Contributors

Be Sure To Decipher the Data!

As long-time readers are well aware, I’m kind of a stickler for keeping the big-picture in focus. And as anyone who has ever clicked a buy button will attest, this can be tough at times with all the news, noise, and flashing screens distracting us during the trading day. In fact, the primary reason I pen (er, type) a daily market missive is to make darned sure that I stay focused on what is driving the market. The idea is that if we can stay in tune with the action on a daily basis, then we ought not be surprised when the big picture environment changes.

With stocks now having gone sideways for the better part of two months and the market appearing to often times have very little memory from one day to the next, I am here to say that it is VERY easy these days to lose sight of the big picture. And since it is also VERY easy to find someone these days who agrees with your view, instead of seeking agreement, the goal should be to try and avoid all the so-called expert opinions and make sure to stay objective.

Getting to the point, we are of the mind that the market remains data dependent right now. We’ve had the undoing of the Armageddon discount and we’ve also probably seen a little discounting of better days ahead for the economy. So, at this stage of the game, those of the bullish ilk need to see some actual improvement in the economy in order to justify a continuation of the “mini bull” trend.

Thus, it becomes vital to be able to decipher the data that we’re hit with on a daily basis. Yes, I understand that trudging through economic data is torture for many investors. However, at this point in the game, it is critical to be able to understand what’s actually in the reports instead of letting T.V. commentators decide what makes for the best headline.

For example, the ISM Manufacturing Composite didn’t get much air play yesterday. However the message from the data was fairly important. The headline read that the ISM composite came in at 44.8, which was slightly below the consensus for a reading of 45.0. But, if you only checked the headline (and come on, admit it; how many even looked at this headline?) you might have been led to believe that the report was a bit disappointing.

However, the 44.8% reading was the highest since last August. And more importantly, the index, which is designed to indicate the state of the manufacturing sector, remained above the key 41.2% level that has historically been consistent with an expanding economy. I could go on, but in short, the ISM said the report was “encouraging” and added that “a recovery for manufacturing is forming.”

So, if you find yourself stuck in the bitter barn and preparing for the economic disaster that has already happened – please snap out of it! The bottom line is the economy IS turning. And while the ride is likely to be bumpy, it might just pay to try to stay upbeat about the big picture over the next 6 months or so. This does NOT mean that we won’t see a correction in the near term for just about any reason. However, for now at least, we’d give the bulls the benefit of the doubt.

Turning to this morning, we’ve got the Big Kahuna of economic data now available, so let’s get right to it. The Labor Department reported that nonfarm payrolls fell by 467K in June, which was worse than the consensus estimates for a drop of 356K jobs and May’s reading of 345K. The Unemployment Rate actually came in a tenth below expectations at 9.5% but is up a tenth from May’s 9.4% rate. And then, weekly Jobless Claims were pretty much on target at 614K vs. 615K.

Running through the rest of the pre-game indicators, the major overseas markets are lower across the board. Crude futures are moving down with the latest quote showing oil trading lower by $1.56 to $67.75. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.52%, while the yield on the 3-month T-Bill is trading at 0.16%. And with about 45 minutes before the bell, stock futures in the U.S. are pointing to a lower open. The Dow futures are currently off by about 100 points; the S&P’s are down about 10 points, while the NASDAQ looks to be about 8 points below fair value at the moment.

Finally, as a reminder, the markets are closed tomorrow, so here’s wishing everyone a safe and happy Fourth of July!

Stocks “In Play” This Morning:

Upgrades/Downgrades/Brokerage Research:

JetBlue Airways (NASDAQ: JBLU) – Downgraded at Argus Research
ADTRAN (NASDAQ: ADTN) – Upgraded at Citi
WPP Group (NYSE: WPP) – Downgraded at Citi
Tata Motors (NYSE: TTM) – Upgraded at Deutsche Bank
Sempra Energy (NYSE: SRE) – Downgraded at Deutsche Bank
Johnson Controls (NYSE: JCI) – Downgraded at Deutsche Bank
Advanced Micro (NYSE: AMD) – Estimates and target increased at Goldman
Evergreen Solar (NASDAQ: ESLR) – Upgraded at JP Morgan
SunPower (NASDAQ: SPWRA) – Upgraded at JP Morgan
First Solar (NASDAQ: FSLR) – Downgraded at JP Morgan
Continental Airlines (NYSE: CAL) – Upgraded at Morgan Stanley
Southwest Air (NYSE: LUV) – Downgraded at Morgan Stanley
Intl Paper (NYSE: IP) – Estimates increased at UBS
Dynegy (NYSE: DYN) – Downgraded at UBS

Long positions in stocks mentioned: none

Note: All earnings reports compared to Reuter’s consensus estimates

** For More of David Moenning’s Market Analysis, Stock Portfolios, and Trading Ideas, visit: www.TopStockPortfolios.com

The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management and Co-Founder of TopGunsTrading.com and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Heritage Capital program. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of HCM’s programs. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Moenning or Heritage Capital Management nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Mr. Moenning and employees of HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while this publication is in circulation. The analysis contained is based on both technical and fundamental research. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

From Notable Calls:

We have several firms out defending Illumina (NASDAQ: ILMN) after the co pre-announced 2Q results after the close and expecting revenues to be ~$161 MM, below prior guidance range of $168-173 MM. The miss was largely attributed to weakness in the array business: 1) Slowdown in GWAS as researchers await new content; 2) Softness in Foundation funding; & 3) Order delays (sequencers) as researchers are uncertain about grant money.

- Deutsche Bank reiterates Buy noting ST volatility does not reflect any change in fundamentals, which remain strong. ILMN est. that $10-15 MM of rev was impacted by delays in 1H’09, with some volatility expected in 3Q as well; however, stimulus benefit should make for a strong 4Q’09 (sequencing). Also, data from 1000 Genomes \should reinvigorate array growth in mid FY10 as rare variant content will drive ‘rich’ GWAS studies. Price tgt is lowered to $40 from $47.

- JP Morgan notes that despite the uncertainty over quarterly results, however, they maintain their long-term favorable view given the size of the genetic analysis market and strong competitive position for ILMN, which will report F2Q results on 7/21 @ 5pm ET. Maintains Overweight rating.

Read-through for other life science companies . . . buy LIFE. JP Morgan does not see direct read-through for other companies in their life science tools universe, other than AFFX, which also has a GWAS business. While we expect a number of companies, incl. LIFE to be impacted by the preannouncement, they would use any pullback as a buying opportunity, in particular for LIFE, which doesn’t have a microarray business and has little near-term exposure to the GWAS slowdown. Recent commentary from management (see transcript of their call with CEO Greg Lucier last month) has also confirmed that the company has not seen a recent slowdown in academic demand.

- Morgan Stanley: 2010+ and Fundamental Story Intact, Maintaining Overweight … They do not believe the Illumina story is broken, with the 2010 stimulus thesis and core business fundamentals largely intact given: 1) a meaningful multi-year stimulus benefit with upside to current consensus expectations (stimulus contribution in 2010 likely conservative); 2) an intact sequencing product cycle with a longer tail than many believe; and 3) the array business is struggling through a demand gap rather than a permanent fundamental negative inflection. However, trends in genome wide association studies remain the primary risk to the stock.

Maintains Overweight, lowering tgt to $38 from $42.

Notablecalls: I think this one has a fair chance of bouncing today. $32-$33 range is my target for this one.

For more calls go to http://notablecalls.blogspot.com/

Here is the latest Piqqem Sentiment Market Movers List for the week of July 1st. The Market Movers measurement combines the number of active votes on a security at Piqqem.com and percentage change in sentiment ratings on an equity over the previous seven days. Piqqem users provide their sentiment rating on equities on a 0-to-4 scale with 0 as lowest and 4 as highest.

This week the solar power and enterprise software lead the list with strong performances on the heels of strong numbers from Oracle and Suntech. Curiously, Piqqem Sentiment is rising for GM but falling for Ford despite news on Ford's market share gains. AT&T is a sentiment winner, largely based on the extremely strong response to the new iPhones. Oil refiner and retailer Tesoro is up based on growing belief that gasoline inventories will fall and prices will go up in the summer driving months. Thanks for reading and any feedback is welcome.

• Sentiment for Suntech Power Holdings (NYSE: STP) is up 8.6% in the last week.
  
• Sentiment for Oracle (Nasdaq: ORCL) is up 8.6% in the last week.
  
• Sentiment for Tesoro Petroleum (NYSE: TSO) is up 3.7% in the last week.
  
• Sentiment for Burger King Holdings (NYSE: BKC) is down 8.5% in the last week.
  
• Sentiment for Ford Motor (NYSE: F) is down 6.5% in the last week.
  
• Sentiment for General Motors (OTC: GMGMQ) is up 6.9% in the last week.
  
• Sentiment for Yahoo (Nasdaq: YHOO) is down 5.8% in the last week.
  
• Sentiment for ATT (NYSE: T) is up 6.6% in the last week.
  
• Sentiment for Amex Composite is up 1.4% in the last week.
  
• Sentiment for Procter Gamble (NYSE: PG) is up 6.3% in the last week.
  
• Sentiment for Bank of Hawaii (NYSE: BOH) is down 6.1% in the last week.
  
• Sentiment for IntercontinentalExchange (NYSE: ICE) is down 7.8% in the last week.

*Piqqem is a stock prediction community and analysis tool that aggregates Crowd Wisdom to help users see shifts in market sentiments. Piqqem does not issue buy or sell recommendations on stocks or equities.

Will the Real Consumer Please Stand Up?

Stocks limped home yesterday as the second quarter drew to a close. However, with the best quarterly gains in more than a decade, no one in the bull camp was terribly upset with the result. After all, the S&P saw a gain of +15.22% during the April through June period while the Dow rose +11.01% and the NASDAQ soared an impressive +20.05%.

Tuesday’s decline was fueled largely by the unexpected drop in the Consumer Confidence index. The confidence index fell 5.5 points to 49.3 in June from 54.8 in May, which was well below the consensus expectations for an increase of 1.1 points. And with this market being largely dependent on the data, the ensuing selloff wasn’t exactly surprising.

However, yesterday’s report on consumer confidence was in stark contrast to Friday’s University of Michigan Consumer Sentiment report, which came in much better than expected. If you will recall, the UofM index gained 2.1 points to 70.8, which was the largest jump since February 2008. And more importantly, the expectations component, which, as you might guess, is designed to signal how consumers are feeling about the future, was the major driver behind the increase.

The problem is the conflicting data doesn’t do much to settle the argument about the outlook for the consumer. The bears contend that the consumer is tapped out and in debt up to their eyeballs, so there is no reason to expect the coming economic rebound to be fueled by mom and pop’s desire to buy that boat or head to Hawaii on vacation. Yet on the other side of the aisle, our heroes in horns suggest that while the consumer is unlikely to return to the free spending days of the last decade, they ARE returning to the restaurants, the ballparks, and the malls for the occasional purchase-to-perk-me-up.

So, I guess we should chalk up the contradiction to the current “messy” phase of the economic recovery. While many of the indicators are indeed pointing in the right direction in terms of the economy, the degree of damage inflicted by the crisis means that we aren’t likely to see a “V” bottom. So, while we’re waiting for the “real” consumer to stand up, we should keep in mind that the batches of conflicting data are likely to continue for some time.

Turning to this morning and speaking of the data, it is the economic data that continues to be in focus with the ADP Employment report garnering a great deal of attention. The June report came in worse than expected as employment in the private sector fell by 473K, which was well below the consensus estimate for a drop of 395K. However, May’s figures were revised higher to -485K from -532K. In addition, Challenger reported that US planned job cuts for June were down -33% and that the total planned job cuts for June were the lowest since March 2008.

As a reminder, with the market closed on Friday, we will get the Big Kahuna of economic reports – the June Employment Report – tomorrow morning at 8:30 am.

Running through the rest of the pre-game indicators, the major overseas markets are mixed by region with Asia down and Europe up more than 1%. Crude futures are moving up again after yesterday’s drop with the latest quote showing oil trading higher by $1.21 to $71.10. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.595%, while the yield on the 3-month T-Bill is trading at 0.17%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a modestly higher open. The Dow futures are currently ahead by about 37 points; the S&P’s are up about 4 points, while the NASDAQ looks to be about 5 points above fair value at the moment.

Stocks “In Play” This Morning:

Upgrades/Downgrades/Brokerage Research:

Cooper Tire (NYSE: CTB) – Upgraded at BofA/Merrill
TRW Automotive (NYSE: TRW) – Upgraded at BofA/Merrill
Walt Disney (NYSE: DIS) – Estimates reduced at Barclays
Choice Hotels (NYSE: CHH) – Downgraded at Barclays

Marriott (NYSE: MAR) – Downgraded at Barclays
Starwood Hotels (NYSE: HOT) – Downgraded at Barclays
Morgan Stanley (NYSE: MS) – Estimates reduced at Credit Suisse
YUM! Brands (NYSE: YUM) – Upgraded at Goldman
Altera (Nasdaq: ALTR) – Estimates reduced at JP Morgan
Marvel Entertainment (NYSE: MVL) – Upgraded at JP Morgan
Werner Enterprises (Nasdaq: WERN) – Upgraded at JP Morgan
Myriad Genetics (Nasdaq: MYGN) – Downgraded at Oppenheimer, RBC Capital
Covance (NYSE: CVD) – Downgraded at Piper Jaffray

Long positions in stocks mentioned: none

Note: All earnings reports compared to Reuter’s consensus estimates

** For More of David Moenning’s Market Analysis, Stock Portfolios, and Trading Ideas, visit: www.TopStockPortfolios.com

The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management and Co-Founder of TopGunsTrading.com and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Heritage Capital program. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of HCM’s programs. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Moenning or Heritage Capital Management nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Mr. Moenning and employees of HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while this publication is in circulation. The analysis contained is based on both technical and fundamental research. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

From Notable Calls:

JP Morgan is upgrading Werner Enterprises (NASDAQ: WERN) to Overweight from Neutral with a $24 price target (prev. $18).

According to the analyst, WERN is one of the names within their coverage space that reflects low expectations and potential for significant upside surprise. They believe that WERN’s 2Q results are likely to show significant traction on cost-cutting initiatives while it provides attractive leverage to a turn in the economy in the medium term. They also believe the combination of low expectations and traction on cost cutting supports an attractive reward to risk profile even if the TL cycle turn takes time.

Low expectations support attractive risk to reward. Short interest of 24% of the float for WERN versus 11% on average for the other TL and LTL names JP Morgan covers is one indication of market skepticism regarding WERN, while its low 4.2x EV/ EBITDA valuation on 2010 estimates (vs. 8.2x on average for KNX and HTLD) reflects caution. Sell-side skepticism is also apparent with only 1 Buy rating out of 15 total ratings.

Serious approach to cost cutting could provide upside surprise. The firm believes a combination of aggressive non-driver cost reduction and further fuel efficiency gains can provide better than expected margin and EPS performance for WERN in 2Q09, and WERN’s cost-cutting activity should provide support for EPS as a TL turn may take patience.

Early cycle name with leverage to a turn. Historically the TL group including WERN performs well coming out of a downturn with WERN up 21% and 38% on average in the six and twelve months following the last quarter of the two most recent recessions (vs. the S&P 500 returns of 12% and 15%). They also note WERN’s significant EPS sensitivity of $0.13/ share to a 100 bp improvement in its operating margin.

Raising EPS estimates. JP Morgan is raising their 2Q09 EPS estimate from $0.18 per share to $0.22 per share and full-year 09 EPS from $0.72 to $0.78. 2010 EPS also rises. Stronger cost side performance is a key driver of the increases to our EPS forecasts.

Notablecalls: I like this call from the trading perspective. If JP Morgan is right about the potential significant upside surprise in the coming quarters, this one is going to zoom higher. The 24% short interest in the name is going to make sure of that.

Usually, when a tier-1 firm like JP Morgan comes out with a positive piece (estimates getting bumped higher), smaller firms tend to follow. This is how short squeezes develop.

I suspect this call will put some fire under the shorts today pushing the stock markedly higher. I see 5-7% upside in the name (just gut feel).

For mroe calls go to http://notablecalls.blogspot.com/