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Buzz Bits: Dow Nasdaq Close Higher


Your daily Buzz & Banter highlights...


Editor's Note: This is a small sample of the content available on the Buzz and Banter.

Cut and Run Randoms - Jeff Macke - 2:38 PM

  • "Hoofy shoulda worn running shoes." One of yesterday's biggest % winners has become one of today's biggest losers as Brown Shoe Company (BWS) is down more than 10% as investors re-think Thursday's reaction to an earnings beat. The stock closed Wednesday at $27.31, closed yesterday at $32.15 and is back under $28 today. Something to ponder before chasing the next Story of the Day.

  • Quick note for East Coast Commuters: if you were planning on beating the traffic out of Manhattan today, you're already too late. For that and other reasons (involving "love"), Mrs. Jeffmacke and I will be taking the other side of the trade and hitting the town after tonight's show.

  • On a related point, what if you made a television show and all your potential viewers were on vacation?

  • Boy, the news out of Wal-Mart (WMT) just keeps getting more embarrassing and horrible. Keep in mind that one of the key reasons used to justify CEO Lee Scott's +$20 million payday last year was that employees were "proud" of having a boss who rose through the ranks. Suffice it to say there wasn't any evidence provided of an actual survey of employees regarding their feelings on the matter.

Shoot first... - Fil Zucchi - 12:42 PM

Software maker Mentor Graphics (MENT), an outfit that sells mostly into the semis market, is getting whacked today on earnings. I don't know the name too well, but this is one case where I am buying first and asking questions later. The reasons are:

  • On the surface the stock looks cheap at a 14 P/E to 20% growth rate, something that was not changed in last night's guidance.

  • Balance sheet is fine with $1.50 in net cash.

  • A very smart techie put this name in front of me a while back suggesting I keep an eye on it; he now likes it here.

  • But the key is this: I bought January 15 puts for $1.65 and the stock at $14.20. That means I have a free upside ride for the next eight months with a total risk of $0.85. I'll take that R/R all day long.

And speaking of R&R, I am taking a chunk of that too, as I head to Koehler, Wisconsin to remind myself yet and again of the inadequacy of my golf game.

Have a great weekend - and week - Minyans and I'll see you on June 4.

Position in MENT

Morning Commodities Update - Sally Limantour - 10:05 AM

The Asian markets overnight have held up well and we are coming in on a higher note. Surely the corrective big range down day yesterday helped to alleviate the overbought condition, but we are coming in today on more M&A news with the announcement of NASDAQ to buy the Scandinavian exchange while Coke (KO) is moving into the mineral water market with the purchase of Glaceau.

Commodities were bashed across the board (with the exception of the agricultural sector) as liquidation, "get-me-out" sale became active.

In metals many are looking at the gold ETF (GLD) as being close to having a monthly reversal.

The M&A stories are alive and well in metal land with more talk this morning of Barrick (ABX) acquiring Newmont (NEM). In South Africa it is reported the largest Union there wants a 20% increase in pay for the miners.

Energy markets were bipolar yesterday as crude led a big slide while natural gas prices exploded to the upside. The oil bulls were scratching their heads as prices broke with bullish news. Escalating tensions in Iran, OPEC unwilling to raise output and Russia oil shipments estimated to be down 6%, were known, but it felt like fund and spec liquidation took over in reaction to the big slide in the stock market. More threats to Nigerian supplies and data showing China's demand for oil rose 4% from year ago levels is supportive to price this morning, but technically we need to capture the 6575 area fairly quickly to get back in the bullish camp. The biggest concern for the bulls is the high domestic crude oil supplies and they are at their highest level since June 2006. Ahead of the long weekend with external risks from Iran and Nigeria I would expect the market to stay firm today and have covered yesterday's short positions.

Play it safe today as it will be thin ahead of the holiday.

Have a good weekend and see you Monday.

Positions in gold, ES, NG

Stocks Are Not Cheap - Bennet Sedacca - 9:40 AM

I just wanted to point out a couple of things about stock valuations ahead of the Holiday weekend: Stocks are not cheap. There, I said it.

I keep hearing how stocks are 'cheap based on interest rate analysis' according to the Fed Model.

Ok, if stocks are cheap at 18-19x earnings relative to a yield of 4.85% for the 10-year U.S. Treasury, then why aren't Japanese stocks cheap all the way to 80x? In the 1950's when earnings were actually earnings, why did stocks trade at 7 x EPS and rates were 3%? Shouldn't they have traded at 33x?

And here is something else to chew on. Can you tell me the 'median' price/earnings ratio of the median stock in 2000 in the Value Line Index? 20x? 25x? 30x? Nope. 13x... So I would make the case that outside of tech and the 'Nifty Fifty' that drove the capitalization based S&P 500, stocks were cheap in 2000.

Fast forward to today. Can you guess what the average stock's P/E ratio is today in the S&P 500? 15x? 16x? 18x? Nope. According to Bloomberg, the average stock trades at 23.5 times earnings in the S&P. This is a simple calculation of adding up all of the P.E.s and dividing by 500. And take a guess what the average price to book value is? 4.5!!!

When I look at the credit markets, I see the same thing. So I am highlighting the highest quality fixed income instruments and playing it close to the vest in equities.

Have a great Memorial Day weekend!

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No positions in stocks mentioned.

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