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Trader Talk with Bob Pisani

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  Thursday, 18 Sep 2014 | 1:49 PM ET

Alibaba's first day at school: What to expect

Posted By: Bob Pisani
Traders work on the floor of the New York Stock Exchange.
Getty Images
Traders work on the floor of the New York Stock Exchange.

What can markets expect when Alibaba starts trading?

This is the biggest question on trading desks for the past several days. I don't make predictions on where stocks will trade, but there are several reasons I am optimistic that Alibaba—at whatever price—will open to the upside and stay there on its first day. Here are a few reasons why, put simply:

1. It's almost impossible to get the kind of numbers Alibaba has, anywhere. On all levels that matter: scale, growth, and margins, Alibaba is off the charts. It owns 80 percent of the Chinese e-commerce market, has seen 46 percent revenue growth in the most recent quarter, and has meaty margins of 54 percent.

These are stunning numbers, which almost no one has (Facebook has numbers close to it, and perhaps Google used to have it). But no one else.


»Read more
  Wednesday, 17 Sep 2014 | 2:56 PM ET

How an IPO gets done, step by step

Posted By: Bob Pisani
Alibaba founder Jack Ma gives a thumbs-up as he arrives to speak to investors at an initial public offering road show in Singapore Sept. 16, 2014.
Edgar Su | Reuters
Alibaba founder Jack Ma gives a thumbs-up as he arrives to speak to investors at an initial public offering road show in Singapore Sept. 16, 2014.

Alibaba's long-awaited IPO is finally around the corner, making this a good time to take a look at just how an IPO works.

In an initial public offering (IPO) a company issues stock to the public for the first time. Why would a company want to go public in the first place?

  1. To raise money to grow the company. This is the most common stated reason.
  2. For liquidity. The company may have private equity investors who want to exit from their investment. It may have senior management that may be retiring or seeking to monetize their investment. It may want to reward employees with options.
  3. Balance sheet restructuring, i.e. they are raising money to pay down debt.
  4. Acquisitions: They need money to buy other companies.
  5. Talent recruitment: Going public gives a company a "currency" it can use to recruit talent.

What's next? The easiest way to visualize this is using a timeline.

»Read more
  Wednesday, 17 Sep 2014 | 9:48 AM ET

Lennar's green shoots raise hopes for home sector

Posted By: Bob Pisani

Will Lennar finally turn around the negative sentiment dogging the home building sector?

The company reported a strong beat 78 cents per share on Wednesday, well above consensus of 67 cents per share. Orders were up 23 percent year over year, also above expectations. Average sales price, at $330,000, was up 14 percent from a year ago.

A 23 percent jump in orders? That is huge. The last two builders to report—Toll Brothers and Hovnanian—both put up 6 percent year over year declines.

»Read more
  Friday, 12 Sep 2014 | 10:38 AM ET

Alibaba starts new chapter--by closing the book

Posted By: Bob Pisani
Traders work the floor of the New York Stock Exchange.
Getty Images
Traders work the floor of the New York Stock Exchange.

Alibaba is turning the page on its new era...by closing the book!

On its initial public offering, that is. Sources told CNBC early Friday that the Chinese e-commerce giant plans to stop taking orders for its IPO early, an indication of sizzling demand. So what does this mean for investors?

»Read more
  Thursday, 11 Sep 2014 | 9:38 AM ET

Acid test looms for 'Alibaba IPO effect' theory

Posted By: Bob Pisani
A man plays snooker in a hall inside Alibaba's headquarters in Hangzhou, Zhejiang province, April 23, 2014.
Chance Chan | Reuters
A man plays snooker in a hall inside Alibaba's headquarters in Hangzhou, Zhejiang province, April 23, 2014.

We will get a modest test of whether there is an "Alibaba effect" on initial public offerings (IPO) late Thursday when ReWalk Robotics prices its IPO. I say "modest" because it is a small offering: 3.4 million shares at $14$16. ReWalk develops exoskeletons for wheelchair-bound individuals that allow them to stand and walk again.

The theory, still much debated, is whether Alibaba is such a gigantic offering that it is reducing interest in other IPOs anywhere on or near the horizon.

»Read more
  Wednesday, 10 Sep 2014 | 2:40 PM ET

Oil tanks: A nightmare for energy bulls

Posted By: Bob Pisani
Stephen Strathdee | E+ | Getty Images

Energy: Lower demand and plentiful supply a perfect nightmare for energy bulls.

Today's weekly oil inventory numbers showed a huge build in oil inventories. Oil promptly dropped. Brent crude dropped below $100 and is now at a 17-month low.

We have a perfect nightmare for energy bulls: Lower demand and plentiful supply. This, despite the fact that we are only one day away from some potentially crazy development in the Mideast.

Watch shale plays. Companies like Whiting Petroleum (WLL) or Diamondback Energy (FANG) are getting hit hard this month...WLL down 10 percent, FANG down 12 percent. Why? Because oil prices matter. West Texas Intermediate is at $92, the lowest in eight months. As you start getting into the $80 range some of these shale plays don't work. These shale plays involve deep drilling, they're complicated, and they're still very expensive to drill, though less expensive than they used to be.

In addition, refiners are getting hit hard...yesterday the Brookings Institute yesterday came out in favor of removing the ban on export of oil. They noted the refiners will get hurt because West Texas Crude (WTI), currently at $91 and change, will then rise to the price of the global benchmark Brent Crude, currently at $98. Long-term, U.S. refiners will lose their cost advantages...they can buy oil at a lower price right now than, say, their European counterparts. That advantage will shrink if exports are allowed.

There's a larger problem for energy: There is not a lot of visibility on demand growth. If you can project how much economic growth there will be...if you have some certainty on what you think global GDP will be...you can create a model that will project oil demand. But without a clear viewpoint on global growth, you are a bit lost trying to figure out where oil should be.

And most investors are completely clueless about what global growth will look like.

Is there any good news? Sure. Lower oil prices is hugely supportive for an improving economy.

And it may not be such bad news for energy investors if prices stabilize. They are drilling like mad everywhere in the U.S., and I doubt that will stop any time soon. If oil prices stabilize, traders will quickly start sniffing around some of these shale plays that have dropped. Diamondback, for example, trades at a relatively reasonable 4.5 times EBITDA, according to traders. Same with Whiting Petroleum.

»Read more
  Wednesday, 10 Sep 2014 | 12:25 PM ET

Alibaba IPO demand strong, but it's still early

Posted By: Bob Pisani
An employee walks past the Alibaba logo during a media tour organized by government officials at the company’s headquarters outside of Hangzhou, Zhejiang province, China.
Carlos Barria | Reuters
An employee walks past the Alibaba logo during a media tour organized by government officials at the company’s headquarters outside of Hangzhou, Zhejiang province, China.

Reports indicate Alibaba has received enough orders to cover its entire IPO after just two days of its roadshow in New York and Boston. Given there are several more days left and other cities to visit, this would indicate enthusiasm is very high.

However, there are a few reasons to be very cautious about this. First off, with all high-demand IPOs, institutions routinely put in much more than they expect to get. And underwriters only give clients a part of the shares they ask for.

Second, covering the "book" only one time means very little. It is routine to hear about a book that is five, six, seven times oversubscribed.

Finally, there is still additional stock available. Alibaba is seeking to sell 320 million shares at $60-$66. At the high end, that would be $21.3 billion. However, as with most IPOs, there is an option to sell an additional 15 percent, known as the "greenshoe" which would boost the total sales to roughly $24.5 billion, which would be the biggest IPO of all time, outpacing the former record holder, Agricultural Bank of China, which raised $22.1 billion in 2010.

Will Alibaba increase the price or deal size? Still not clear.

Bottom line: It's a good start, but there's a long way to go.

Elsewhere:

1) Bonds are weaker, yields higher. Yesterday our Steve Liesman noted worry about the possibility the Fed may change the language promising to keep rates low for an extended period; this has again created what Greg Valliere at Potomac Research called "stock market paranoia over Fed tightening."

Read MoreA Fed phrase change could mean rate hikes sooner

The same in Europe, where bond yields are up again today on concerns that the Scottish independence referendum might loosen ties in the EU and encourage similar secession movements.

We have not had a double-digit correction in the stock market since April-June of 2012. On the other hand, we are not seeing particularly robust advances. Jeff Saut at Raymond James notes that a screen of Raymond James's research universe of 1,025 stocks shows the average stock has declined by roughly 23 percent from its respective 52-week high. Many stocks which the firm rates Underperform have declined by over 40 percent.

2) RadioShack (RSH): Sinking ship? RSH will report earning tomorrow...Wedbush says bankruptcy is "imminent". They believe earnings will disappoint big time: They have a EPS loss of $0.66, versus consensus of a loss of $0.36.

Read MoreWedbush predicts bankruptcy for RadioShack

"[B]rick and mortar electronics retailers will see persistent structural decline as Internet sales continue to take share," the analysts at Wedbush say.

»Read more
  Tuesday, 9 Sep 2014 | 9:46 AM ET

Forget the iPhone, Apple has 2 bigger fish to fry

Posted By: Bob Pisani
Scott Mlyn | CNBC

Everyone is waiting to see what Apple will unveil at its media event on Tuesday. I say it's more about the rumored iWatch and mobile payments application than about iPhone 6. Here are a few reasons why:

a) Mobile payments are key to Apple's future. What can you do to get consumers to part with their credit cards? Digital wallet seem to have been a disappointment, but the merchant processor market is a $10 billion business.

Apple could take a big chunk of this, not directly eliminating card companies but acting as the merchant processor. That's the heart of the mobile payment process.

Read MoreApple product launch just might juice stocks

»Read more
  Monday, 8 Sep 2014 | 1:44 PM ET

What Scottish independence means for US investors

Posted By: Bob Pisani

Scottish independence: The new worry for equities. It always amazes me that equity traders tend not to pay attention to events until they are staring them in the face.

We have known about the Scottish independence referendum for over a year, but no one has paid any attention to it.

Until now. With 10 days to the vote on independence in Scotland, my email has filled up over the weekend about the new worry over Scottish independence.

Read MoreBets against pound, hedging costs escalate on Scotland nerves

What's the problem? To be fair, traders didn't pay attention because it looked like Scottish voters would vote to stay with the UK. But over the weekend, a respected poll (YouGov) showed a slim 51 to 49 percent "Yes" vote, with those saying they were undecided excluded.

This has driven the pound down against the dollar, with UK stocks weaker.

Why the worry? There is a lot of uncertainty here:

  1. Banks like RBS and Lloyds Banking are Scottish banks, they were bailed out by the UK government. What happens to them? How is this going to be settled?
  2. What about the North Sea oil? Chevron, Total and others have fields that conceivably could be claimed by Scotland. How will those taxes be divided?
  3. What happens to the debt? Scotland is about a quarter of the UK economy; if it leaves, should it assume 25 percent of the debt?
  4. Scotland has a high concentration of lawmakers belonging to the left-wing opposition Labour Party. If the country votes for independence, what's left of the U.K. would shift to the right, consolidating the power of the ruling Conservative "Tory" Party. Tory voters tend to be suspicious of the European Union and there will be more pressure for the UK to distance itself even more from the mainland.

See what I mean? Uncertainty.

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  Monday, 8 Sep 2014 | 10:03 AM ET

Will Alibaba mean 'open sesame' for other IPOs?

Posted By: Bob Pisani
Traders work on the floor of the New York Stock Exchange in New York.
Brendan McDermid | Reuters
Traders work on the floor of the New York Stock Exchange in New York.

At last, Alibaba has announced its initial public offering (IPO) terms. I was puzzled that Alibaba waited until after the close of trading on Friday, particularly since they want to begin trading just two weeks later.

Here are the big questions that were batted around over the weekend:

a) how will investors fund their purchases of Alibaba? Will there be selling in other Chinese tech IPOs? What's the trade? Several investors tell me that, given all the advance warning about this, there is already ample cash in place for the purchase.


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About Trader Talk with Bob Pisani

  • Direct from the floor of the NYSE, Trader Talk with Bob Pisani provides a dynamic look at the reasons for the day’s actions on Wall Street. If you want to go beyond the latest numbers— Bob will tell you why the market does what it does and what it means for the next day’s trading.

 

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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