Thursday, November 04, 2004

Thursday Nov 04, 2004

Market had a nice rally today driven by bulls carrying the somewhat fizzled election rally from yesterday. Markets hate uncertainty and obviously Bush re-election is welcomed more than if Kerry had won.

It was a broad base up day, but something interesting to watch was that the Gold/Silver names out performed. Is this market rallying because we don't have to worry about who the next President is going to be? If it is then, why are defensive gold stocks also rising? Some of it was certainly technical bounce with KGC, FCX and PDG all seeing nice uptick in volume also.

I think this might have something to do with the market looking ahead to the next fed interest rate hike, higher oil prices and no support for the Dollar even after the elections. Reading tea leaves might signal uncertainty hasn't disappeared just because we know Bush will lead for another four years. Seems like the above mentioned gold stocks might be something to buy just as a hedge.

Another strong sector was the Retailers with a mixed bag of October comps. I don't delve too deep into retail stocks but I have liked the action in BBY and URBN and see more upside from here. Another one of my favorite SBUX benefitted from "The very successful debut of Pumpkin Spice Latte", try one if you haven't. If you want a little risky name try TLB, strong turn around in comps and nice chart. And the Big Daddy of them all WMT slightly raised its EPS guidance as well.

Airlines are also seeing a nice bounce. I don't like the economics for most the players in this sector so I avoid any names here but if I must pick one, it would be JBLU, the one with best economies in the industry.

Another sector rallying on Bush re-election is managed care. With Republicans strengthening hold on Congress and re-capturing the White House, managed care providers should not see any increase in regulatory oversight and more importantly no change to Medicare re-imbursements which had been a big over hang on the sector. I would be a buyer of ATH, AET, PHS. There is no "clean" ETF for the sector but XLV or PPH should also benefit.

In Technology Software names were the most significant gainers. Semis had a mix day with BRCM being a big gainer, QCOM lost 4.5% after not so stellar guidance yesterday. I believe quality names like QCOM are worth considering on big sell offs in the market, but with earnings related sell off with estimates moving down, I would stay on the sideline on this name for few days. I would be hesitant to start any position in semiconductor names right now since I feel there is still more downside driven by margin compression. Semiconductor stocks are some of the most volatile names and since I don't do day-trading I try to stay clear until I can find a clear catalyst to be in a name long or short. Semi Caps had a mix day after a downgrade by BofA analyst on AMAT, KLAC & LRCX. Another sector to be wary of, with too many players not enough pricing power and shrinking customer base. Telecom Hardware was also mix with RIMM seeing the most action and continuing on its upward trajectory. SONS lost almost 6% of its market-cap after a in-line quarter with good gross margin but no concrete guidance for next quarter. If you listen to the earnings conference call it becomes clear that management was not very forthcoming on a lot of topics and their persistence to avoid the reason on why gross margins jumped last quarter but will fall next quarter, made for one very frustrating situation. Another big loser was DITC, a darling of the bubble days lowered guidance for the quarter due to some slow down in wireless related spending in U.S. and some sales push-outs, this should come as no big surprise as their competitor TLAB also saw sharp decline. With lower gross margin from increasing International sales, expect stock to be re-valued at lower multiple.

Buyer of: Retailers, Managed Care, Gold/Silver
Seller of: Semiconductor, Semi Caps


Anonymous Anonymous said...

The telcos ripped too. While Q and MCI didn't have great results, it didn't matter. All the Bells have acted well since the election. Good dividend yields (>4%) and the party of Elephant's will continue to encourage Mike Powell to be nice to their friends at SBC and Verizon. Watch each as they test new highs.

4:25 PM  
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