The stock market was down yesterday and it is down again today. Bearish sentiment is roaming through Wall Street right now, so I thought I would look back on another occasion when the market was going through similar turmoil and I wrote about the following eight stocks, which I thought would be "safe havens" in such a storm.
Six of the eight did well and two did not, and of course one of those two was a disaster. Among the losers, I do not think anyone is fretting about UPS, which is still one of the few triple-A rated companies along with Berkshire Hathaway. It has been well reported that the slowing economy and higher fuel prices have been the major culprits affecting UPS's earnings. In the case of WaMu, it's demise has also been well reported, but at the time I recommended it WaMu had a stellar reputation of growth and high yield for over two decades. There is no hiding, it turned out to be a lousy pick and an ANTI-SAFE Haven
Washington Mutual(NYSE: WM) closed Monday at $4.21 down from $45.50; a 98% loss.
Fortunately the remaining six picks have done very, very well. If you had bought the pool, the average gain over the last two years would have been 7.14%. Adding the dividends over the two years would have raised this to 13.14%.
Several independent economists have said they expect a big U.S. bank to fail. It may be easy to ignore them because they are not affiliated with any of the large institutions that monitor financial companies. But now the former chief economist of the IMF says one of America's big banks will probably not make it.
According to Reuters, "The worst of the global financial crisis is yet to come and a large U.S. bank will fail in the next few months as the world's biggest economy hits further troubles, former IMF chief economist Kenneth Rogoff said." Rogoff is currently an economist at Harvard.
The analysis pointing to the bank failure is based on the facts that the credit markets and housing situation will get much worse. Current earnings from banks and brokerage houses indicate that the prediction may well be true.
TheStreet.com's Jim Cramer says lower gas prices mean the numbers are too low.
People are missing this retail move. They are missing it because the market is deciding right now that the guidance companies are giving is just plain wrong given the $3.50 at the pump (although premium's a lot more expensive). They are also recognizing that the strong are surviving and thriving and taking share in a radical fashion -- witness Lowe's (NYSE: LOW) (Cramer's Take), which must be killing Sears (NASDAQ: SHLD) (Cramer's Take) and the mom-and-pop shops out there.
When I met with Lowe's last year, they told me that they have picked up share in every downturn. They did not know when the downturn would end or when you would see the results, but they were confident that the longer the downturn lasted, the more likely they would be to have pulled away from their competition.
You may see a recommendation to "overweight" a stock or sector. An analyst is bullish on a stock or group and feels buying more than usual will be rewarded. It may or may not come true. While it's a good idea to overweight at times, it should never be done in excess, to a point where you're putting too much of your portfolio in one stock or group of stocks. That's when overweight turns into speculate.
A rational approach to building a portfolio is to have at least five different sectors, ones that aren't correlated. There are different definitions of sectors but there are usually between 10 and 15, depending on what publication or expert you use. These sectors are categorized into broad groups, such as Healthcare, Technology, Manufacturing, etc. Within each sector are many industries. Value Line defines 98 different industries, ranging from Coal to Auto Parts to Water Utility to Beverages. Healthcare, as one example of a sector, has pharmaceutical companies, hospitals, medical devices, anything associated with health. Technology has a broad spectrum as well, encompassing everything from computers to wireless communication.
Yesterday the Dow Jones Industrial Average was down 225, so I decided to peg the financial stocks I wrote about investing in as a pool. We are often accused of bragging on the good days and having memory loss on the bad so I wanted to be transparent and forthright on the downside.
To my surprise the financial stock pool is actually up 9.96% on average. Six stocks increased in value, two were down and two stocks were even money. The big winner was MBIA Inc (NYSE: MBI) up over 68%!
In the same time frame the DJIA has gone from 11,397.56 to 11,431.43 (even) and the S&P has gone from 1263.2 to 1266.06 last night, for basically no change either.
The market is rebounding as I write so I expect the news is even better. Although, this pool of stocks beat the market so far in the short run, I hope to track this group for a year, or at least until Major League Baseball's spring training opens in 2009.
Oh, happy day. Mortgages issued in the first half of 2007 are going bad at a rate much faster than those issued in 2006. According toThe Wall Street Journal, data from the "Federal Deposit Insurance Corp. shows that 0.91% of prime mortgages from 2007 were seriously delinquent after 12 months, meaning they were in foreclosure or at least 90 days past due. The equivalent figure for 2006 prime mortgages was just 0.33% after 12 months."
The news means that earnings could get worse at large banks that have mortgage loans at the center of their businesses. Wachovia (NYSE: WB) and Washington Mutual (NYSE: WM) come to mind. That should be especially interesting for investors in the two companies. Over the last month, both stocks have recovered. Washington Mutual is up about 2% and Wachovia has risen a remarkable 30%.
Wall Street had hoped that bank stocks, especially those with businesses focused on the mortgage markets, would improve as subprime loans worked their way through the system. That may have worked if prime mortgages weren't going bad at an increasing rate these days and loans from 2007 didn't appear to present more risk than those from earlier periods.
All of that is to say that a stock like Wachovia, which fell as low as $7.80 and then recovered to $18.41, is not out of the woods. As a matter of fact, it may be heading back in.
After the market closed last night, with the Dow Jones Industrial Average rebounding from Monday's notable drop and ending the trading day at 11,397.56, up 266.48 (+2.39%), I posted Serious Money: 10 finance stocks as the market bounces. This is the follow-up post listing the full pool of speculative stocks that as a group I believe will beat the overall market in the next 12 months.
The prediction business is thankless and the speculative business is even worse; it is often painful. I usually refrain from this activity but today I play the contrarian in a Sir John Templeton (RIP) sort of way, jumping into the stock market's worst performing sector with both feet. I believe the market is at or near a bottom and this summer is the time to buy.
Looking for a break in the clouds, yesterday I started choosing ten stocks knowing that three or four may go to zero, a few more will survive with modest gains, and three or four will rise, not returning to their old glory soon but more than covering the ones that fail. The first four picks have been bleeding all over Wall Street for a year now and the blood-letting is not done yet.
Initially I was looking for stocks that had fallen at least 70%. After reviewing my figures, I have compromised and changed that to 63% so that I could include some of the major companies like Citigroup Inc. (NYSE: C) that are broadly held and have strong reader interest. Prices are as of July 29, 2008.
In this series, we take a look at the 25 stocks on the S&P 500 Index (SPX) that have turned in the worst performance during the past decade -- what went wrong, and what happens next.
Seattle-based Washington Mutual, Inc. (NYSE: WM) was doing just fine on the charts, thank you, until the entire financial-services sector was upended in 2007 by the twin evils of caustic subprime loans and the ensuing credit crunch.
While it's an honor it would probably just as soon not claim, WaMu is a prime example of an otherwise decent stock that got slammed by a macroeconomic stealth bomb.
What went wrong? At No. 9 on our list of SPX stragglers, WM shed 83% of its value during the 10-year period that concluded on June 30, 2008. Prior to June 2007, the stock was trending higher along support from its 50-month moving average. Double-top resistance near $46 proved difficult to surmount, but WM was holding up respectably ... that is, until the first shock waves of the credit crunch hit in spring 2007.
Following news of massive subprime-related losses at hedge funds owned by Bear Stearns, Wall Street's attention was suddenly riveted to mortgage loans and the banks that carried them on their balance sheets. During WaMu's first-quarter report, chairman and CEO Kerry Killinger attempted to reassure anxious investors with the optimistic statement, "Over the past 12 months, we have taken a number of prudent actions to reduce our exposure to the subprime mortgage industry ... [which] limited our exposure to the mortgage market's downturn and position us well to expand and grow as market conditions improve."
U.S. stock futures were lower Friday morning, a day after a selloff triggered by housing data. Today investors are bracing for more housing data at 10:00 a.m. EDT after already hearing that foreclosures soared 121% during the second quarter. Other point of interest will be durable goods data reported an hour before the opening bell. Meanwhile, oil continued the steady climb that started Thursday as the dollar weakens, trading above $126 a barrel. It's Friday, and no many earnings reports are due.
While there aren't many earnings reports today, there are a few including Fortune Brands (NYSE: FO), Netflix (NASDAQ: NFLX) and Black & Decker (NYSE: BDK) among others.
Crocs (NASDAQ: CROX) shares are tanking over 44% to $5 after after it cut its earnings outlook significantly on softer demand for its plastic shoes. With all those knockoffs around, is it any wonder? Robert W. Baird downgraded Crocs from Outperform to Neutral, slashing the target price from $21 to $5.
Meanwhile, Juniper Networks (NASDAQ: JNPR) surged 12% in premarket trading after the company not only beat estimates when reporting quarterly results Thursday, but also increased its sales forecast for the third-quarter much higher than analyst estimates. Friedman Billings and Citigroup both upgraded Juniper to Outperform and Buy respectively.
In deal news, Clear Channel Communications (NYSE: CCU) shareholders on Thursday approved a $17.9 billion takeover by private equity funds Thomas H. Lee Partners and Bain Capital. This ends the 20-month long effort.
Financial stocks were hammered again Thursday with Washington Mutual Inc. (NYSE: WM) chalking up the biggest percentage decline – about 13% – as questions remain about the bank's mortgage portfolio. Earlier this week, the savings and loan company reported a $3 billion loss -- the biggest quarterly decline in the bank's history.
The bank came out late in the day saying that it does its business through its banking operations and "does not rely on commercial paper" after a report took a shot at the bank's credit quality. But despite that reassurance, investors are left to wonder just how sound Washington Mutual really is.
And who can blame them? The collapse of the once-venerable Bear Stearns and the failure of California-based thrift IndyMac prove that it's hard to give even the biggest, most respected ones a safety seal of approval. And with expectations that more will fail (see list of those at risk), I've gotten curious about how my own bank is faring.
While I've been more than impressed with my bank, Chevy Chase 's services, a new tool from bankrate.com that lets you check the safety of your hometown bank, has me more than a little concerned. The Safe & Sound rating system uses a series of 22 tests to measure the capital adequacy, asset quality, profitability and liquidity of each financial institution.\
Washington Mutual (NYSE:WM) is recently down 77c to $3.87. WM entered into a definite agreement to raise $7 billion through direct sale of securities to TPG Capital and other investors on April 8. WM call option volume of 26,995 contracts compares to put volume of 18,137 contracts. WM August option implied volatility of 177 is above its 26-week average of 91 according to Track Data, suggesting turbulent movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Joining the likes of other larger financial institutions and banks, mortgage giant Washington Mutual Inc. (NYSE: WM) joined the billion-dollar loss club. The company's quarterly results reflected a $3.33 billion loss, bringing its total loss reserve to $8 billion due to bad loans in its portfolio.
Similar to what kindergarteners face, the mortgage industry's "monkey see, monkey do" attitude just keeps the billion-dollar losses coming quarter after quarter. WaMu did say that it would be trimming up to $1 billion in costs by the end of next year. Ah, how nice! If you're a WaMu shareholder, does that statement give you any comfort? Probably not.
To go from an $830 million profit in 2007 to a $3.3 billion loss in 2008 is unspeakable, but it's almost the norm these days with mortgage-involved entities floating at the top of the fishbowl. Even though WaMu reflected a capital raise in April in its loss, the company still lost $3.34 per share even at that. Writeoffs totaled $2.17 billion and the company changed the time period from three years down to a year in which to evaluate defaults in its prime mortgage portfolio. As of this morning, WM shares are down over 20% from before Tuesday's report, and down over 57% for this year as well.
MOST NOTEWORTHY: Anadigics, American Axle and Caterpillar were today's noteworthy downgrades:
Stephens downgraded shares of Anadigics (NASDAQ: ANAD) following the company's Q2 results, as they believe shares could trade sideways until the macro environment improves. The firm lowered their target to $9 from $14. Jefferies downgraded shares to Hold from Buy to reflect the company's lower than expected outlook. The firm lowered their target to $9 from $15.
Deutsche Bank cut American Axle (NYSE: AXL) to Hold from Buy to reflect the risk associated with the company's exposure to General Motors (NYSE: GM) and Chrysler. The firm lowered their target price to $7.50 from $11.
JP Morgan downgraded Caterpillar (NYSE: CAT) to Neutral from Overweight based on increasing macro headwinds and likely multiple pressure.
It's officially a trend because it's happened more than three times -- a bad financial report leads to a spike in stock prices. (I posted here and here about this phenomenon with Citigroup (NYSE: C) and Bank of America (NYSE: BAC) respectively). Now, the New York Times reports that five banks lost billions, or saw their profits plunge, but their stock prices rose an average of 12.9% in the wake of those reports.
Why? The conventional wisdom suggests that investors expected them to do much worse and were pleasantly surprised. And this phenomenon is not confined to banks -- this morning, Yahoo (NASDAQ: YHOO), which reported a penny less profit per share than the 10 cents analysts had expected, is up 3% in premarket, reportedly because it did not lower its guidance.
I am not convinced by conventional wisdom about why these stocks are up. My hunch is that there were many traders who sold short the stocks of these companies because they expected them to do worse than they actually did. When reported results beat expectations, investors bought the stocks, perhaps due to bottom fishing. These buyers caused the stocks to rise enough to trigger margin calls for those who were short. The shorts bought to satisfy those margin requirements, causing a buying panic. I wish I had data to test this hypothesis.
The stock market was down yesterday and it is down again today. Bearish sentiment is roaming through Wall Street right now, so I thought I would look back on another occasion when the market was going through similar turmoil and I wrote about the following eight stocks, which I thought would be "safe havens" in such a storm.
Several independent economists have said they expect a big U.S. bank to fail. It may be easy to ignore them because they are not affiliated with any of the large institutions that monitor financial companies. But now the former chief economist of the IMF says one of America's big banks will probably not make it.
Ted Allrich is the founder of 
Yesterday the 
In t
Here are some highlights from this past week's 
U.S. stock futures were lower Friday morning, a day after a selloff triggered by housing data. Today investors are bracing for more housing data at 10:00 a.m. EDT after already hearing that 
Financial stocks were hammered again Thursday with 
Washington Mutual
Joining the likes of other larger financial institutions and banks, mortgage giant .gif){kind=logo}
It's officially a trend because it's happened more than three times -- a bad financial report leads to a spike in stock prices. (I posted 
Slow approach to raising bank capital loses the race against write-offs
Cramer on BloggingStocks: The SEC's waffling will be deadly
How Fannie and Freddie will fail
