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Top 172. Dec 12, 2001 8:13 AM

» JenL_2 - Recovery in Sight?

Just posted this to the "Earnings" thread:

This from 12/10 Barron's:

Down, Then Up

But has the market discounted a 2002 earnings recovery

By Erin E. Arvedlund

Looking across the valley is in vogue on Wall Street these days. All but writing off the dreadful fourth-quarter profits due to be released in a few weeks, the stock market expects a robust earnings rebound in 2002 and 2003, which is being manifested in the rousing rally that has pushed the Dow Jones Industrial Average back over the 10,000-point mark.

But the key question, posed by Morgan Stanley economist Richard Berner, is: "Will economic recovery bring with it the cyclical rebound in corporate profits that is now discounted in stock prices?" Securities analysts confidently answer yes, projecting a 14% rebound in 2002 operating earnings for the Standard & Poor's 500, which the buoyant stock market seems to second. (Berner looks for a more modest 8% gain.)

Blithely dismissing the current quarter's awful results may not be wise. "The fourth quarter is going to be a disaster, just a terrible quarter, although you could interpret that as positive because things are starting to bottom out," says Chuck Hill, director of research at Thomson Financial's First Call. "What really concerns us is that there is no sign of deceleration in earnings warnings" and preannouncements, he adds.

As of Friday, 456 companies had warned about fourth-quarter earnings, compared with 426 at the equivalent point in the first quarter, 433 in the second quarter and 403 in the third this year.

First Call estimates fourth-quarter earnings will slide as much as 19% from last year, with about 5% of that decline relating to the September 11 terrorist attacks. That would put the the S&P 500 earnings at $11.05 in the current quarter, up a few pennies from the estimate of the previous period (a few stragglers haven't reported their September-quarter results). That also would bring this year's total to $45.10, down from $55.12 in 2000.

Noting the great expectations of an earnings revival in the second half of 2002, Hill is wary: "We haven't had any visibility that far out during the downturn."

In the fourth quarter, the worst S&P sector is likely to be the transports, owing to airlines' massive losses after September 11. Technology profits are estimated to be down 62%, despite Cisco Systems last week painting itself as a bright point in a dark sector. With a recession officially declared, earnings of such cyclicals as basic materials (paper, metals, chemicals) are seen down 54%. The slide in oil prices is expected to slash energy earnings 49% from those of a year ago. Consumer cyclical earnings are forecast to be off 22% as automakers' 0% financing wars cost dearly. Ford Motor last week warned it would lose 50 cents per share, a wider deficit than the 14 cents the Street had forecast and the 28 cents posted in the third quarter. Finally, communications earnings are projected to decline 20% and capital-goods profits are forecast to fall 10%.

On the positive side, consumer-staples concerns' earnings are estimated to increase 5%. Utilities could jump 9% and produce some upside surprises, particularly since embattled Enron's numbers won't be included because the company has been booted from the S&P 500. Health-care earnings are projected to grow 13%, and financials to rise 10%, although exposure to Enron could hurt some banks and brokerage firms.

But if Wall Street so confidently sees a recovery in profits next year, doesn't that mean a rebound is discounted in the market, especially with the S&P up 20% since the September 21 lows?

For JP Morgan Private Bank strategist Chris Wolfe, so far the answer is yes. "We think stocks will likely move sideways next year." The expected recovery "is baked in, in large measure. The market's a bit expensive here."

Other strategists aver that next year's recovery hasn't been fully discounted. Bill Knapp, Citigroup Asset Management's head of global investment strategy, says stocks have still further to go in 2002. "Back in August, equities were a good value. The events of September 11 just exacerbated the trough in the economy, but on the other side we'll see a higher high" when the economy recovers in the third quarter of 2002.

He and his colleague Paul Goldwhite, Citigroup's co-head of capital markets research, see stocks returning 10%-15% next year, followed by returns in the high single digits over the next five to 10 years. Like the Street, they're optimistic about financials, Information Technology and telecommunications services, although they see IT earnings growth at a more sanguine mid-teens percentage level. "It is not clear IT budgets will recover as quickly as the Street wants them to," Knapp says. "It's the old malady of already having inflated expectations."

Peering still farther out over the earnings valley, Salomon Smith Barney strategist Tobias Levkovich last week reinstated an S&P 500 preliminary earnings estimate of $54 for 2003. While the S&P currently trades at a seemly expensive price/earnings multiple of 25.2 times estimated 2001 earnings, it commands only 21.2 times his current 2003 estimate, which "is far more reasonable, especially against a backdrop of modest inflation and moderate interest-rate levels."

Easton Ragsdale, associate head of equities at State Street Research & Management, points out that high P/Es aren't meaningful during periods of trough earnings. "If you accept the argument -- and I do -- that low interest rates explain why we have such high P/Es, it looks a lot less like a bubble than it did a year ago."

Subscribe to WSJ & Barron's Online @ http://www.wsj.com

.....Jen

-- posted by JenL_2

http://www.siliconinvestor.com/stocktalk...

Top 173. Dec 14, 2001 3:09 PM

» Kirk - WAR AND RECESSION don't shake Americans' belief the U.

WAR AND RECESSION don't shake Americans' belief the U.S. is on track:

12/14/01 WSJ

Seven of 10 say the nation is "headed in the right direction" in a poll for The Wall Street Journal and NBC News, hardly changed from the record 72% who said so in a pre-Sept. 11 survey. "It's a remarkable finding," says Republican Robert Teeter, who conducts the poll with Democrat Peter Hart. Both hail Americans' "perspective" amid tumult.

Bush enjoys "a majority coalition," Teeter says. The president's job approval remains high at 85%, and 80% have positive views of him personally. Even 72% of Democrats approve of his performance; 61% have a positive view of him.

Congress scores higher, too: 57% approve of the job it is doing.

ECONOMIC STIMULUS replaces education among Americans' top priorities.

The ranks of those dissatisfied with the economy doubles to 47% from the year's start. But half say it will get better in the next year and that their children's lives will be better. "We've never seen this kind of optimism" in troubled times, Hart says. The poll, of 1,019 Americans, taken Dec. 8-10, has a margin of error of 3.1 percentage points.

Poll respondents say Bush has a better approach than do Democrats to escape recession, by almost 2 to 1. By a similar margin, they favor business-tax cuts, which Bush demands, to jobless benefits and incentives for consumers. Yet some nuns write Senate Finance Chair Baucus, "Thank God the Democrats have been resisting" Bush's pressure.

BUSH ENJOYS broad support for war on terrorism.

See the full results of the latest Wall Street Journal/NBC News poll.

Only 3% oppose him; 81% support his actions, 62% "totally." About six in 10 say he "should take action" against terrorist cells in places such as the Philippines, Somalia and the Sudan -- or against Iraq and leader Saddam Hussein, even if U.S. troops are needed there.

Law-enforcement proposals at home also are popular. Big majorities back military tribunals for terrorist suspects, interviews of legal residents of Arab descent, increased monitoring of e-mails, the detentions of about 600 people without charging or naming them, and wiretapping of detainees' conversations with lawyers.

http://interactive.wsj.com/articles/SB10...

-- posted by Kirk

Top 174. Dec 14, 2001 5:42 PM

» Rande - The Latest -- 12/14/01

They can't all be up weeks. At least this one finished on a positive note. Here's....

The Latest (as of 12/14 close):

YTD 2001:

DJIA -9.1%
S&P -14.9%
SPY -13.3%
VTSMX (W5000 Index Fund) -13.2%
Nas -20.9%
QQQ -31.3%
R2000 -2.5%
MDY (S&P 400 Midcap) -3.3%
VEURX (European Index Fund) -23.2%

Since 12/31/99:

DJIA -14.7%
S&P -23.5%
SPY -21.3%
VTSMX -22.1%
Nas -52.0%
QQQ -56.1%
R2000 -6.6%
MDY +13.4%
VEURX -29.1%
50/50 Total Stock/Total Bond -1.0%
(includes Total Bond through yesterday)

Since Previous Closing Lows:

DJIA (9/21/01) +19.1%
S&P (9/21/01) +16.4%
SPY (9/21/01) +16.7%
W5000 Fund (9/21/01) +18.1%
Nas (9/21/01) +37.2%
QQQ (9/21/01) +42.3%
R2000 (9/21/01) +24.4%
MDY (9/21/01) +22.1%
VEURX (9/21/01) +18.5%

Since Previous Closing Highs:

DJIA (1/14/00) -16.3%
S&P (3/24/00) -26.4%
SPY (3/24/00) -24.7%
VTSMX (3/24/00) -27.3%
Nas (3/10/00; ) -61.3%
QQQ (3/24/00) -65.9%
R2000 (3/9/00) -22.2%
MDY (9/7/00) -9.3%
VEURX (3/24/00) -31.5%
___________________________

Previous Closing Highs

DJIA 11722.98 (1/14/00)
S&P 1527.46 (3/24/00) [back to 1530.09 intraday on 9/1/00]
SPY 153.56 (3/24/00) [back to 153.5938 intraday on 9/1/00]
VTSMX 35.58 (3/24/00)
Nas 5048.62 (3/10/00)
QQQ 117.75 (3/24/00)
R2000 606.05 (3/09/00)
MDY 101.4525 (9/7/00)
VEURX 29.85 (3/24/00)

Benchmark Closing Lows (lows since previous all-time highs):

DJIA 8235.81 (9/21/01)
S&P 965.80 (9/21/01)
SPY 97.28 (9/21/01)
VTSMX 21.40 (9/21/01)
Nas 1423.19 (9/21/01) (intra low -- 1387.06 on 9/21/01)
QQQ 28.19 (9/21/01) (intra low -- 27.20 on 9/21/01)
R2000 378.89 (9/21/01)
MDY 74.45 (9/21/01)
VEURX 16.85 (9/21/01)

Market Cycle Peak to Trough:

DJIA (1/14/00 - 9/21/01) -29.8%
S&P (3/24/00 - 9/21/01) -36.8%
SPY (3/24/00 - 9/21/01) -35.3%
VTSMX (3/24/00 - 9/21/01) -38.2
Nas (3/10/00 - 9/21/01) -71.8%
QQQ (3/24/00 - 9/21/01) -76.1%
___________________________

Index returns are price change only, ETFs and mutual funds including divs/distributions. Returns not guaranteed as to accuracy -- relying on unaudited third-party sources (may have missed a dividend or two, which would understate returns). Returns rounded.

-- posted by Rande

Top 175. Dec 15, 2001 7:30 AM

» JenL_2 - Re: The Latest -- 12/14/01

In response to message posted by Rande:

To illustrate:

<img src="http://chart.neural.com/servlet/GIFChart..." width=500 height=350>
VTSMX, VFINX, VEXMX Comparison 5 YR Chart

<img src="http://chart.neural.com/servlet/GIFChart..." width=500 height=350>
3 YR Chart

<img src="http://chart.neural.com/servlet/GIFChart..." width=500 height=350>
1 YR Chart

<img src="http://pvcharts.quicken.com/bin/icenter...." width=470 height=250>
YTD Chart

…..Jen

-- posted by JenL_2

Top 176. Dec 21, 2001 8:59 AM

» JenL_2 - Triple Witch

It's Triple Witching Friday!

.....Jen

-- posted by JenL_2

Top 177. Dec 21, 2001 6:07 PM

» Rande - The Latest -- 12/21/01

Merry Christmas! Here's....

The Latest (as of 12/21 close):

YTD 2001:

DJIA -7.0%
S&P -13.3%
SPY -11.9%
VTSMX (W5000 Index Fund) -11.5%
Nas -21.2%
QQQ -32.4%
R2000 +0.1%
MDY (S&P 400 Midcap) -2.4%
VEURX (European Index Fund) -22.4%

Since 12/31/99:

DJIA -12.7%
S&P -22.1%
SPY -20.0%
VTSMX -20.6%
Nas -52.2%
QQQ -56.8%
R2000 -4.1%
MDY +14.5%
VEURX -28.4%
50/50 Total Stock/Total Bond -0.2%
(includes Total Bond through yesterday)

Since Previous Closing Lows:

DJIA (9/21/01) +21.9%
S&P (9/21/01) +18.5%
SPY (9/21/01) +18.5%
W5000 Fund (9/21/01) +20.4%
Nas (9/21/01) +36.7%
QQQ (9/21/01) +40.1%
R2000 (9/21/01) +27.8%
MDY (9/21/01) +23.3%
VEURX (9/21/01) +20.0%

Since Previous Closing Highs:

DJIA (1/14/00) -14.4%
S&P (3/24/00) -25.1%
SPY (3/24/00) -23.5%
VTSMX (3/24/00) -25.9%
Nas (3/10/00; ) -61.5%
QQQ (3/24/00) -66.5%
R2000 (3/9/00) -20.1%
MDY (9/7/00) -8.4%
VEURX (3/24/00) -30.8%
___________________________

Previous Closing Highs

Benchmark Closing Lows (lows since previous all-time highs):

Market Cycle Peak to Trough:

-- posted by Rande

Top 178. Dec 21, 2001 9:44 PM

» JenL_2 - Re: The Latest -- 12/21/01

In response to message posted by Rande:

<img src="http://chart.neural.com/servlet/GIFChart..." width=500 height=350>
VTSMX, VFINX, VEXMX Comparison 5 YR Chart

<img src="http://chart.neural.com/servlet/GIFChart..." width=500 height=350>
3 YR Chart

<img src="http://chart.neural.com/servlet/GIFChart..." width=500 height=350>
1 YR Chart

<img src="http://pvcharts.quicken.com/bin/icenter...." width=470 height=250>
YTD Chart

…..Jen

-- posted by JenL_2

Asbestos Need Not Be Toxic to Stocks

Top 179. Dec 22, 2001 7:03 PM

» JenL_2 - Asbestos Liability

Two related articles in 12/18 Barron's Online:

By Dimitra DeFotis

Want to clear out a room full of investors? Say "asbestos liability."

It happened earlier this month, when Halliburton shares tumbled 45% after its subsidiary, Dresser Industries, was found liable for more than $90 million in asbestos claims -- an amount Halliburton said was "outside" its 25 years of experience handling some 194,000 claims. Other companies whose stocks sold off after the Halliburton disclosures included such diverse and unexpected businesses as Georgia-Pacific, Viacom, Cooper Industries and Pfizer....

But exposure to asbestos claims may be nowhere near as toxic as the substance itself.

"Even if a company's asbestos exposure is not high, it puts selling pressure on [stocks], which can be without merit," says Christopher Brown, who runs the socially responsible Pax World Fund (which does not own stocks of companies that have asbestos exposure).

In fact, he adds, "there may be some legislation down the pipeline to put a cap on what is taking place."

There's a move afoot in Congress to cap payouts for asbestos-related litigation. Asbestos claims have grown significantly in the past few years as attorneys moved to sue peripheral defendants in the name of still-healthy exposed victims, says Gerard Altonji, a senior analyst at A.M. Best Company, which rates insurance companies.

Still, "more certainty [about total liability] will come with the passage of time," asserts J. Robert Hunter, director of insurance for the Consumer Federation of America. Meanwhile, he suggests, "insurance companies are now facing claims and should pay them."

Asbestos was used as an insulating material at electric plants and on ships, as an element in wallboard, in automotive brakes and other applications until it was found to be harmful. Its use ebbed in the 1970s as health risks emerged.

Prolonged exposure to asbestos elevates cancer and upper-respiratory disease risk. It can take as little as 15 years to develop asbestos-related lung cancer and twice that to develop asbestosis, a chronic lung illness, or mesothelioma, a cancer in the chest or abdomen.

For some companies, the liability, albeit small, has come through acquisitions of other businesses.

One surprising example: Viacom, which has 129,000 asbestos claims pending because of its acquisition of CBS, formerly owned by Westinghouse. Westinghouse used asbestos as an insulator for a counter top covering installed mostly in ships and for steam turbines, both discontinued in 1974. More than 74% of claims are paid with insurance, and the company has set aside sufficient cash reserves for the remaining liability, says Viacom spokeswoman Susan Duffy.

The company has between $200 million and $300 million reserved for potential liabilities, or about $2,000 per claim, according to analyst Christopher Dixon of UBS Warburg.

After Halliburton's news, Viacom stock sank about 12%, yet analyst Jessica Reif Cohen of Merrill Lynch reiterated her Strong Buy rating. She thinks that shares in Viacom, whose media reach covers cable and television networks, radio stations, outdoor advertising, films and publishing, could appreciate more than 40% from current levels.

(In the past, Viacom's stock outperformed the Standard & Poor's 500 by 4.6 percentage points on average following asbestos-related bankruptcy filings by companies like USG and Federal-Mogul, according to analyst Sharon Williams of A.G. Edwards & Sons.)

Viacom is trading near 16.8 times Reif Cohen's 2001 enterprise value to EBITDA (earnings before interest, taxes, depreciation and amortization) estimate and around 15.1x her 2002 estimate. That's right smack in the middle of the company's historic EV/EBITDA multiple. An improving economy should boost ad rates, which could give Viacom's EBITDA a nice lift: Radio and outdoor advertising should account for 30% of EBITDA in 2001; Viacom's cable networks, 34%, and television broadcasting (including CBS), 26% (see Weekday Trader, "Viacom is More Than Just a Survivor," November 28, 2000).

Another stock that may have been oversold on the recent news is Cooper Industries, a Houston-based electrical supply seller (see Weekday Trader, "Cooper Industries May Retool Without Tools," August 24, 2000). Cooper fell nearly 15% following the Halliburton news and is now roughly 14% off its 52-week low.

Cooper sold its $1.9-billion automotive unit, which included a brake components business, to Federal Mogul in 1998. Federal Mogul agreed to indemnify Cooper against any pending or future asbestos claims from that business, but is reviewing that agreement after filing for bankruptcy in October, says Federal Mogul spokeswoman Kimberly Welch.

Cooper has maintained that its asbestos exposure (there are 103,000 pending claims in its former businesses) is not "material." In Securities and Exchange Commission filings, Cooper said insurance has paid for 50% to 80% of the asbestos claims related to its brake business.

Changing hands at 36 Tuesday, Cooper is trading at 13x the 2001 consensus earnings estimate of $2.75 per share and at 12.5x 2002 estimated earnings of $2.87 per share, according to Thomson Financial/First Call.

No one should underestimate asbestos liability, of course. Even though its obviously health-threatening uses have been banned, the U.S. Occupational Safety & Health Administration estimates that 1.3 million employees in construction and industrial jobs still face significant exposure on the job. And it is unclear just how successful any legislation would be.

But the pressure is on Congress to act soon. And companies like Viacom and Cooper should have enough insurance to ride out the storm.

So, although saying "asbestos" is like shouting "Fire!" in a crowded theater, it doesn't mean investors should rush for the exits.

Pfizer Execs Downplay Asbestos Threat

By Evelyn Ellison Twitchell

Asbestos? What's the big deal?

That might as well have been the response of Pfizer executives when asked about the company's asbestos-related risks, which suddenly made news last week.

At an analysts' meeting Tuesday in New York, Pfizer's general counsel Paul Miller said that given the drug maker's reserves, insurance and "extensive experience" with the matter, he doesn't believe that asbestos-related litigation will have a "material effect" on the company's financial position.

Pfizer is one of many companies facing lawsuits in state and federal court for selling asbestos-containing products that allegedly caused injuries .....

The issue weighed down Pfizer's stock recently after oil-services firm Halliburton was stuck with a $30 million asbestos-related liability....

Pfizer's shares, which came under additional pressure after competitor Merck said its earnings would be flat in 2002, traded Tuesday at 40.64.

Pfizer has sold about $5 million worth of products containing asbestos since the company was formed in 1849, Chairman and CEO Henry "Hank" McKinnell told reporters at the meeting Tuesday. The products were used in steel mills to protect steel-making equipment, but were discontinued in the 1970s.

"[The asbestos] was not ubiquitous in the environment," he said.

Warner-Lambert, which Pfizer bought in 2000, had "a little higher" sales of products with asbestos, primarily clothing for people exposed to high temperatures, McKinnell said.

Miller characterized Pfizer's asbestos-containing products as "extremely narrow."

As of September 30, some 59,000 asbestos-related claims were pending against Pfizer, and some 90,000 claims had been filed against its subsidiary, Quigley. In addition, a former division of Warner, American Optical, had been named in lawsuits involving about 64,000 plaintiffs, most of which involve asbestos claims, according to a recent Securities and Exchange Commission filing.

Pfizer is prepared to "rationally resolve" claims without litigation if someone shows that asbestos from the company's products caused them injury, general counsel Miller said.

"The vast majority of claimants alleging injury from asbestos exposure do not suffer from injury," he observed.

Also at Tuesday's meeting, Pfizer said it expects to achieve 15%-plus average annual earnings growth and double-digit revenue growth in 2003 and 2004. Some on Wall Street have been concerned that the drug maker's recent torrid earnings growth will slow after 2002, as the company finishes squeezing out cost savings from the Warner acquisition.

Pfizer's stock is among the most expensive of the large U.S. drug makers. At recent levels, it changes hands at about 26 times the $1.59 per share analysts expect the company to earn in 2002, according to Thomson Financial/First Call. That's a premium to Pfizer's projected long-term earning growth rate of 19%, but the stock still trades at a discount to its median multiple of 38 times projected earnings over the past five years, according to Thomson Financial/Baseline.

Subscribe to WSJ & Barron's Online @ http://www.wsj.com

....Jen

-- posted by JenL_2

Top 180. Dec 26, 2001 10:40 AM

» Rande - Factoid

In this month's Mellon Private Asset Management "Investment Update," H. Vernon Winters (Chief Investment Officer) points out the following interesting market fact (as calculated by Merrill Lynch's Chief Quantitative Strategist, Richard Bernstein):

Since the Nasdaq's inception in 1971 through 9/30/01 (annualized compound rate of return):

NASDAQ +11.2%
S&P Utility Index +12.0%

Who wudda thunk it? smile

-- posted by Rande