I apologize to Kirk Kerkorian as I understand he missed my first 20 warnings to get out of GM but I hear he finally got the message yesterday and is finally going to start wiggling out of his horrendous position.
This, of course, will not be good for GM but that’s what happens when you brashly step in and announce you intend to overpay for a significant stake in a declining company. With GM, it’s the physics that get you: The inertia of a company with (they say) $450Bn in assets falling down, cannot be arrested by a $1.5Bn investor.
Out of 190 newsletters tracked by the Hulbert Financial Digest, only 3 have even a lukewarm recommendation on GM so I think we should close the book on this one. Congratulations if you took the short picks from early November as today’s action could be the start of a major death spiral for the stock. Don’t be greedy though as the sale of GMAC may irrationally boost the stock for a while.
On the opposite side of this trade, Toyota is just about ready to break the $100 barrier and may do so with a vengeance. With a net income of $10Bn, you would think they are selling oil rather than cars – add that to a 10% growth projection (more if GM really sinks) and the stock is way underpriced. This stock is another great global play as American analysts do not grasp the impact that emerging markets will have on TM sales. Obviously being closer to the new customer base will give them a real moat, especially with US companies in no position to invest in additional foreign manufacturing facilities.
So with the GM shorts nearing the end game, I am going to move into a TM call with the Feb $100s for $3 (a $3 premium). Rather than keep a tight stop on this trade, I will also take the very cheap Jan $95 puts for .70 to offset the risk of the stock failing to break $100.
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ATYT combined poor performance with a lame outlook today so congrats to Amtech for catching that one on Friday. JP Morgan sees something I don’t with their upgrade so I am just going to stay away from this one…
NKE, which we have been worried about since November, also gave very disappointing guidance. The crux of Nike’s problem is that global consumers are not as silly as American consumers and don’t feel that they need 6 pairs of $100+ sneakers in their closet. While Phil Knight may have sold a little early, he may have just been trying to get a jump on the 30 day window before these very disappointing results. Look for NKE to hit $85.50 today and possibly test $83 before turning.
AGN is looking like a nice put play with a confirmed move down against the sector yesterday. $103 is the critical cross for the company but any downward move today will trigger my interest in the Jan $105 puts for $2 (a $3.60 premium). If the stock goes below $100, it will start dropping fast as the IMDC shareholders will all opt for cash due to the terms of the buyout. While I don’t think it is a particularly bad merger, I think this will prove to be a big and expensive pill to swallow for Allergan.
Speaking of merger-mania, STX is about to kill a nice run by drastically overpaying for beleaguered rival MXO. While the deal may work for Seagate internally, from a market perspective this is a very bad move, giving a 60% premium to MXO shareholders is a real indication that STX doesn’t think their stock is worth it’s latest rise. The combined company will be a real bargain once the dust settles but I think we will see a quick drop on STX back to around $18, perhaps more if they can’t justify the merger to their own investors who have been very patient with them for the past 2 years.
Another winner on this deal should be WDC, the last remaining competitor.
Homework assignment: The combination of the #1 and #2 drive makers means a “House of Pain” for many of their suppliers. I do not have the staff for this kind of research but I would be happy to check into any suggestions as there could be a wealth of good shorts to be had here.
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Mircrosoft has really killed Christmas this year for the gaming industry by undershipping the 360 by 85% of what was promised. I think the company will find that consumers don’t tolerate hardware delays the way they have learned to tolerate endless software delays from the company. The entire sector has been decimated by this debacle and will take some time to recover but will be a great place to park your money in 2006.
THQI may be an early recovery as the company doesn’t really sell to the XBox crowd (just 2 titles) and has reaffirmed Q4 guidance. The maker of the really popular “Destroy All Humans” game also has the Incredibles game and Sponge Bob (need we say more?). I am considering this for Trade of the Day at $22.51 and I like the Jan ’08 $20s for $4.50 (a $2 premium) and selling the Jan $25s for .75 for a quick 15% with lots of room to rise. The stock is heavily shorted and may rise fast so I will be asking for .25 over yesterday’s close on the current calls as I expect a small squeeze today.
PALM did not disappoint today but if you didn’t get it when I mentioned it on Monday or last Tuesday then you already missed two rounds of significant gains. I think the stock will make another run at $35 today ($34 at least) but the calls are very overpriced so I’m not going to initiate a new position. If you are in it, hope for $37 but be cautious above $35 as any kind of RIMM settlement will kill the rally in PALM.
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I’m not going to do the research but I think there will be a play to short some of the NY based retailers if this transit strike doesn’t end by tomorrow. SKS and TIF come to mind but to make the right play you have to know how much of the company’s revenue comes directly from Manhattan and that is way too much work for me! TIF has been getting creamed by NILE all quarter as web diamond buying continues to gain acceptance. Of course, typical Tiffany customers are not going to buy over the web – yet, but look at what happened to ZLC since July:
http://finance.yahoo.com/q/bc?s=ZLC&t=1y&l=on&z=m&q=l&c=nile,tif
With 10% of US diamond sales coming from the diamond district in NYC and the whole city shut down this week, expect NILE to be a major beneficiary! I’m going to play the May $40s for $5.80 on anticipation of a great quarter but I will take 10% and run if I get it early.
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ONXX may explode today with a new kidney cancer drug, but has looming competition coming from PFE. If the drug is approved for medicare, this company will have a very bright future so expect at least $31 today and possibly a near term challenge of $35. I am hoping that the stock will hold at $30 in pre-market to give us an entry point. BAY is a 50/50 partner on this drug and should get a boost as well, perhaps taking a little longer to move as they are not the headline partner.
If Sprint holds $24 after spending another $6.5Bn to buyout all of Nextel, I think we may be looking at a very strong stock.
Our early December home run TASRE is poised for another rally today as courts continue to decide the lawsuits are frivolous. Yesterday’s court decision was enough for Merriman analysts to upgrade the stock to a stunning $9.2 target for 2006! I am definitely back in this stock today and it is still an excellent stock to sell calls against.
AXP should remain strong with a B of A partnership announced today.
SIRI should break out of its doldrums today as all the weak hands seem to have been shaken out but the stock will have to break the 50 dma of $6.80 on volume to look meaningful. I would have been happier if it had gone lower yesterday but that could be a real sign of underlying strength. This is another great call selling stock.
FDX beat expectation by a good margin and should hit a new high today. The stock is very overbought – up 33% since September but YELL is still just sitting there looking very attractive at $44!
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Without Nasdaq leadership there can be no real rally and it will be a very hard road to get the market back over the $2,250 level, which has become a very weak support.
If the Nasdaq cannot turn up this week, I think we will be in for a major correction so I will reiterate my call for cash, cash and cash.
A significant draw in oil can absolutely destroy the markets today so be very careful out there!
Good trading,
– Phil
