics (NYSE: AUO) with a Buy rating and $25 target and believes LCD trends will be healthy in 2008 despite a soft economy.
General Steel (NYSE: GSI) shares were started at Merriman with a Buy rating, as the firm believes strong demand for steel in China should last for years and finds the valuation attractive at current levels.
Cantor believes Sequenom (NASDAQ: SQNM) is positioned to establish sustainable market leadership as a provider of genome analytical products and molecular diagnostics. Shares were assumed with a Buy rating and $12 target.
OTHER INITIATIONS:
UBS initiated Altria Group (NYSE: MO) with a Buy rating and $30 target.
Canaccord Adams assumed Drugstore.com (NASDAQ: DSCM) with a Buy rating and $3.50 target.
Goldman Sachs initiated DirecTV (NASDAQ: DTV) with a Buy rating and $30 target.
UBS downgraded United Airlines (NASDAQ: UAUA) and Northwest (NYSE: NWA) from "buy" to "neutral," according toBriefing.com. The news service also writes that Keefe, Bruyette upgraded Fannie Mae (NYSE: FNM) to "outperform" from "market perform."
Altria (NYSE: MO) was started as a "buy" at UBS, according to24/7 WallSt. The website also reports that Abbott Laboratories (NYSE:ABT) was raised to "outperform" by Wachovia.
"Altria (NYSE: MO) is one of the best stocks to own in this current market environment," says leading market expert Bill Martin. In his Bullmarket.com, he looks at the stock's defensive characteristics.
"Altria just recently reiterated its earnings outlook for itself and soon to be spun-off Philip Morris International (PMI). Excluding PMI, Altria said it expects to grow 2008 EPS by 9-11% off an adjusted base of $1.50. Longer term, the company expects EPS growth of 8-10%.
"Altria's projections come despite the company expecting cigarette volumes in the U.S. to decline by -2.5% to -3.0% over the next few years. The company also anticipates cost savings of $1 billion annually as a result of the PMI spin-off, with $300 million realized last year and the rest to be wrung out by 2011.
"PMI, meanwhile, is forecasting 12-14% EPS growth from a 2007 pro-forma adjusted base of $2.78. Longer term, the company is looking for EPS growth of 10-12% on revenue growth, net of excise taxes, of 4-6%.
"Shipment volume is projected to rise 1-2%, helped by the introduction of new products. The company also expects to realize $1.0 billion in annual cost saving by the end of 2010, and a cumulative total cash flow of approximately $22 billion by the same date.
"Altria continues to be a solid defensive holding paying an attractive dividend -- both of which are invaluable attributes in this market. With the PMI spin-off on track and large buybacks set to be implemented after the split, Altria is one of the best stocks to own in this environment. We rate the stock a buy."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
MOST NOTEWORTHY: Amazon.com, Altria Group and Skilled Healthcare were today's noteworthy initiations:
Canaccord Adams expects Amazon.com (NASDAQ: AMZN) growth to be driven by its expanding international reach, mix shift to third-party revenue, product innovation, and category expansion. The firm initiated shares with a Buy rating and $78 target.
UBS is positive on Altria's (NYSE: MO) growth, low likelihood of downward EPS revisions, and best-in-class cash flow distribution; shares were started with a Buy rating.
Skilled Healthcare (NYSE: SKH) was initiated with an Outperform rating at Morgan Keegan, as they believe nursing home reimbursement risk is already reflected in its valuation.
OTHER INITIATIONS:
KeyBank assumed Callaway Golf (NYSE: ELY) with a Buy rating and $19 target.
Credit Suisse initiated Intuit (NASDAQ: INTU) with an Outperform rating and $35 target.
Broadpoint initiated Novell (NASDAQ: NOVL) with a Buy rating.
Shares of D.R. Horton Inc. (NYSE: DHI), the largest U.S. home builder, were plunging in premarket after the company reported a large second quarter loss this morning. Its quarterly numbers were dragged down by the slumping housing market which forced the homebuilder to take hefty charges to write down the value of its inventory.
Shares of the nation's largest food and beverage maker, 
I've received a few chuckles for investment directions I've suggested in the past, but if you care to review a couple of my previous generalities, 
Philip Morris
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