Financial Services Weekly Update

Citi: They have been in the news every day. A mgmt shake-up has some people questioning CEO Chuck Prince, this should blow over. They bought a British online bank to get exposure to the credit card market across the pond. I think they will continue to grow at their own pace.

MER: Merrill Lynch increased their retail bank exposure, in buying First Republic Bank (San Fran) yesterday.

AIG: I think of why we are still in this fundamentally, and technically it does not look good. I propose a stop/loss at 66.75/sh. The chart below shows that AIG has fell below its 50-day moving average (red line) and has just broke the 100 day moving average (green). There is signifigant support (lower bound of trend lines, will explain tonight) around 66.55, if it breaks that investor/trader confidence will dip further, causing shares to approach 60. I think we need to be disciplined here and place a stop/loss at 66.75 for our full position.

-Rich

Healthcare Report

Biogen is at 48.03. Most recent news to report regarding it is that last Thursday it initiated Phase II Trial of Galiximab for follicular non-hodgkin's lymphoma. The study is a registrational clinical trial being conducted under a Special Protocol Assessment granted by the U.S. Food and Drug Administration (FDA) in July 2006. Earnings are released Feb 15 th. Merck's earnings fell 58% and Wyeth's rose 17% however both missed Wall Street Estimates. On Jan 23, Pfizer was downgraded by Bear Stearns. JNJ earnings are up 2.53% and Abbott Labs (ABT) were up 5.41%. I will continue to watch Abbot Labs over the next week and see its progress and then may propose a buy. Any thoughts, questions or opinions please let me know.

Liz Hershman

Consumer Goods Update

Reminder: Tonight I will be proposing Toyota. Jim Cramer said last week on Mad Money, "if you buy one stock this year, buy Toyota."

Other news in the consumer goods: it may be time to look into buying a packaged foods company to hold for the long hall, I dont see anyone giving up they breakfast ceral anytime soon. Kellogg raised 2007 expectations despite the expected increase in corn prices. They raised their expected eps by one cent, translating into expected profits of $2.72 per share and expected sales growth of 4% to $11.34billion. However, they just posted lower profits and NI dropped 5.2% so I will also look into General Mills. Another article on Yahoo Finance noted that yogurt drinks and smoothies are the fastest growing food in a major world study. Yoplait yogurt (owned by General Mills) sales grew 6% in the last quarter. Expect a proposal for a major food company in the coming weeks.

Amid Amaranth's Crisis, Other Players Profited

Not sure if you guys caught this article in this mornings paper, but its a pretty good description of what happened at Amaranth.

"Mr. Hunter bet big. He sometimes held 30% of contracts for gas delivery in certain months, say people who saw the trading data. His team, operating largely out of Calgary, Alberta, made a stunning $1.5 billion in six weeks last spring, mostly on energy trades. But gains that big in a single market can portend swings just as fast the other way, and in May that's what happened. His bets on gas prices years into the future backfired and dealt the fund a sudden loss of about 10%."

Shocking.

Tech Update

AMD vs. INTC

As of close of business 1/28/07
AMD - 15.95, down even more today!
INTC - 20.53, undervalued in my opinion...better position based on my love of their products lol.

Right now Intel is cheap, and it is the forerunner for innovation. I propose we liquidate our holdings of AMD and open up a dual position in INTC and SUNW. Techs in general will be benefit because of the release of Vista, but this is a bullish headline, not necessarily an incentive to stock price rises in the long run. Tech stocks will most likely end the day mixed as we wait on the Fed. Intel we see benefits in the unspoken partnership it has with Nvidia, as NVDA is looking healthy. In fact, buyers of new computers will most likely have a computer with an Nvidia 8800gs or gtx, as it is Directx10 compliant and Vista is a graphically intensive piece of software.

SUNW - 6.35 yesterday's close, up again today.

Sun Microsystems has been up since its earnings report. Out of the red, into the Black! This is a case where bullish headlines are supported by a bullish income statement. Fundamentally, it's a good buy.

The tech sector will be bullish for the next couple of months! So I say we ride it.

Mutual Funds and Sudan

I thought you liberal finance students would find the movement towards Sudan-free mutual funds rather interesting. I'm surprised I haven't seen a "Save Darfur" sweatshirt in one of our meetings.

Altria Group Spin-off of Kraft

Now that the legal litigation concerning the tobacco industry and specifically Altria Group, is winding down, Altria is finally planning on going ahead with its spin-off of Kraft Foods (KFT). In 2001 Altria made 16% of Kraft public in the second largest IPO ever, worth $8.7 billion. Now they plan to dump the rest of their 84% stake on the market worth about $43.5 billion. Kraft has already been seeing shrinking profit margins and a falling stock and selling the rest is sure to add more downward pressure. However, there is one redeeming quality for this stock in the long-run. Analysts estimate that after the sale it will have a market capitalization of roughly $57.14 billion, making it the largest company in the consumer food industry with more than 1/3 market share. As a result, it is not unlikely that Kraft would eventually be added to the S&P 500. What this means is that any mutual fund, ETF, or other investment vehicle which tracks the S&P 500 would for forced to purchase Kraft, causing the price to go up in the long-run.

Credit Suise Group (NYSE:CS)

I am also thinking of buying Credit Suisse. This will give us exposure to Investment Banking business that is not US-centric. As the global marketplace continues to grow, M&A and advisory demand is sure to pick up abroad. They just announced a large share repurchase in todays FT

Rich

Consumer Goods Sector 1/22

Taking a brief look at the Consumer Goods Sector, the Dow Jones Consumer Goods index is only up 1.62% YTD, showing that the sectory is relatively slow growing. Seeing as we currently have no consumer goods stocks in our portfolio, I think one of the first ones we should consider is Toyota. Toyota Motor Company (TM), currently trading at $131.21, is expected to soon surpass Ford and become the world's largest automaker. Also as opposed to some American car makers, Toyota is actually profitable and has a considerable lead manufacturing successful hybrids. Now might be a good time to buy as Toyota's stock has taken a slight decline ($1) due to news of a truck recall (533,000 trucks) but should bounce back and continue its ascent. Compared to market competitors the stock is trading cheaper (with a lower P/E), has stronger quarterly earnings growth, and has better margins. I won't be able to make it to the meeting on Jan 23, but I will have a proposal to buy Toyota next week. I am also investigating different food companies including Kellog, Kraft, etc. I think one of these would be a good purchase to withstand different economic conditions.

Financial Services - Week of Jan 21st

Greetings KFG,

As usual, much has been happening in the Financial Services sector:

C: Citi is down a few cents on the week, nothing material. They are expanding their Mortgage business by purchasing a unit from ABN Amro, going with the trend of non-organic growth in the sector. Citi is also changing its logo and focusing more on its Investment Bank in the coming quarter (trying to battle the GS's and LEH's of the world on the league tables). I am still bullish on this company as a buy and hold play, and nothing more. It may fluctuate with the sector due to interest rate speculations (due to its large concentration in the consumer finance realm - (borrowing short, lending long). Tomorrows WSJ will feature an article on the recent mgmt shake-ups and how CEO Charles Prince is handling them. Prince will really be tested in the coming period to see if he can really grow and sustain earnings for Citi - allowing them to compete with Bank of America on the retail side and Goldman Sachs on the IBD side.

MER: Our boys at Merrill announced earnings last week and they were good. Some highlights:

-NI up 68%
-Income from continuing operations up 21%
-21% ROE for the year
-Increased dividend by 40%

All of this (especially the dividend) helped the stock. We are already up 41% on the stock. I want to continue to hold it, but cash some profit out if we reach a gain of over 45%. I say this because of opportunity cost. I want to get rid of some and get to the other. We sold half of Citi to buy MER, now I want to move down the line.

I want to look at OPBL. Optionable is a brokerage services company that provides trading and brokerage services to brokerage firms, financial institutions, energy traders, and hedge funds in the United States. The company offers natural gas and other energy derivatives trading and brokerage services, OTC energy derivatives brokerage services, energy futures derivatives services, and services for lesser used derivatives, such as swaptions. The do business with the NYMEX, so they seem legitimate. Shares are cheap (under $5), I think we should put our toe in it to watch it, and buy some more later. A proposal will come next week.

Until next time,

Rich


MER:

REITS Weekly Report

The past few months have shown a trend of private equity buying out REITS with the belief that the market has undervalued them. This past week could not have exemplified that better. A record breaking bid of $38 billion was made for Equity Office Properties (EOP) by Vornado, a commercial REIT. EOP is the largest owner of office buildings with real estate in the Chicago, New York and DC area. The bid comes as a counter bid against Blackstone's previous $36 billion bid. The deal has lifted the entire sector by 3.6% due to investors anticipating more buyouts. Blackstone has also recently purchased the REIT CarrAmerica. Private equity firms like Blackstone have the ability to use their properties more for leverage compared to publicly traded REITS, hence bolstering this trend.

The declining Residential REITS sector may be hitting a floor as there has been a growth in housing starts, although this may only be due to unseasonably warm weather. Also boosting this sector is the trend of people renting, rather than buying homes. Since many people believe housing prices will keep on falling, rentals have increased therefore raising renting fees.

In other news: Colony Capital Acquisitions LLC is moving along quickly with $1.5 billion in new financing with its development of Meadowlands Xanadu which will be the most expensive mall built in the US.

Glenborough Realty Trust Inc. agreed to be acquired by funds managed by Morgan Stanley for roughly $1.9 billion. The buyout values Glenborough at $26 a share-an 8.2% premium over Friday’s closing price of $24.03. Goldman, Sachs & co. acted as a financial adviser for Glenborough’s board and Morgan Stanley acted as a financial adviser to Morgan Stanley Real Estate.

Commercial REIT deals are hot right now-be on the look out for possible arbitrage investments.