Tuesday, November 29, 2011

RIM Surges 9% on Bernstein Upgrade and Birinyi Interview

Shares of RIM surged 8.15% intraday in Toronto (9% on the NASDAQ) and closed up 5.53% at C$17.95.  Analyst Pierre Ferragu from Sanford Bernstein upgraded the stock to a "hold" from "buy" today.  However, that upgrade alone likely would have resulted in a 3% rise in the shares.  More importantly, Laszlo Birinyi from Birinyi Associates said on CNBC that RIMM was one of his top 5 picks for 2012.

Just yesterday, Shaw Wu of Sterne Agee downgraded the stock from "buy" to "hold".  Meanwhile, Gus Papageorgiou reiterated an "outperform" rating on the stock, and said it was "absurdly oversold".

Looking Ahead to Q3 Earnings on December 15th

During RIM's Q2 earnings conference call, sell-through was an incredibly strong 13.7 million units.  In addition, even though BlackBerry 7 smartphones had been available for less than a month in Q2, sell-through for the new devices were very strong.  With the well-designed and popular Bold 9900/9930, RIM likely shipped at least 12.5 million smartphones in Q3.  The availability of the Bold 9900 at AT&T also likely provided a boost to shipments.  With Q3 having ended on November 26th, shipments also benefited from the launch of the Bold 9790 in Indonesia on November 25th.  Thus, it would be reasonable to expect the shares back in the high $20's and low $30's in 3 months.

Sunday, November 27, 2011

US Markets Fall on Trio of Euro Zone Downgrades

North American markets fell for a 7th consecutive day on Friday. Markets were plagued by bad news for the entire week, as Portugal, Hungary and Belgium were downgraded. After a shortened session on Friday, the S&P 500 fell 3.12 points or 0.27% to 1,158.67. The Dow lost 25.77 points or 0.23% to 11,231.78. For the week, the S&P dropped 4.7%.

Trio of Downgrades

On Friday, S&P downgraded Belgium from AA+ to AA because of concerns about funding and market pressures. In addition, Moody's downgraded non-euro zone member Hungary's rating, from Baa3 to the junk rating of Ba1. Earlier in the week, Hungary had asked IMF and the EU for assistance. Furthermore, on Thursday, Fitch downgraded Portugal from BB+ to the junk rating of BBB-.

Italy and German Auctions Disappoint

On Thursday, Italy auctioned $10 billion euros of half-year and 2-year bonds. The yield was 6.504% and 7.814% respectively, about 300 basis points above last month's auction.

On Wednesday, Germany planned to auction $6 billion of 10-year bonds. However, it was only able to auction $3.6 billion. It was considered a disaster by investors, and the yield on 10-year German debt rose to 2.08%, a rise of 7%.

Looking Ahead to Next Week

With the trio of downgrades this week, the situation in the euro zone is dire. The biggest fear since the debt crisis started in early 2010 has been contagion, and it appears that has occurred, with Italy and Spain needing imminent help from the EU and IMF. The inability of the U.S. Senate supercommittee to reach an agreement has not helped markets this week.

However, promises by Germany and France to take drastic action could provide markets with a temporary lift next week. In addition, Black Friday retail sales is believed to have been strong, which could provide a lift. With the beating the market has endured in the past two weeks, it does not take much good news to send markets temporarily higher. As the euro zone crisis continues and more quantitative easing is needed, gold is likely to increase in price.

Sunday, November 6, 2011

Apple Stumbles With Battery-Gate and Siri Server Crash

With the launch of the iPhone 4S, Apple is stumbling in a similar fashion to the way it did when it launched the iPhone 4 last year. While last time there was Antennae-Gate, this time there are Battery-Gate, Yellow-Gate, iOS Error 3200, among other problems.

For Battery-Gate, many users have reported that the battery lasts only for 4 hours, even with minimal use of the phone. In terms of Yellow-Gate, many users have reported yellow spots on the screen. This actually occurred with the iPhone 4 as well in 2010. Apple admitted to the problems in the middle of this week, but said that a fix would be weeks away.

Adding to the quality issues, Siri was down for an entire day this Wednesday, when its server crashed. This was in addition to problems users outside the U.S. have had with Siri, in which the location features do not work. Apparently when Apple engineers were testing the iPhone 4S, they only tested the device in Cupertino, California. Thus, they were not aware of the fact that Siri's location features do not work outside the U.S.

Revaluing Apple?

Samsung recently surpassed Apple in the smartphone industry with its latest quarterly earnings report. Samsung sold 23 million smartphones in its latest quarter, while Apple only sold 17.1 million. With Wall Street's preoccupation with being number 1 in the smartphone industry, Apple falling behind Samsung will likely cause its shares to be revalued. However, with people still lining up for Apple products, the big question is not if the shares will be revalued, but when.

Analysts Displaying Herd Mentality to the Extreme

At a time when 49 out of 54 analysts covering Apple have either a Buy or Outperform rating on the shares, they are clearly displaying herd mentality. The analyst from BGC is perhaps the one investors should pay attention to, since he downgraded Apple to a Hold just before the company announced its latest quarterly earnings, and the shares subsequently fell 7% after-hours.

Apple Has Lost its Magic

Antennae-Gate in 2010 taught investors that Apple products were no longer perfect. It also caused many institutional investors to dump the shares, though many other institutional investors bought the shares when the PR nightmare was over.

At a time when many of Apple's customers are in their 50's and 60's, and buying Apple products in the hope of being “cool”, the company has clearly reached its peak. With Steve Jobs gone, Samsung having surpassed Apple and a long list of problems plaguing the iPhone 4S, Apple's magic has diminished. Its shares will be revalued by Wall Street soon enough.

US Markets Fall For 1st Time in 4 Weeks

U.S. markets fell on Friday ahead of a confidence vote on Greek Prime Minister George Papandreou. On Friday, the S&P 500 fell 7.92 points or 0.65% to 1,253.23. The Dow lost 61.23 points or 0.51% to 11,983.24. For the week, the S&P 500 fell 2.5%, while the Dow dropped 2%. The retreat in markets broke 4 consecutive weeks of gains.

U.S. Data Fails to Inspire Optimism

On Friday, the U.S. Labour Department reported gains of 80,000 non-farm jobs in October. It was worst than the 95,000 that the market expected. While the government shed 24,000 jobs, the private sector added 104,000 positions.

Even though the unemployment rate fell in October to 9% (from September's 9.1%) it was not a big enough drop to lift markets.

Greece Takes Markets on Roller Coaster Ride

Greek Prime Minister George Papandreou survived the confidence vote on Saturday. Today, he agreed to a deal with the opposition to form a coalition government to pass the $130 billion euro bailout package, before early elections take place. However, investors have lost a lot of confidence in Greece after George Papandreou tried to take the bailout package to a referendum. Investors will be weary of any setbacks in Greece in the near future.

Italy Now in Focus 

Investors are increasingly troubled by Italy, as the yield on the country's 10-year bonds closed at 6.37% on Friday. It was an increase over the previous day's close of 6.194%. If the yield remains over 6%, investors would become increasingly concerned since it is considered unsustainable, and could force the country through the same debt crisis as Greece.
On Friday, Italian banks UniCredit and Intesa SanPaolo, heavily exposed to Italian soveriegn debt, fell 6.6% and 4.8% respectively. Italian Prime Minister Silvio Berlusconi, who turned down a funding offer from the IMF, placed the country under IMF financial supervision on Friday.

MF Global Goes Bankrupt

MF Global declared bankruptcy this week, as the brokerage had billions in PIIGS sovereign debt. The market then began speculating on the next brokerage to go under. Shares of Jefferies Group fell 7.4% on Friday, and lost almost 20% this week. The company had to issue a statement to say that it had a very small exposure to Portugal, Italy, Ireland, Greece and Spain.

Looking Ahead to Next Week

Volatility will remain the name of the game next week, as investors evaluate developments from Greece and monitor the situation in Italy. For the next few weeks, it will likely be a tug-of-war between improving US economic data and the euro zone debt crisis.

The situation in Italy will have a significant effect on markets. Ever since the debt crisis began in Greece in early 2010, contagion was the biggest concern. As the yield on 10-year Italian debt remains above 6%, investors will brace for a significant shock to markets.

As gold remained firmly above US$1,700 this week and gold miners reported increasing margins, I sold about 75% of my positions in Barrick and Goldcorp (at C$52 for both). Once the shares pull back, I will add shares at around C$47.