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Trader Talk with Bob Pisani

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  Monday, 28 Jul 2014 | 10:21 AM ET

China and big mergers help brighten up a down day

Posted By: Bob Pisani
John Phillips | CNBC

The dragon is roaring again! China's Shanghai Index rallied another 2.4 percent overnight; the market is in the midst of a 4-day upswing that has seen the index rise 6 percent to close at the highest levels this year.

Chinese economic data have been improving recently, fueling the rally and spilling over into Hong Kong's market. The Hang Seng is now at the highest level since 2011.

»Read more
  Monday, 28 Jul 2014 | 7:10 AM ET

DC roundtable to feature Who's Who of Wall Street

Posted By: Bob Pisani
Getty Images

Rep. Scott Garrett, chairman of the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises (which oversees the SEC), is holding a roundtable Monday in Washington on what, if anything, should be done about the way stocks are traded in this country.

I know, you've heard this before. In the wake of Michael Lewis' book "Flash Boys", there have been several hearings in Washington. This one is a little different, though. Here's why:

1) The 19 people attending are the cream of Wall Street's trading community. The heads of all the exchanges will be there, including many of the biggest market makers/brokers and key industry representatives. Everyone who knows anything about market structure will be part of the parade. You will probably never get all these people in the same room again.

2) The man putting on the event, Garrett, R-N.J., is well-regarded by the Street as a thoughtful lawmaker. What does he want to accomplish? He says his goal is to "produce more efficient markets, less investor confusion, better competition, and increased job creation."

Fair enough. Last year he held a similarly well-attended roundtable from academics; this time he wants the Wall Street community to weigh in. What he seeks is to forge a consensus on what, if anything, should be done. So what should we expect (or not expect)?

»Read more
  Friday, 25 Jul 2014 | 9:40 AM ET

IPOs off to damp start (again) ahead of tidal wave

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

Over the last two days, initial public offerings (IPOs) have hit a speed bump--again. The market has absorbed more disappointing pricings ahead of what promises to be a huge week.

Pipe maker Advanced Drainage Systems priced 14.5 million shares at $16.00, well below the price talk of $17—$19; biotech firm Ocular Therapeutics priced 5.0 million share at $13.00, well below the price talk of $14—$16. Orion Engineered Carbons (OEC), a maker of carbon black, priced 19.5 million shares at $18, way below the price talk of $21—$24.

However, El Pollo Loco priced 7.1 million shares at $15.00, the high end of the price talk of $13—$15. This is in the hot fast-casual restaurant space, a space Chipotle has inhabited successfully.

Of the 8 IPOs that have priced in the past 36 hours, 6 have priced below the price talk, 1 at the low end of the price talk, and 1 at the high end. That is a disappointment.

»Read more
  Thursday, 24 Jul 2014 | 10:19 AM ET

PMI data gives markets a lift; CAT spoils party

Posted By: Bob Pisani

China and Europe got a boost from flash manufacturing data that came in mostly stronger than expected.

Meanwhile, U.S. markets were modestly supported by MMM, which reported in-line earnings. Operating income rose across all divisions, with sales climbing 4.9 percent. MMM is a truly global company: only 36 percent of revenues are in the U.S., while 29 percent are from Asia/Pacific and 23 percent from EMEA. Additionally, 12 percent in Latin America/Canada.

They are far more than just Post It Notes and Scotch tape—they make literally thousands of products and work in automotive, marine and aircraft. They make coated materials, filtration products, and adhesives, among other things.

The company also boasts a Health Care division that services hospitals and dental offices, and a Safety, Security and Protection Services division makes locks and other security products.

»Read more
  Wednesday, 23 Jul 2014 | 10:28 AM ET

Whirlpool's quarter goes down the drain

Posted By: Bob Pisani
A trader works on the floor of the New York Stock Exchange.
Getty Images
A trader works on the floor of the New York Stock Exchange.

The earnings reports of Microsoft and Apple were not big market movers, but most of the large companies beat expectations, including big industrial and material names like Boeing , Dow Chemical, General Dynamics, Norfolk Southern, and Ryder.

But what about Whirlpool? They not only missed profit and revenue expectations by a wide margin, they also cut their full year forecast (they said it was partly due to customer inventory transitions in China) to levels below Wall Street's current estimates. Gross margins were also below expectations.

Ouch!

»Read more
  Tuesday, 22 Jul 2014 | 9:44 AM ET

How two giants reveal state of earnings play

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.

I watch big global industrial companies like Ingersoll Rand and United Technologies, which both reported earnings above expectations this morning, very carefully.

Why? Because they are multi-industry companies: they operate across dozens of countries (40 percent of revenues outside the U.S.) and provide products that sell to many different customers.

»Read more
  Monday, 21 Jul 2014 | 9:48 AM ET

Early returns cheer during earnings deluge

Posted By: Bob Pisani

This week, a mother lode of second quarter earnings are due. Early results are giving Wall Street reasons to be encouraged.

Thus far, 89 companies have reported for the quarter, according to S&P Capital IQ. Earnings growth stands at 6.9 percent, an increase since the beginning of the season. Revenues have come down one-tenth of a percent since last week, now at 3.8 percent for the quarter.


»Read more
  Thursday, 17 Jul 2014 | 9:51 AM ET

Investors take fresh look at old tech names

Posted By: Bob Pisani
Justin Sullivan / Staff | Getty Images News

Who says old school technology is dead? Has anyone notice the top performers in the Dow Jones Industrial Average in July?

Take a look:

Intel up 12.1 percent

IBM up 6.1 percent

MSFT up 5.7 percent

Cisco up 4.6 percent

Visa is also having a strong month, up over 5 percent. But you get the point: old school tech is back.


»Read more
  Wednesday, 16 Jul 2014 | 9:54 AM ET

Bank earnings show happy days are here again

Posted By: Bob Pisani

Bank results are on a roll, and it's picking up speed. On Wednesday, Bank of America's earnings were a bit light, yet they still managed to vault over Wall Street's bar. On a related note, PNC Bank, US Bancorp, and even Northern Trust were all better than expected.

With PNC and USB, we are now getting results from big regional banks. Unlike Wells Fargo, which is largely a consumer banking company, or Comerica, which is largely a commercial bank, many of the regional names are mixes of retail and corporate banking.


»Read more
  Tuesday, 15 Jul 2014 | 11:43 AM ET

Yellen's 'stretched valuations' remark no surprise

Posted By: Bob Pisani
Federal Reserve Board Chairwoman Janet Yellen testifies before the Senate Banking, Housing and Urban Affairs Committee July 15, 2014, in Washington.
Getty Images
Federal Reserve Board Chairwoman Janet Yellen testifies before the Senate Banking, Housing and Urban Affairs Committee July 15, 2014, in Washington.

Federal Reserve Chair Janet Yellen's statement about "stretched valuations" is getting some play this morning, but it should come as no surprise. She is right to raise the issue.

In a report provided to Congress in conjunction with her testimony, Yellen noted that "valuation measures for the overall market in early July were generally at levels not far above their historical averages," but then made this comment: "Nevertheless, valuation metrics in some sectors do appear substantially stretched-particularly those for smaller firms in the social media and biotechnology industries, despite a notable downturn in equity prices for such firms early in the year."

What smaller firms in social media and biotechnology could she be talking about? Heck, that's not hard to figure out.

I wrote about this in my Trader Talk last week.

Read MoreCupcakes and other momentum stocks gone bad

There are several obvious culprits.

Pandora (P) at $5.5 billion market cap, is trading at 156 times forward earnings.

Groupon (GRPN), at $4.4 billion market cap, is trading at 67 times forward earnings.

Zynga (ZNGA), at a $2.8 billion market cap, is trading at 150 times forward earnings.

In biotech, most trade at multiples well north of 20. Many make no money at all.

Among smaller firms, Cubist Pharmaceuticals (CBST), with a market cap of $5.1 billion, trades at 129 times forward earnings

Alkermes (ALKS), with a $6.9 billion market cap, is trading at 96 times forward earnings.

Akorn (AKRX), with a $3.6 billion market cap, is trading at 40 times forward earnings.

It is no surprise that a couple sectors have stretched valuations. They have stretched valuations because investors believe these groups will see explosive revenue and (eventually) earnings growth, if all the potential is realized.

Of course, that usually does not happen. There will be many failures.

And, often, investors will simply run out of patience, en masse, with an entire sector.

Which is exactly what happened with the dot.com bust in 2000.

It is in the nature of all momentum stocks to have stretched valuations. At some point, they come down to earth as they stop periods of explosive earnings growth.

That's exactly what happened with famous momentum names like Microsoft (MSFT), which was the Mother of All Momentum Stocks during its period of explosive earnings growth in the mid-1990s. MSFT went from $1.4 billion in net income in its fiscal year ending in June 1995 to $9.4 billion in the period ending in June 2000.

Of course, many other names in that period never had a chance to mature. They simply ran out of capital, many without making anymoney at all.

»Read more

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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