Halftime Pt. 2: How Will FinReg Affect Visa's Outlook?
Investors will learn more about trends in consumer spending when Visa reports fiscal third-quarter results after the closing bell Wednesday, but don't expect the credit card company to comment on new financial regulatory reform laws that could affect future earnings.
Moshe Orenbuch, a highly regarded analyst at Credit Suisse, says Visa's outlook will be greatly affected by the new law, including a provision known as the Durbin amendment. Proposed by Democratic US Senator Richard Durbin of Illinois, the amendment allows retailers to pass the costs of accepting debit cards onto consumers. Visa's CEO Joseph Saunders was a vocal critic of the amendment, even visiting lawmakers in an attempt to prevent legislation that would restrict debit card fees.
When Moody's Investor Service downgraded big banks Tuesday, it cited the potential affects of financial reform. The financial institutions had been expecting the downgrade, says Orenbuch, so it should have "minimal impact" on their outlook. He thinks Moody's lowered its outlook now, so that banks would have time to adjust and rebuild their balance sheets. It's possible there could be a slight impact on regional banks, but Orenbuch says it's not likely.
Ahead of Visa's earnings report, Orenbuch guessed it would forecast earnings potential to be around 20% for 2011 and 2012.
What's the Trade?
Steven C. Cortes, founder of Veracruz, recommends selling Visa and Bank of America and buying American Express . In the short-term, Orenbuch says that move makes sense because AXP is less affected by the Durbin amendment. But because American Express charges consumers the most, Orenbuch worries the Durbin amendment could cut the price that merchants pay for plastic and that would hurt its stock.
Orenbuch adds that American Express doesn't offer the range of products that Visa and Bank of America does, like debit cards.
Brian Kelly of Kanundrum Capital would watch Visa's earnings for a read on consumer confidence, but would be leery of getting into this stock.
UNUSUAL ACTIVITY: CHICO'S
In midday trading Wednesday, Jon Najarian of optionMONSTER.com spotted some unusual activity in Chico's stock with a lot of call buying. He says the stock has been "hammered" in the past few months, so maybe people are now betting it will outperform. If it does, he thinks that will be good news for those long in the stock, but he's not one of them.
TAKE YOUR POSITION: XOM REPORTS THURSDAY
Set to report earnings ahead of the opening bell Thursday, Exxon Mobil has significantly underperformed the market and is trading down sharply.
In good times, Exxon traded at up to $80 a share, notes Joe Terranova of Vitrus Investment Partners, but the share price is now at $65 to $70. He wonders what's ahead for this Irving, Texas-based company and says the company must post a strong beat to garner investors' interest.
CALL TO THE FLOOR: OIL OUTLOOK
Following the Gulf oil spill and with more policy makers putting emphasis sources of alternative energy, why would a natural gas company get into crude oil? For several reasons, says CEO Tom Ward of SandRidge Energy , an Oklahoma City-based natural gas giant.
In 2008, Ward says the company decided to diversify into oil because it's likely nat gas will face challenges in foreseen future. Ward anticipates that rigs drilling for new shale plays would run into problems and says the price of crude oil has dropped to a point where it's become "attractive."
Even though most of SandRidge's oil production is onshore in Texas, Ward expects there will be a 20% decline in oil production in the Gulf of Mexico. If a moratorium on oil drilling goes into place, he thinks it could go up to 30%. Any production that leaves the Gulf, he says, is good for natural gas.
Ward says he'll look for a time to hedge natural gas and says there are headwinds, as pipeline constraints in various areas will be relieved in late 2011.
Watch the video to see the full interview.
What's the Trade?
Steve Cortes, founder of Veracruz, likes the Sandridge story and onshore oil period. He recommends going with Oasis Petroleum .
CALL THE CLOSE
Jon Najarian of optionMONSTER.com thinks the stock market looks "pretty good," so long as the VIX does not surpass the 2338 level.
Joe Terranova of Vitrus Investment Partners thinks the market could push higher.
Steve Cortes, founder of Veracruz, loves resource names right now, including Freeport-McMoRan Copper & Gold if it closes below $70 a share.
Brian Kelly of Kanundrum Capital recommends taking profits from longs and buying strategic shorts.
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CNBC.com with wires