Thursday, July 28, 2005

Morning Update

"It is not a question how much a man knows, but what use he makes of what he knows; not a question of what he has acquired, but of what he is, and what he can do with it." - Josiah G. Holland

Morning News of Note:
  • Real Estate Financing: Heard on the Street.... Wall Street Finds a New Gusher Commercial-Mortgage Securities Are Headed Toward a Record Year As Real-Estate Financing Shifts Investors' love affair with real estate is producing a record year for commercial mortgage-backed securities, signaling a further shift in real-estate financing from banks to Wall Street. Cash is flooding into the market, where mortgages for skyscrapers, strip malls and other commercial properties are bundled together and sold off as bonds to investors varying from pension funds and insurance companies to hedge funds and wealthy investors. (Full Story) WSJ
  • Momentum Stocks: Momentum Stocks Please pass it on: The old Wall Street adage "Buy low, sell high" is patronizing to the point of absurdity -- akin to saying, "Get rich, not poor." It is also dead wrong, according to momentum investors. Buy high, sell even higher, they argue. They have a point. Studies have long shown that stocks with stellar gains tend to produce more of the same. Sadly, they tend to do so only for six to 12 months before switching direction. Researchers call this long-term reversal. In sum, buy momentum stocks if you like, but don't turn off your quote screen and forget about them for too long. (Full Story) WSJ
  • COP: ConocoPhillips Has Best of Both Worlds THANKS TO RISING oil prices, ConocoPhillips stock has been a big winner, soaring 57% in the past 12 months. That's nearly five times the rise in the Standard & Poor's 500 index and nearly double the performance of the S&P integrated oil and gas index. But ConocoPhillips continues to beat earnings estimates (it reported a 51% rise in profit Wednesday) and reinvest cash from record-high energy prices more aggressively than its competitors do. (Full Story) BARRONS
  • GOOG MSFT: Google Calls Microsoft Lawsuit 'A Charade' Google Inc. is asking a judge to reject Microsoft Corp.'s bid to keep a prized research engineer from taking a job at the Internet search company, saying the software titan filed its lawsuit to frighten other workers from defecting. Microsoft sued Kai-Fu Lee, one of its former executives, and Google last week, claiming that by taking the Google job, Lee was violating an agreement he signed in 2000 barring him from working for a direct competitor in an area that overlapped with his role at Microsoft. (Full Story) Washington Post
  • SBUX: Starbucks: Color on qtr (50.35 ) Analysts are positive on SBUX following strong results and guidance issued last night... JP Morgan notes that overall results were strong and quality was high. As comps (+7%) and revenues (+22%) were pre-reported, there were no top line surprises. They say that while they are more confident in its 3 yr. earnings outlook, the firm rates SBUX Neutral and would wait for price pullbacks to buy the stock... Goldman believes there has been a lot of investor concern regarding the lapping of October 2004 price increases (3%) and what that might mean for sales going forward. With the music initiative adding 1% to comps, expected traffic/mix gains of roughly 4%-5% this year, they believe SSS at the midpoint of mgmt's 3-7% range in reasonable for 2006. They believe that, along with unit growth of ~18% should, at a minimum, generate the 20% top line growth management is looking for.


Market Comments: The market is up again on the open. Strong earnings reports from SBUX, PHM, DRIV, XOM, COP, and PTEN (among others) have helped 2Q earnings continue to come in ahead of expectations. The steady climb by the market over the last week has been impressive, as the pause/breather I was looking for has yet to materialize.

long GOOG, MSFT, PTEN, XOM

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