Buzz on the Street: Dollar Rally Continues
Some of this week's most insightful and timely vibes.
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Monday, December 14, 2009
As the Aggies Prep for the Independence Bowl...
Ron Coby & Denny Lamson
The following is an excerpt from this morning's Grail ETF & Equity Investor newsletter
We are buying the PowerShares DB Agriculture Fund (DBA) with a stop loss of $25.25. DBA is the "Ag" ETF play, or simply a play on the corn, wheat, soybean and sugar markets.
Seasonally, the next 15-30 days are very bullish for grains and sugar, so the timing could be excellent for DBA. This ETF gives those who don't trade commodity futures the ability to particpate in an ag play. The grains are not correlated to the performance of the stock market, so we are comfortable with this trade regardless of which way the stock market breaks, but as always we'll have our stop in place for protection.
Technically, DBA has been building a wonderful trading base for the past two months as it has been moving into a pennant formation. Although we may move within the range of the pennant for another week or more, the bullish seasonals give us confidence to enter prior to a break above the upper band of the pennant.
The 55 dma successfully provided support in early Nov and appears to be doing so now. Having now broken above the 50 level, the bullish RSI on the weekly, daily & 195 min charts also argue in favor of a break to the upside. The weekly Grail chart is not only on a buy, but it's fully compressed and painting cyan, telling us a big secular move up may be coming. The 130 & 195 min charts are giving a timely entry as well.
Click to enlarge
For more ETF trades and analysis, take a FREE trial to Grail ETF & Equity Investor. SCO is +26% since picked on 11/9. Learn more
You've Got Mail
Earlier today Sean Udall (also mentioned on Friday) talked about the Credit Suisse downgrade of AOL (AOL). The firm slapped an "underperform" rating on the stock with a price target of $20.00.
The key points from the report are below:
- Action/Event: We are initiating coverage on AOL with an Underperform
rating and a $20 target price. We expect continued steep declines in the
internet access business to be further exacerbated by underperformance in
display advertising (which AOL expects to lead its turnaround) and continued
search revenue declines the next few years.
- Investment Case: We expect 34% annual revenue declines in the highmargin
Internet access segment (from 2010-2015), due to steep subscriber
losses (31% per annum) and pricing declines. As the operating mix shifts to
a more advertising-driven model, we expect EBITDA margins to decline
about 300 basis points annually from '10-'15. At this point, we do not believe
the turnaround in display advertising materializes and offsets AOL's
declining access business and expect AOL to lose market share in display
advertising over the next few years owing to continued declines in traffic.
- Catalysts: Overhang on AOL shares from a technical perspective (5.4
million net shares need to be sold given index differences) and fundamental
perspective, as TWX shareholders may shed AOL shares post-spin given
weak outlook. AOL will also look for a new search partner in 2010 and the
economics could be worse than its current deal.
- Valuation: We estimate that AOL trades at 3 times EV/EBITDA, 8 times
P/FCF, and 12 times P/E on our 2010 estimates (excluding restructuring and
stock compensation). While the relative valuation metrics appear to be
inexpensive, given expected operating declines over the next several years
and the lack of true upside catalysts, we believe there is downside risk to
street estimates, which could drive the stock price lower. Our $20 target
price is based on our DCF analysis.
AOL began trading last Thursday at $23 per share is up 8.50% on the day to $25.80. Take a look at the 3-day 10-minute chart.
Click to enlarge
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