Mike's Stock Notes

[Mike_McDermott]

This is a thread for notes and observations on individual stocks, and the industries that they trade in.

The discussion will be a combination of fundamental information gleaned from our research process, along with technical observations from price action of the individual equities as well as the price action of larger groups.

 

[Mike_McDermott]

Restaurant stocks are reeling from a combination of rising food costs, along with weak consumer spending.

The Midwest drought is sending corn and wheat prices spiraling, kicking off a chain reaction in the food chain. Meat & poultry prices are also affected because of the rising feed costs.

With food costs rising, restaurants are now forced to choose between raising menu prices to offset higher costs, OR accepting the hit to profit margins – leading to disappointing EPS.

The US consumer is struggling. Corporations are propping up their own profit margins by cutting costs (revenue numbers have been disappointing, but so far this quarter the earnings side of the ledger has been saved by cost cutting). Of course corporate cost cuts can be directly translated into layoffs and slower hiring. Last week’s unemployment report showed renewed concerns on this front.

Internationally, the story is much the same. This morning, McDonalds Corp (MCD) missed earnings, blaming the poor performance on a strong dollar and weaker global demand…

So basically the restaurant sector is stuck between a rock and a hard place. Costs are going up, demand is going down, and profits are getting squeezed.

Last week Chipotle Mexican Grill (CMG) dropped a bomb on the industry, dropping more than 20% in Friday’s session.

The announcement pressured other growth-oriented chains (PNRA, BLWD & TXRH all fell more than 3%) and the charts for restaurant stocks are unraveling.

Watch for the dip buyers to step in and support CMG here. It’s a Wall Street darling and will certainly get some initial help from mutual funds as well as retail investors.

But the charts are broken, the bearish sentiment is picking up, and we’ve got several restaurant stocks on the bearish trade blotter – watching for appealing technical entry points.

 

[Mike_McDermott]

Corporate bonds have been ramping sharply for the last month as investors reach for yield. This is largely a function of the zero interest rate policy – and income investors searching far and wide to find a way to generate a reasonable amount of income from their assets.

The question is whether yield assets have been pushed to unsustainable levels – and what happens from this point?

Corporates in the iShares Investment Grade Corporate Bond Fund (LQD) are yielding about 4% right now and are showing exhaustion after a multi-week rally.

The SPDR Lehman High Yield Bond Fund (JNK) is also up sharply over the last month (from a much more ominous low point).

While investors are interested in both JNK and LQD because of the yield component, both of these fixed income approaches carry risk associated with a vulnerable economy.

If equities start selling off (and we’re seeing plenty of bearish action right now), JNK will likely fall first as high-yield bonds are much more correlated to equity prices.

And if we are entering a much more serious recession (or even just flatlining in terms of economic growth), investment grade corporate will begin to price in more risk – sending prices lower and yields higher.

Right now you can short LQD and expect to pay about 40 cents a month (0.33%) to cover the ETF dividends, and shorting JNK requires about 24 cents (0.61%) as a negative carry rate for shorting the ETF.

With short-term reward-to risk levels pretty high here, shorting a breakdown looks attractive – assuming you’re not going to hold indefinitely and incur the dividend charges over a number of months…

 

[Mike_McDermott]

Texas Instruments (TXN) reported earnings that were in line with the company’s updated guidance that it issued in late April. But the big story is negative guidance on global macroeconomic worries…

Management is now guiding investors to expect revenues of $3.21 billion to $3.47 billion for the third quarter – leading to earnings of 34 to 42 cents. Consensus estimates were for revenues of $3.54 billion and earnings of 43 cents per share.

Semiconductors had an ugly second quarter and while the group is trying to find support, the guidance from TXN could re-open fresh wounds and send the group spiraling lower.

TI customers are reluctant to put in sizeable orders because of global macro concerns… In other words, distributors don’t expect to be able to sell products to end users in the coming months as the global economy stalls out.

CEO Rich Templeton noted that distributor inventories were low (hat-tip Barron’s Online), which implies that any rebound in demand could set off a flurry of orders. But that sounds an awful lot like “damage control” speak – a crutch for long investors to lean on.

So far the damage appears to be contained. There isn’t much action in the post-close hours. But a lot can happen during the conference call (going on right now – Monday evening) and in the overnight hours. Keep this one – and the Market Vectors Semiconductor ETF (SMH) on the radar for tomorrow’s trading…

 

[atticus]

What's the point other than regurgitating old news? Any trades?

 

[Mike_McDermott]

Quote from atticus:

What's the point other than regurgitating old news? Any trades?

Yep, there will definitely be some good trade setups - and if you want to see ALL of our trades in real-time, check out the Mercenary Live Feed...

 

[atticus]

Quote from Mike_McDermott:

Yep, there will definitely be some good trade setups - and if you want to see ALL of our trades in real-time, check out the Mercenary Live Feed...

I don't, but thanks. And stop shilling for your service as that's verboten unless you pay Baron for the privilege.

 

[Mike_McDermott]

Quote from atticus:

I don't, but thanks. And stop shilling for your service as that's verboten unless you pay Baron for the privilege.

Already in the works! We're excited to be sponsoring the Career Trader forum beginning August 1...

 

[stonedinvestor]

This is the funniest thread I've ever read! Talk about yesterday's news! God bless Atticus for calling out this garbage-- it's this kind of nonsense that I have been railing about down in Chit Chat.

While this rotten tomato sits in the sun we have made over $50,000 in gains-- as the market has descended. What's more we have profiled researched and TA'd the names and given the trades BEFORE we enter them. Those few that bothered to read know what's going on at the bottom of this site.

Mike's Stock's Notes doesn't exactly roll off the tongue! Jesus. Doesn't anybody have an English degree from Boston University anymore? You don't stick a plural right after a word made possessive by that little dingy!
If you say Mike's Stocks fast you slip right into Mike Sucks, it just doesn't work. You need a complete redo.

Why not try MSN?

Ok.

Today is Tuesday I think and I am going away until Aug 10.
What can I buy today and make money?

The way i feel this morning for some reason and I know this is pure craziness and not based on any chart-- I wonder about Facebook.

The Pro's are just so sure that their comps are weak, I've seen the memos-- the whole picture is set up for a big let down and stock crash, everybody I talk to is leaning that way...

If I can help any young investor it would be with these words: You have to be counter the mass mood, you have try and find the half full glasses not the half empty. FB at $28 what if they just uncorked something crazy they have been hiding? It could ignite our tech market for a bit... and Face itself could shoot up $10... They report very soon.

AMRN isa bio that we have been profiling down in Chit Chat. They have a FDA decision Next Thursday!

Citrix Systems I already own but it might be a Short Term Trade as well.

NXPI- reported a nice qtr could be a day trade if you are so inclined.

Ok, I'm just up and haven't had time to check on my small Titanium name or my sugar cane to jet fuel bio play...

I have an itch to make some money or place a bet at least before I leave at 2:00 today... I just don't have a strong feeling of what to do as of this moment. I know it's early but lets take a first break of the day and see if we feel more inspired after.~stoney


(NASDAQ:CTXS) is predicted by Bernstein to report stronger Q2 results than expected, since the firm expects the company to benefit from a higher capex at public cloud companies. The firm keeps an Outperform rating and a $106 price target on the stock.

 

[Mike_McDermott]

Quote from stonedinvestor:

Mike's Stock's Notes doesn't exactly roll off the tongue! Jesus. Doesn't anybody have an English degree from Boston University anymore? You don't stick a plural right after a word made possessive by that little dingy!

You might want to re-check the name of the thread...

Cheers!