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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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The Week In Review

10/15-10/19/12

October 19, 2012
Today's session was dominated by the sellers as disappointing third quarter earnings continued to roll in. Equities opened lower, and spent the majority of the session sliding to fresh lows. The sell-off came to an end once the S&P 500 hit the 1,430 level 90 minutes ahead of the close. The index then staged a minor bounce during the final hour before closing with a loss of 1.7%. The technology sector was the weakest performer, Advanced Micro Devices (AMD 2.18, -0.44) reported a loss of $0.20, which was $0.04 worse than the Capital IQ consensus estimate. In addition, the company's revenue of $1.27 billion was in-line with Capital IQ analyst expectations. Also of note, the second largest manufacturer of microprocessors issued downside guidance for the fourth quarter, and announced restructuring plans in order to improve profitability. AMD shares settled lower by 16.8%. Marvell Technology (MRVL 7.56, -1.26) slid 14.3% after lowering its third quarter guidance. The company now expects revenue to fall between $765 million and $785 million. This is down from the previous range of $800 million to $850 million, and below the Capital IQ consensus estimate of $815.58 million. The management commented on the lowered expectations by saying that "the continued slowdown in the global economy during the third quarter is resulting in a weaker PC market than previously anticipated." The guidance cut was met with a slew of downgrades as Credit Suisse, Credit Agricole, JP Morgan, Lazard, Jefferies, Deutsche Bank, and FBR Capital all lowered their rating of the semiconductor manufacturer. On the upside, SanDisk (SNDK 44.02, +1.16) advanced 2.7% after beating on earnings and revenues. The flash memory maker reported earnings of $0.48, which was $0.14 ahead of the Capital IQ consensus estimate. Meanwhile, the company's revenue of $1.27 billion was ahead of the $1.22 billion expected by the Capital IQ consensus. Additionally, Piper Jaffray upgraded the stock to 'overweight' from 'neutral' following the earnings release. Looking at industrials, General Electric (GE 22.03, -0.78) slipped 3.4% after reporting earnings and revenues below Capital IQ consensus. However, the management noted that the company is performing well, and is on track to deliver double-digit earnings growth in 2012. Caterpillar (CAT 83.86, -2.76) slid 3.2% after reporting a 6.0% increase in retail sales of machines during September. The rate appears to be slowing as sales growth during the previous two months was reported at 13.0% in August and 14.0% in July. Note that Caterpillar will report its third quarter results before Monday's open. On the upside, freight carrier Forward Air (FWRD 32.54, +1.93) gained 6.3% after beating Capital IQ earnings estimates by $0.01, and reporting in-line revenue at $143.5 million. In addition, the company issued in-line guidance for the fourth quarter as it expects its earnings to fall between $0.48 and $0.52. Following the report, Wolfe Trahan upgraded the stock to 'outperform' from 'peer perform. Staffing firm ManpowerGroup (MAN 39.53, +3.55) surged 9.9% after beating top and bottom line expectations. In addition, the company raised its fourth quarter guidance above Capital IQ consensus. Quick service restaurants saw weakness following disappointing earnings from McDonald's (MCD 88.72, -4.14) and Chipotle (CMG 242.97, -42.96). McDonald's dropped 4.5% after its earnings of $1.43 fell short of the Capital IQ consensus estimate of $1.47. Meanwhile, the company's revenues were reported at $7.15 billion, which was in-line with the Capital IQ consensus. Meanwhile, Chipotle plunged 15.0% after missing on both earnings and revenues. The management commented on the upcoming quarter by saying they do not expect food inflation to be an issue. Following the earnings report, Wedbush downgraded the stock to 'neutral' from 'outperform' with a $270 price target. Peers Buffalo Wild Wings (BWLD 83.92, -2.21), Panera Bread (PNRA 161.85, -7.69), and Starbucks (SBUX 45.68, -1.72) all registered losses between 2.6% and 4.5%. The Dow Jones Transportation Average shed 1.4%, and outperformed the remaining industrials. Kansas City Southern (KSU 78.43, +1.05) was the lone advancer among the twenty transportation stocks. The rail operator settled higher by 1.4% after reporting earnings of $0.82, which was $0.03 below Capital IQ consensus estimates. Meanwhile, the company's third quarter revenue of $577.4 million was in-line with the Capital IQ consensus. Peers CSX (CSX 21.10, -0.26), Norfolk Southern (NSC 65.64, -1.06), and Union Pacific (UNP 123.77, -1.57) all lost between 1.2% and 1.6%. Overseas Shipholding Group (OSG 3.25, -0.29) was the weakest transportation component. The oil tanker operator slid 8.2% after trading near its all-time low of $3.13. Existing home sales for September hit an annualized rate of 4.75 million units, which is stronger than the rate of 4.70 million units that had been generally expected by the Briefing.com consensus. The pace for September is down from the prior month rate of 4.83 million units. Third Quarter Earnings Season Enters Full Force. The first busy week of the Q3 earnings season has concluded, featuring many bellwethers in the financial, technology and industrial sectors. As expected, earnings are down year over year. Meanwhile, last quarter's trend of most companies beating earnings expectations and missing sales estimates has held up. Banks once again came in with relatively solid results, due in part to the Fed's accommodations. Financials have reported modest sequential improvements amid meager economic growth. However, disappointing reports from high profile, large cap names like Intel (INTC 21.26, -0.40), IBM (IBM 193.36, -1.60), Google (GOOG 681.79, -13.21), Microsoft (MSFT 28.64, -0.85), General Electric (GE 22.03, -0.78), and McDonald's (MCD 88.72, -4.14) have since stolen the headlines and added to bearish sentiment. So far, earnings from the 117 companies in the S&P 500 that have reported third quarter results are down approximately 4.0% year-over-year. Roughly 63.0% have beat earnings expectations while only 38.0% of companies have beat sales estimates. At the same juncture last quarter, about 68.0% of companies had beat earnings expectations while 42.0% beat sales expectations. Looking to next week, about 700 companies covered by Briefing.com are expected to report Q3 results, including more than 150 companies in the S&P 500. Apple (AAPL 609.84, -22.80) will report on Thursday afternoon.

October 18, 2012
Stocks opened modestly lower after today's weekly initial claims report missed expectations by 28,000. The early weakness was erased before midday as the major averages rallied to their respective session highs. However, the slim gains were short-lived as disappointing quarterly results from Google (GOOG 695.00, -60.49) hit the wires early and weighed on the markets. The tech-heavy Nasdaq saw the biggest impact, as the index tumbled to fresh session lows before closing with a loss of 1.0%. Google fell 8.0% after its earnings were reported at $9.03, which fell $1.63 short of the Capital IQ consensus estimate. Meanwhile, revenues came in at $11.87 billion, which represents a shortfall of about $540 million when compared to the Capital IQ analyst forecast. The results were met with heavy selling which took the stock down to its early September levels. In addition, many large tech stocks were also pressured. A number of other technology components saw weakness following earnings. Mellanox (MLNX 77.98, -20.16) sank 20.5% after reporting its third quarter results. The semiconductor manufacturer beat both top and bottom line expectations, but cautious guidance gave investors cause for concern. Cypress Semiconductor (CY 10.06, -0.90) slid 8.2% after reporting in-line earnings and lowering guidance below consensus. Nokia (NOK 2.80, -0.14) slipped 4.8% despite beating on earnings and revenues. Elsewhere, ASML Holdings (ASML 51.34, +1.26) gained 2.5% despite being downgraded to 'sector perform' from 'outperform' by RBC Capital. Note that yesterday ASML announced the acquisition of Cymer (CYMI 74.12, +2.67). Telecom stocks were the top performing group as investors displayed caution and turned to defensive stocks. As a result of the risk-off trade, major wireless and landline carriers garnered interest. Verizon Communications (VZ 45.78, +1.06) advanced 2.4% after reporting in-line earnings and revenues. It should be noted that during the conference call, management said that capital expenditures will trend lower in 2013. This announcement is similar to sentiment expressed by numerous major companies which also plan to enact savings measures. Peers AT&T (T 36.02, +0.30), MetroPCS (PCS 11.15, +0.20), and Sprint Nextel (S 5.78, +0.05) all registered gains between 0.8% and 1.8%. The Dow Jones Transportation Average settled higher by 0.2%. Within the complex, Union Pacific (UNP 125.34, +1.61) rose by 1.3% after reporting earnings of $2.19 and revenue of $5.34 billion. The results were mixed as the company's earnings exceeded Capital IQ consensus estimates by $0.02 while revenue fell about $30 million short of the Capital IQ forecast. Peer CSX (CSX 21.36, +0.17) added 0.8% despite being downgraded to 'hold' from 'buy' by Deutsche Bank. Southwest Airlines (LUV 8.98, +0.03) rose by 0.3% after reporting in-line earnings and revenues. Other airlines also outperformed as Alaska Air (ALK 38.17, +0.40), Delta Air Lines (DAL 10.21, +0.02), and JetBlue Airways (JBLU 5.30, +0.04) all gained between 0.2% and 1.1%. Meanwhile, Overseas Shipholding Group (OSG 3.54, +0.14) was the best performing stock in the transportation average. The shares of the oil tanker operator gained 4.1% after losing nearly 50.0% of their value since last Monday. In today's economic data, the latest weekly initial jobless claims count totaled 388,000, which was higher than the 360,000 that had been expected by the Briefing.com consensus. The tally was above the revised prior week count of 342,000. As for continuing claims, they fell to 3.252 million from 3.281 million. Separately, the Philadelphia Fed Survey rose to 5.7 for October. That comes after September's reading of -1.9. Economists polled by Briefing.com had expected that the Survey would improve to a -0.1 reading for the month of October.

Lastly, leading indicators for September increased by 0.6%, which is better than the 0.2% increase that had been widely forecast to follow prior month's decrease of 0.1%
October 17, 2012. Stocks began today's session on a negative note after two technology bellwethers reported disappointing earnings. However, the cautious sentiment was short-circuited when today's housing starts report revealed its highest reading since July 2008. The major averages reacted by staging a steady climb to their respective session highs. A brief afternoon stumble followed, but the move was promptly retraced as the S&P 500 returned to its prior level, and closed higher by 0.4%. The technology sector was the worst performing group in the S&P 500. Intel (INTC 21.79, -0.56) slipped 2.5% despite beating its earnings and revenue expectations. It should be noted this quarter marked the first time Intel reported a decline in year-to-year revenue since the third quarter of 2009. In addition, Sterne Agee lowered its price target for Intel to $20 from $22. IBM (IBM 200.63, -10.37) slid 4.9% after reporting a slight earnings beat and a revenue miss. Following the earnings release, the stock was downgraded by Janney Montgomery Scott and Societe Generale. Janney Montgomery Scott lowered IBM's rating to 'buy' from 'neutral' while Societe Generale downgraded the company to 'sell' from 'hold. Networking stocks also saw weakness. Cisco Systems (CSCO 18.70, -0.15), F5 Networks (FFIV 97.33, -3.86), and Juniper Networks (JNPR 17.31, -0.17) all lost between 0.8% and 3.8%. Earlier, Cantor Fitzgerald downgraded Cisco to 'hold' from 'buy' with a $19.50 price target. On the upside, Cree (CREE 28.92, +2.73) settled higher by 10.4% after beating on earnings and reporting in-line revenues. In addition, the company issued in-line earnings and revenue guidance for the second quarter. In M&A news, ASML Holdings (ASML 50.08, -3.50) will acquire Cymer (CYMI 71.45, +23.62) in a cash-and-stock transaction valued at EUR1.95 billion. The total price reflects a 61.0% premium to Cymer's 30-day volume-weighted average price. Following the report, ASML shed 6.6% while Cymer surged 49.4%. The financial sector was among the top performers of the day. Bank of America (BAC 9.44, -0.02) shed 0.2% after exceeding its earnings expectations. The financial giant reported breakeven earnings for the third quarter, which was $0.06 better than the Capital IQ consensus. Meanwhile, other major financials moved higher. Citigroup (C 38.43, +1.18), Goldman Sachs (GS 124.92, +1.70), and JPMorgan Chase (JPM 43.32, +0.49) all recorded gains between 1.1% and 3.2%. European financials outperformed their U.S. peers. Banco Bilbao Vizcaya Argentaria (BBVA 8.67, +0.43) and Banco Santander (SAN 7.97, +0.33) settled higher by 5.2% and 4.3%, respectively. The Dow Jones Transportation Average outperformed the remaining industrials and added 0.6%. Airlines displayed relative strength within the 20-stock complex. Delta Air Lines (DAL 10.19, +0.20) and United Continental (UAL 20.62, +0.27) saw respective gains of 2.0% and 1.3%. Railroads stocks were mixed following earnings from CSX (CSX 21.19, -0.44). The rail operator slipped 2.0% after its earnings exceeded Capital IQ estimates by $0.01. Meanwhile, the revenues were reported below Capital IQ consensus. Peer Norfolk Southern (NSC 67.21, -0.50) lost 0.7% while Union Pacific (UNP 123.73, +0.33) added 0.3%. Meanwhile, Overseas Shipholding Group (OSG 3.40, -0.36) sank 9.6% to extend its recent streak of weakness which stemmed from concerns about the company's cash position. Homebuilder stocks were broadly higher after this morning's housing starts data was reported at its best level since July 2008. The SPDR S&P Homebuilders ETF (XHB 25.88, +0.49) settled higher by 1.9% in response to the report. Meanwhile, KB Home (KBH 16.76, +1.34), Hovnanian Enterprises (HOV 4.13, +0.35), and PulteGroup (PHM 17.44, +0.88) gained between 5.3% and 9.3%. In today's economic data, the weekly MBA Mortgage Index showed a 4.2% decrease in new mortgage applications during the past week. This follows last week's 1.2% decline. Separately, housing starts hit an annualized rate of 872,000 units during September. Economists polled by Briefing.com had expected for housing starts to hit an annual rate closer to 815,000. Prior month figures were revised upward to reflect an annual rate of 758,000 housing starts. As for building permits, they increased from the prior month's rate of 801,000 to 894,000 for September. That is above the pace of 815,000 building permits that had been expected among economists polled by Briefing.com.

October 16, 2012
Equities opened the session on a higher note after reports indicated Spain may be willing to ask for access to precautionary credit. The reports were followed by comments out of Germany which suggested the country's officials believe additional hurdles remain in Spain's way. Separate reports indicated the old continent's other troubled sovereign, Greece, is far from reaching an agreement with the Troika on its next bailout tranche. The European news did little to curb optimism as buyers lifted the major averages to midday session highs, which were maintained into the close. As a result the S&P 500 registered a gain of 1.0%. Citigroup (C 37.25, +0.59) advanced 1.6% after announcing Chief Executive Officer, Vikram Pandit, and President and Chief Operating Officer, John Havens, have resigned. The resignations are effective immediately and the company's board has elected Michael Corbat as the new CEO. Goldman Sachs (GS 123.22, -1.28) slipped 1.0% despite cruising past its earnings and revenue estimates. The financial giant exceeded Capital IQ earnings expectations by $0.58 and reported revenues nearly $1 billion ahead of Capital IQ estimates. In addition, the investment bank increased its dividend to $0.50 from $0.48. PNC (PNC 60.40, -2.53) fell 4.0% despite beating on earnings and revenues. Meanwhile, American Express (AXP 58.63, +1.04) outperformed and closed with a gain of 1.8%. European financials showed considerable strength after earlier reports indicated Spain may ask for precautionary credit. Even though German officials have since come out to cool the speculation, European banks have maintained their gains. Deutsche Bank (DB 45.02, +1.97) rose by 4.6% while Banco Bilbao Vizcaya Argentaria (BBVA 8.24, +0.51) jumped 6.6%. The materials sector led the broader market. Within the space, steel producers showed notable gains. Cliffs Natural Resources (CLF 44.07, +2.93) and Olympic Steel (ZEUS 18.77, +1.07) advanced 7.1% and 6.1%, respectively. Packaging stocks also showed strength. Packaging Corp (PKG 36.26, +0.66) rose by 1.9% after reporting mixed earnings. The company reported a slight earnings miss, while its revenues were in-line with Capital IQ estimates. In addition, the management issued upside fourth quarter guidance. Peers Owens-Illinois (OI 20.61, +0.45) and Greif (GEF 44.04, +0.87) registered gains of 2.2% and 2.0%, respectively. Also of note, provider of construction materials Texas Industries (TXI 44.47, +3.28) surged 8.0% after Sidoti upgraded the stock to 'buy. The Dow Jones Transportation Average outperformed the broader market and settled higher by 1.1%. Railroads Kansas City Southern (KSU 77.35, +2.65) and Union Pacific (UNP 123.40, +2.47) saw respective gains of 3.6% and 2.0%. Freight carriers were also on the rise. Expeditors International of Washington (EXPD 35.25, +0.25) and CH Robinson (CHRW 60.90, +0.54) both added near 0.8%. Meanwhile, Overseas Shipholding Group (OSG 3.76, -1.41) was the worst performer among transportation stocks. The shipper sank 27.3% to extend its recent weakness. There did not appear to be any news related to the company and today's selling follows the stock's Friday decline of 13.6%. In consumer stocks, Coca-Cola (KO 37.90, -0.23) slid 0.6% after the beverage giant reported in-line earnings and revenues. Avon Products (AVP 17.14, -0.13) slipped 0.8% after the Food and Drug Administration disclosed a letter which warns the cosmetics producer about the marketing of some of its products. WD-40 Company (WDFC 47.66, -3.39) fell 6.6% after missing on both earnings and revenues . In addition, the company lowered its full-year 2013 earnings and revenue guidance below consensus. In economic news, the August net long-term TIC flows report indicated a $91.4 billion inflow of foreign capital into U.S. denominated assets. This follows the prior month's reading of $67.0 billion. Industrial production increased during September by 0.4%, which was better than the 0.3% increase that had been widely expected. The reading follows the unrevised 1.2% decrease experienced in the prior month. Capacity utilization hit 78.3%, which was in-line with the Briefing.com consensus, and up from the unrevised prior month reading of 78.2%. September consumer prices increased by 0.6% which was slightly better than the Briefing.com consensus of a 0.5% increase. Today's reading follows prior month's 0.6% increase. In addition, core prices rose by 0.1% which was slightly cooler than the generally expected increase of 0.2%. The NAHB Housing Market Index for October registered a reading of 41. That was up from the prior month's reading of 40, and slightly worse than the reading of 42 that had been expected among economists polled by Briefing.com.

October 15, 2012
Equities got off to a slow start as the major averages spent the first 90 minutes near their respective unchanged levels. Today's economic data was mixed, and did little to move the markets. After early indecision, the three indices rose to their session highs, and maintained those levels into the afternoon. The S&P 500 saw brief afternoon weakness before late-day buying lifted the index to a gain of 0.8%. Financial stocks showed strength after Citigroup (C 36.66, +1.91) beat its earnings expectations by $0.07 and reported revenue of $19.4 billion. The shares of the financial giant settled higher by 5.5%, and outperformed the remaining majors. Bank of America (BAC 9.44, +0.32), Goldman Sachs (GS 124.50, +4.30), and Morgan Stanley (MS 17.75, +0.44) also outperformed the sector. The three financials added between 2.5% and 3.6%. Note that Goldman Sachs will report its third quarter earnings before tomorrow's opening bell. Meanwhile, American Express (AXP 57.59, -0.30) and Wells Fargo (WFC 33.90, -0.35) missed out on the rally, and registered respective losses of 0.5% and 1.0%. Health care stocks led the broader market. Within the space, drug manufacturers saw the most notable gains. Eli Lilly (LLY 52.53, +2.08) added 4.1% after Leerink Swann upgraded the stock to 'outperform' from 'market perform. Abbott Labs (ABT 72.05, +2.77) advanced 4.0% after the company released encouraging results from the Phase 2b study of its interferon-free investigational regimen for the treatment of hepatitis C. Meanwhile, Bristol-Myers Squibb (BMY 33.93, +0.84) gained 2.5%. On the downside, Amedisys (AMED 12.08, -1.25) sank 9.4% after announcing a new health services agreement with insurer Humana (HUM 74.73, -0.09). Per the updated agreement, Amedisys will generate revenue levels of approximately half of the prior amount earned from Humana. Telecom stocks were the biggest laggard of the session. The sector underperformance stemmed from weakness demonstrated by an industry leader. AT&T (T 35.21, -0.42) slid 1.2% after SoftBank confirmed its plans to invest $20.1 billion in Sprint Nextel (S 5.69, -0.04). The investment is expected to create tougher competition for both AT&T and Verizon (VZ 44.50, -0.12). In addition Sprint is expected to acquire Clearwire (CLWR 2.69, +0.37). The Dow Jones Transportation Average trailed the broader market, and settled higher by 0.4%. Within the bellwether group, railroads were mixed. Kansas City Southern (KSU 74.70, -0.45) and Union Pacific (UNP 120.93, -0.12) shed between 0.1% and 0.6% Meanwhile, CSX (CSX 21.45, +0.14) added 0.7% despite being downgraded to 'peer perform' from 'outperform' by Wolfe Trahan. Note that CSX will report its third quarter earnings after tomorrow's market close. September retail sales rose by 1.1%, which was better than the 0.7% increase that had been broadly expected. The prior month's reading was revised up to show an increase of 1.2%. Excluding autos, retail sales rose by 1.1%, which was ahead of the Briefing.com consensus call for a rise of 0.6%. Separately, the Empire Manufacturing Survey for October registered a reading of -6.2, which was up from the prior month's reading of -10.4. Economists polled by Briefing.com had expected, on average, that the Survey would rise to -2.8. Lastly, during August, inventories rose by 0.6% which was slightly above the 0.5% that had been expected. This follows prior month's reading of 0.8%.