Town Bankruptcy Bad Sign for Other Towns The mortgage crisis, the limping economy and a recent bankruptcy filing by Vallejo - the first municipality to do so since Desert Hot Springs, Calif., in 2001 - have hobbled this town of 120,000. Vallejo's closely watched Chapter 9 bankruptcy filing in federal court in Sacramento may be a warning sign of dangers that could befall other cash-strapped municipalities. Economy hobbles Calif. town - USATODAY.com 10 Funds Suffering the Biggest Exoduses Which mutual funds are seeing the biggest outflows in 2008? They include some very well-known popular funds like Fidelity Low-Priced Stock, American Funds Investment Company of America and the Legg Mason Value funds. The 10 Funds Suffering the Biggest Exoduses
Stocks futures are lower Tuesday morning, indicating U.S. stock markets will start on a down note following weak outlooks and disappointing financial results from several companies including Apple and American Express. With oil steady and no economic data out today, Wall Street will focus on earnings.
Apple Inc. (NASDAQ: AAPL) reported after the close Monday a record quarter that beat analyst estimates, posting a 31% surge in earnings. Mac and iPod sales satisfied investors, while iPhone sales were somewhat on the lighter side. What concerned investors most was the very weak guidance Apple gave, which was weak even by Apple's standards of lowballing. Other issues included margin squeeze and Jobs health. Apple shares were 10% lower in Frankfurt and premarket trading. American Express (NYSE: AXP), said late Monday its second-quarter results fell 38% due to the weakening economy. The company, which missed projections, caters to the more affluent who have good credit, and yet even this company felt the pains from the slowing economy. AmEx earned 56 cents per share compared to estimates of 83 cents per share. The company's stock tumbled AXP shares are down over 12% in premarket trading.
Also reporting Monday after the close were Merck & Co., Inc. (NYSE: MRK), Texas Instruments (NYSE: TXN) and SanDisk (NASDAQ: SNDK). MRK shares are down over 6.6% in premarket trading as the company said it would stop give guidance of results. TXN shares are also declining over 10.5% in premarket trading after it gave a disappointing forecast. SNDK shares are plunging over 16% in premarket trading after it swung to a Q2 loss, missing analyst estimates.
This morning we'll have another wave of earnings, and already started were DuPont and Wachovia.
Minyanville Professor David Miller dares to share the kind of keen insight and actionable information you won't find in any prospectus. For more original thought, visit www.minyanville.com.
Professor Miller,
I just saw news of Merck & Co., Inc.(NYSE: MRK)'s and Schering Plough Corporation (NYSE: SGP)'s Vytorin not meeting their goal of heart study. Approximately 40% of Schering Plough's profit comes from this joint venture. Do you think pharmaceutical companies put too many eggs in one basket? Do they have a choice?
Minyan T.
MT,
They do have a choice, but the decision is to focus only on blockbuster drugs – which are a dying breed in this age of increased focus on personalized medicine. But the study is not as big of a disaster as some are saying. The main goal of aortic thickening is not as important to this drug as reductions in atherosclerotic events, which was positive in favor of Vytorin.
Basically, MRK/SGP tried to extend the market for Vytorin by this study in a place few thought it would work. They overextended, which is the bad news. The good news is the study confirmed the drug works to reduce cardiac events related to fat in the arteries, which is what the drug is primarily prescribed for.
Merck & Co., Inc. (NYSE: MRK) reported earnings per share of 82 cents, but excluding restructuring charges, the pharmaceutical company said it earned 86 cents per share, topping analyst estimates of 83 cents per share. Revenue came in at $6.1 billion for the quarter, a decrease of 1% from the second quarter of 2007, but in line with estimates. Yet the stock is plummeting 10% in after-hours trading, after closing at $35.33, down 6.24% during the session.
This shouldn't really be surprising, Merck is not providing 2008 equity income guidance and any long-term financial performance guidance while it is assessing the effects on the Vytorin/Zetia drugs after the failed study result. It also lowered sales guidance for Gardasil, which may not be surprising. But what is surprising is that the drugmaker also lowered sales estimates for its allergy-fighting Singulair.
If investors thought Merck has its work cut out for it, this earnings report underscored the issue even more. Already punished 35% year-to-date, Merck shares will likely continue to be soft until a clear outlook can be seen. Right now, with so many open question and even the company not willing to make educated predictions, many will likely stay away.
Today was light on the economic front as far as impact numbers. The June leading economic indicators were down at -0.1%, and the May gain of +0.1% was revised lower to -0.2%. This shows little argument for a strengthening economy. Oil showed how it can still rise as tropical storm Dolly is in the Gulf of Mexico and no deal was reached with Iran, with prices back above $131.00 per barrel. Today was looking like a gain at the start, but the market slid as the day went on.
Below are today's unofficial closing bell index levels:
DJIA 11.467.67 (-28.90) S&P 500 1259.72 (-0.96) NASDAQ 2279.69 (-3.09) 10 YR T-NOTE 4.067% (-0.014%) 52-WEEK LOWS Top Analyst Calls
Bank of America Corp. (NYSE: BAC) showed a more than 4.6% gain at $28.80 in today's final minutes after the earnings report this morning came in far above lowered expectations. This stock is now up over 50% in a few days.
Ultra-Safe Places to Stash Your Cash The bank safety scare of the past two weeks has sent depositors scrambling to check the rules for FDIC insurance of banking deposits, but many people are left wondering where else they can put their money so that they can sleep well at night. Ultra-Safe Places to Stash Your Cash - TheStreet.com FDIC: What You Need to Know ow safe is your money if your bank fails? Suze Orman tells you what FDIC will – and won't – protect in the event your bank goes under. Suze Orman: What You Need to Know About FDIC Insurance - CNBC.com Also: Most Banks are Safe; So Is FDIC
Stock futures were higher this morning after Bank of America joined recent financials and topped Wall Street estimates. Also pushing futures higher is a deal in the pharma sector with Roche bidding nearly $44 billion for the rest of Genentech. However, both Merck and Schering-Plough said they'll postpone reporting their financial results after the close; Apple will also be reporting results then. Finally, oil prices came off a six-week low and are trading back above $130 a barrel due to escalating Middle East tensions. Higher oil prices could dampen the mood on the Street.
Bank of America Corp. (NYSE: BAC), the biggest U.S. consumer bank and home lender, said profit fell 41% to $3.41 billion, or 72 cents a share, much better than analysts estimates of 21 cents according to Bloomberg. The bank curtailed loan losses, adding $2.2 billion to loan loss reserves. The bank has completed the purchase of Countrywide Financial Corp. on July 1. With these results, BAC joins other big banks that have recently reported better-than-expected results. BAC shares are up 8.6% in premarket trading.
Roche Holding on Monday said it was offering $43.7 billion to take over the remaining 44.1% shares of Genentech Inc. (NYSE: DNA) for $89 per share, 8.8% above DNA's closing price Friday. DNA shares are up nearly 18% in premarket trading to $96.50.
Yahoo! Inc. (NASDAQ: YHOO) said Monday morning it settled its fight for control of the board with billionaire investor Carl Icahn. The board will expand to 11 members to include Icahn and the remaining two seats will be filled by the board upon the recommendation of its nominating and governance committee. In addition, Icahn, who owns about 5% on Yahoo common shares, agreed to withdraw his nominees for consideration at the annual meeting and to support the board's nominees. YHOO shares are declining 2% in premarket trading.
Merck & Co. (NYSE: MRK) is set to report earnings Monday, July 21, ahead of the opening bell. According to First Call, analysts are looking for a profit of 83 cents on revenue of $6.05 billion, an improvement over the 82 cents per share it reported in the same quarter last year, but a decline over the $6.1 billion in sales. Last quarter, the company beat per-share earnings estimates, but disappointed in sales.
Merck has suffered some bad news this quarter:
The biggest blow was no doubt the FDA rejection of Merck's new cholesterol drug, Cordaptive. With so many drugs coming off patent, the drug company was relying on Cordaptive to contribute as much as $2 billion a year in sales.
Also, prescriptions for Vytorin, co-marketed with Schering-Plough (NYSE: SGP), kept falling. While this was to be expected following the January released study suggesting Vytorin and Zetia may not work well as older generic statins, the impact could be larger than expected.
As for its cervical-cancer vaccine Gardasil, recently an analyst report from UBS questioned whether sales of the vaccine have met Wall Street estimates for the second quarter. UBS has proceeded to downgrade Merck to Neutral from Buy.
Then, only Thursday, Merck announced a program to resolve and fund the $4.85 billion settlement stemming from the Vioxx 50,000 lawsuits. More than 97 percent of eligible claimants now have initiated enrollment in the program and will start receiving checks beginning late next month. In a way, though, this is a good news/bad news sort of thing. Investors like it when outstanding issues are resolved.
After hitting a one-year high of $61.62 in December, the stock hit a one-year low of $34.49 in June. MRK opened this morning at $37.12. So far today the stock has hit a low of $36.60 and a high of $37.38. As of 1:05, MRK is trading at $37.38, up 42 cents(1.1%). The chart for MRK looks neutral and improving, while S&P gives the stock a neutral 3 Stars (out of 5) Hold rating.
For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $32.50 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 16.3% return in just three months as long as MRK is above $32.50 at October expiration. Merck would have to fall by more than 13% before we would start to lose money. Learn more about this type of trade here.
MRK hasn't been below $34.50 at all in the past year and has shown support around $37 recently. This trade could be risky if the company's earnings (due out 7/21) disappoint, but even if that happens, this position could be protected by the support the stock might find at its year low, which is just below $35.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in MRK.
Johnson & Johnson (NYSE: JNJ) shares rose over 2% by 12:45 on a day the market saw some scary dips earlier and the S&P 500 is still in the red.
The health-care giant is rising after it reported its second-quarter financial results, posting an 8% growth in profit to $1.18 per share (excluding one time charges) and a 9% increase in total revenue to $16.45 billion. The results handily beat analyst expectations (according to Thomson Financial) of $1.12 per share, on revenue of $16 billion. Not only that, but the company also increased its 2008 earnings forecast.
J&J execs claim the company wasn't being significantly hurt by the weakened U.S. economy, and judging from the effect of the lower dollar, which was responsible for 5.6% of the 9% higher revenue, perhaps they're right. Still, the company can't ignore that while international sales jumped 16.2%, U.S. sales increased only 2.1%.
But among the different pharmaceutical companies, it seems there is little doubt that J&J is better poised to ride this global economic downturn; as opposed to to pure-play pharmas, J&J has a more diversified business model. Already the difference was clear in this quarter's results and will probably make even more of a difference in the future, as many pharma companies lose sales to generic drug makers when products go off patent.
If we told you that a $3.00-plus drop in the price of oil wouldn't cause a major stock rally, it might only not be a surprise the bears who believe we are headed lower no matter what. Today was one where the markets spent much time in negative territory and then recovering towards the end of the day before making one last dive. If you think it was a quiet day, we had nearly a 300-point difference between today's high in the morning and the lows before today's recovery. These are today's unofficial closing levels:
The Walt Disney Company (NYSE: DIS) saw a severe downgrade after Lehman cut it to Underweight on its premium to peers and weakness tied to Theme Park exposure. Shares were down over 2% at $30.22 in today's final minutes.
Merck (NYSE: MRK) shares are falling today after an analyst at UBS downgraded the stock to "Neutral" from "Buy," saying that the earnings prospects for the stock don't offer much upside. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on MRK.
After hitting a one-year high of $61.62 in December, the stock hit a one-year low of $34.49 last month. This morning, MRK opened at $37.59. So far today the stock has hit a low of $36.38 and a high of $37.99. As of 1:40, MRK is trading at $36.37, down $2.07 (-5.4%). The chart for MRK looks bullish and improving, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would consider an October bear-call credit spread above the $45 range. A bear-call credit spread is an options position that combines the purchase and sale of call 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 4.2% return in three and a half months as long as MRK is below $45 at October expiration. MRK would have to rise by more than 23% before we would start to lose money. Learn more about this type of trade here.
MRK hasn't been above $45 since February and has shown resistance around $38 recently. This trade could be risky if the company's earnings (due out in late-July) are a positive surprise, but even if that happens, this position could be protected by resistance MRK might find at its 50 day moving average, which is currently around $38 and falling.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in MRK.
Here are some highlights from this past week's earnings coverage from BloggingStocks: 
Stocks futures are lower Tuesday morning, indicating U.S. stock markets will start on a down note following weak outlooks and disappointing financial results from several companies including Apple and American Express. With oil steady and no economic data out today, Wall Street will focus on earnings.
Stock futures were higher this morning after Bank of America joined recent financials and topped Wall Street estimates. Also pushing futures higher is a deal in the pharma sector with Roche bidding nearly $44 billion for the rest of Genentech. However, both Merck and Schering-Plough said they'll postpone reporting their financial results after the close; Apple will also be reporting results then. Finally, oil prices came off a six-week low and are trading back above $130 a barrel due to escalating Middle East tensions. Higher oil prices could dampen the mood on the Street.
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