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Tuesday Tear-Down

Intel beat by a penny!

It’s selling off in the AH but I think they’re wrong and Reinharden thinks they’re wrong but we’ll see what the big boys think tomorrow.  Intel was at $21 just last week so a 33% pullback now that earnings are out is not a major surprise from the mo-mo players, who could care less what the report actually said.

I blame the headline in the WSJ:  “Intel’s Net Income Tumbles 39%, Pressured by Competition, Options."  It’s hard to get excited about a beat when they hit you with that one…  There’s been no CC yet and we do need Intel to get tech in gear tomorrow as it’s currently dragging down the whole market.  Phillips and Samsung news was so blah over the weekend it was easy to see Intel in a negative light.

On closer exam of the actual earnings I see that the .26 included a one-time gain from an asset sale so we may not actually have .26 in earnings when the dust settles.  Gross margins, on the other hand were up 5% from last Q but the guidance was only in-line with no margin improvemnt.  We’ll see how forgiving the markets are tomorrow…

The rest of the markets, other than the Nasdaq did fairly well today, despite another major commodity sell-off:

I don’t blame the markets today.  It’s tough to gain ground when oil drops all the way down to $51.21 and a huge market sector is decimated.  We got a test of my $50.79 level before the afternoon pump, which was a pathetic affair that only gained them .40 into the close after being down $2.20 at 2pm!

NYMEX traders managed to shed 50,000 contracts, leaving just 149,000,0000 barrels open for delivery in February.  A big improvement but is it enough?  34M barrels were shoved into March, which now has 329K open contracts and another 20M were tossed into April, not known as a heavy demand month but already bursting with 83M barrels on order.  Contango continues to collapse with .60 now separating the average month this year, that’s not a very good fee to ask you to tie up $52 in a barrel of crude for another month…

I think the transports are now selling themselves way short as you can now buy a barrel of crude every month of 2007 for $56 or less.  Since that average figure was closer to $70 just one month ago it seems to me that every single estimate for companies that use fuel are WAY, WAY OFF!

The arlines are obvious as they spend about 1/3 of their income on fuel.  CAL, for example, spent over $3Bn on fuel in 2006 and made a profit of $300M.  Should CAL be able to hedge out ’07 at $55 a barrel, that would throw about $500M to their bottom line and give them a p/e of around 5!

FDX spent about $2.4Bn on fuel last year and a 20% savings there could drop a quick $500M to their $2Bn bottom line.  None of this is even remotely projected!  I know I’m the suspicious type but doesn’t it seem strange that the transports are still trading lower than they were in May when oil was at $75?  Of course we’d like to make sure that this drop in crude prices sticks but let’s perhaps consider being on the right side of that trade when it happens!

So I’m very happy with our FDX July $120s but we have to wait until 3/21 for the earnings.  The good news is, we already have December and January in the bag and the fuel savings should be huge!  Heck, even Delta might make money in this environment and we’re still sitting on some of those calls!

The dollar held 85 today after testing lower and gold stayed frozen between the lines at $625 It may seem strange but gold has options that expire too and we may just be seeing some pinning ahead of expiration.  Next week should be very interesting.


Today’s trading is documented in "Tuesday Virtual Portfolio Moves" and I’m kind of liking that system as it saves me going over things at the end of day.  As planned we closed a good amount of positions (14).

Significant moves were: 

We called the CVX Mar $70s off at $2.85 (up 43%) as we didn’t want to risk that volatile play.

GOOG gave us another spread opportunity as it ran up over $510 and we grabbed the Mar $520s for $24 and sold the Jan $510s for $5.50 with the intention of rolling into the Feb $520s for, hopefully a free spread later in the week.  Effectively, anytime there is a spread of $19 or greater between the Feb $510 (now $21) and the Jan $510 (now $3) we can execute the second leg.

The 20% rule at 11:50 saved us from worse with PLCE Feb $60s, out at $1.90 (down 24%).

PTR Feb $130 puts also weren’t worth risking it all so we took half off the table at $6 (up 167%) – less than I hoped but pretty good!

We got out of those pesky VTS Feb $80 puts for $2.50 (up 35%), quite a relief!

XOM Feb $75 puts were also part of our take the money and run agenda at $4.50 (up 165%).  There are still plenty of lower ones open!

YRCW is our first working transport and the Jan $40s closed at $1.10 (up 120%).

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  1. Phil, I feel your pain on the 95 open positions front. I’m trying to close my Jan 07 positions, but they keep going up… ;-)

    On a technical website note, you should ask Jared to check out how to disable comments on posts. Allegedly there are a couple of different ways in WordPress to turn comments of on a post by post basis which would ensure that comments went where you wanted them.


    INTC –

    I listened to most of the Intel conference call and boy does my head hurt. ;-)

    I saw the one time gain, but thought it was more or less cancelled out by the one time losses; however, as you mention, there was probably a penny differential in those items. And it’s likely that some of the impairments will be regained when the sales in question actually occur. I mostly view these one time items as not very one time since there’s always some. ;-)

    Another thing I particularly like in the current environment, only $2B in revenue is in the Americas. The rest of the world is $7.74B, nearly 80%. [AMD runs around 70% overseas sales as well, so INTC isn't unique in this. So if you're looking for global economic growth, both would conceptually profit.]

    Of course, cal Q1 and cal Q2 are often seasonally weak for semis. So we might get to buy AMD and INTC cheaper still. But if so, I’ll just keep on buying. Barring macroeconomic changes and/or execution failures, INTC will have a good Q3 and a great Q4 2007. And, in 2007, the risk of execution is substantially lower for INTC than it is for AMD.

    So, in my mind, it’s just a question of when the stock starts moving in expectation of those results.


  2. AMD/INTC – Rereading my previous post, it looks like I said I’d keep on buying AMD and INTC. I personally am not buying AMD and I think they’re going to get spanked in 2007. Just so we’re clear on that.

    Maybe in 2008 when their Fusion product comes to market…but frankly, I think that product is just a bad idea. Although maybe it’ll ensure that they hold the line on the low-end of the market.

    Anyway, if a rising tide lifts all boats, and we get a sustained Vista rally, AMD would probably participate. So the stock might be fine. But the company and the technology have a lot of catching up to do.


  3. Just a quick question re the GOOG spread –
    Why is it a spread of $19+ on the Jan and Feb 510′s that we’re looking at when it is the Feb [b]520[/b[ that we are going to sell?


  4. cake coo leaving for personal reason…
    hope same thing will happen as when the BP lord left….

  5. Anybody check out RACK in afterhour trading? Ouch! The stock went down 31% in afterhour trading. .


  6. Whoa, GM is onside about alternative energy:

  7. PLEASE DONT NOT MISUNDERSTAND THIS POST AS ANTI INTC and i believe they have the upper hand in chip architecture at the moment and foreseeable future but have they not been in that position before?

    I have made money from this stock in the past and will continue to trade INTC when i know there is the possibility of upside momentum. I am just confused as to why everyone thinks this Q was so great. Barring VISTA launch i would not touch this stock from what i have read, i have yet to listen to the CC, which i plan on doing shortly.
    December was an awful month for PC’s. I pusrchased a Compaq notebook for 449 UNHEARD of. 1.7 celeron with 512ram, 60g HD, NVDA, all the good stuff you have to spend 580 at this time for the same notebook, good luck finding one with this hardware.

    Intel said Tuesday it sold record numbers of its new microprocessors, which command higher prices, during the quarter ended Dec. 30, and excluding the effects of share-based compensation, the company beat analysts’ tepid expectations.

    Intel said net income for the fourth quarter was $1.5 billion, or 26 cents per share, versus $2.45 billion, or 40 cents per share, in the same period a year ago.

    Revenue for the quarter was $9.7 billion, down 5 percent from $10.2 billion a year ago.

    Intel said it recorded a net gain of about 2.5 cents per share for the quarter related to the sale of a money-losing division that makes chips for cell phones and other handheld devices. Intel announced in June that it planned to sell the division to Marvell Technology Group Ltd. for about $600 million.

    For the year, Intel said revenues were $35.4 billion, and it earned $5 billion, or 86 cents per share.

    Intel said it expected revenue for the first quarter of 2007 to be between $8.7 billion and $9.3 billion, and that gross margin for the full year is expected to be about 50 percent, plus or minus a few percentage points.

    Through the third quarter — the latest period for which data is available — AMD had gained about 5.6 percent in market share over last year, with much of those gains coming at Intel’s expense, according to Mercury Research.

    The average selling prices for Intel’s processors fell by about 15.5 percent over last year, according to Mercury Research. Meanwhile, AMD has reduced its prices by only about 2.2 percent and has warned investors that operating income for the fourth quarter is expected to be “substantially” lower than the previous period because of the pricing pressures.

    “It was a very positive quarter for Intel in the face of some very serious competition,”

    I think both AMD and INTC will have a tough going if they keep this up.
    If it were not for all the horn blowing, i would be less inclined to question.

    RACK in no way signals the strength in the server market, merely a drop in the bucket.

    VISTA to impact most everyone even little ol’ NYC

  8. BY the way the notebook was a gift, i know 1.7 celeron is ancient but my father uses it to hunt down classic cars and suits his needs just fine. Just in case you think I’m convinced i bought a top of the line peice of hardware. Im not hit in the head, REALLY!

  9. Any thoughts on SEIC? One negative I see is the option volume…..small options T/D and OS have been an indicator I have grown to appreciate.

  10. Not going to go in-depth with the INTC CC, i didn’t like it one bit. The market will make their interpretations known through stock price action and that’s all that matters.

    MOT going to use AUO for flat panel, AUO another beaten down stock

    WFR i think has room to go higher earnings JAN 25th one to watch

    STX, worth watching

  11. Only if markets are cooperative and we dont get a massive selloff.

    Ebay 30 is a wall, any break above on decent volume, on the downside 29 seems like good support as it held the sell off of 30million shares. 30.50 resistance

    TXN 28.60 near term low support, 28.80 had good support and a decent close, looking for a breakout above 29.10 next resistance found 29.40

    BA hitting lower daily lows and i have stated 86 seems to be the low before the next leg up back to 90 then a breakout to 100, as long as good news keeps pace with price and the 787 is on schedule, seeing that the special 747 ( specially designed for the job) is flying at the moment and has brought the fuselage from japan i feel confident all will positive.

    HPQ may see a pullback to 42 going into expiration, if IBM keeps going up HPQ will follow. 42.60 seems to be first line of support near term. I like HPQ to 45.

    MOT had a decent close looking for some resistance at 18.30 then 18.50 seems like stronger resistance

    MU has good support at 13.85, resistance around 14.10 small as it may seem it is a barrier and past 14.20 its strong to 14.40 area.

  12. EADS in big trouble with the A380, seems they wont be able to make the 160 planes due by 2010 and the new figure is around 80. Prior to this announcement EADS needed to produce 260 planes to break even the new number is 400+. I expect BA will move on this news. EADS taking a 300mil charge in 06. EADS has to pay Emirates 300million.

    If airlines jump ship they need to do it soon as i believe BA is most likely at full capacity and if EADS cant deliver 50% of their projected sales then BA would more than likely find themselves the beneficiary of EADS over ambitious (the French, British) goals.

    INTC down over 4% in European trading this morning.

  13. Comments – you’re right, I can turn comments off on a post! That will work for the tracking post but not for moving people on to the next post as it seems to hide them from view but still, saves a lot of bother.


    INTC – this is the problem with being a fundamentalist. Intel earnings were exactly what I expected them to be and outlook was exactly what I expected them to be – it’s the short-sighted market outlook that baffles me…

    They are, very simply, coming out of a late-stage cycle where they are dumping old chips and scaling up production of new chips which squeezes margins as they take on enormous up-front costs. They do this every few years and every few years the market freaks out and dumps them.

    Of bigger concern is the possible anti-trust litigation by the EU, which was instigated by AMD but is being taken very seriously over there. Overall, a case there will have as little imact on Intel as it did on Microsoft but, like OPEC cuts, the threat is worse than the event and it needs to come off the table.

    This is one of the things I truly hate about the stock market – that Intel is being punished for ramping R&D up from $4.5Bn in 2004 to $6Bn in 2006! Intel’s stock was ransacked in 2001-2003 while they went through a development and roll-out cycle on the Centrino, when they first integrated Wi-Fi on a chip (I’ll bet that was tricky). That tech is what drove profits as they went from $15 to $35 by the end of ’03 when people realized they actually do sell things.

    Anyway IT IS NOT MY JOB TO SAVE INTEL! We have to move on and wait for a nice bottom, then pick up the leaps – hopefully we’ll do a little better than MOT where we picked up 3 consecutive bottoms!


    GOOG – we are assuming that the Jan $510s we sold will expire worthless or near worthless. We already collected $5.50 against our $24 March $520 so our basis is now $18.50. If we can now trade the Jan $510 for a Feb $510 and pocket $19 more, that leaves us with a free trade and we will pick up the closing difference between the Feb $510 and the March $520 at any point after that.


    Rack guiding down from .27 to -.17, that’s a 10% miss for the year. That’s non-GAAP, in GAAP thay are losing money!


    GM – they already shifted gears and threw their hat in with alt-energy and retooled production for high oil costs so they are screwed if people want SUVs again. Meanwhile Toyota is porjecting a 5% sales gain LED by Tundra trucks!


    SEIC – looks like that one got away to me. Good company I would have loved at $30 or maybe if they pull back to $40 but now way up at $60.


    AUO was beaten down for a reason, profits were off 50% in 2006! They spent a lot of money to expand and hopefully it will pay off this year. A company like this, I would ratther buy the stock close to $15 and sell $15 calls for $1.50, probably 6 months out as I would be willing to ride out a dip to $13.50 (where it is now) or be called away for a 10% profit over 6 months.

    WFR is great long-term but I’d rather wait for either a pullback or a SOX rally.

    STX – always great! Same as WFR, only if the sector moves. Depends on Dell and HP’s outllook.


    EBAY is consolidating under the descending 200 dma at $30.40 but above the 40 wma at $29.81, an interesting channel. It will break one way or another but down would be bad!

    TXN has got to get tech moving again. Who do people think is putting chips in all these TVs?

    BA – the dangerous thing about Boeing is they now have to expand. The pressure to deliver more planes is enourmous and they are maxed out. There is no one for them to buy so they have to go through a long, dangerous cycle themselves and we see how the market treats companies that invest in the future! In the short run though, they have pricing power for the next couple of years….

    I agree, IBM and HPQ are joined at the hip and Dell will be the tag-along sister as long as they aren’t clearly losing market share.

    MOT has to reverse a death cross, which could take months before it breaks $20 at this point.

    MU also under a death cross. Will be encouraging if it just breaks $14.25.


    What cracks me up about INTC is the shock people are having that their gross margins are “only” 49.6% – AUOs gross margin is 19% on a great day!

  14. Phil,


    This stock may come under pressure again today in sympathy with INTC. Would it be worth trying to pick up some Calls if it trys to test support at $17.50 – 17.60 range. . I feel support will hold, but of course all of that depends on the Nasdaq.


  15. GOOG, EBAY
    RBC says they recently conducted their quarterly trip to the UK for data points on the European online marketing and e-commerce sectors. Firm says GOOG’s fundamental momentum in Europe correlates with slight upside to their net rev ests, and a sequential acceleration over the growth seen in 4Q05. Firm feels comfortable owning GOOG into Q4 results, but says that the risk/reward above $500 is less favorable than it was just a month ago… Firm says fundamentals at EBAY’s German marketplace are disconcerting, reminiscent of the deceleration of the U.S. marketplace in 2005-06. Listings growth at EBAY’s German operations appears to have hit a wall, with core listings turning negative in 2007. eBay powersellers in Germany are increasingly seeking alternative platforms.


  16. Phil,
    What do you recommend for the IGW FEB 65C which are in your portfolio?

  17. AMD – I would urge extreme caution until we firm up above the levels I set this morning. Don’t forget that we came into the month well-hedged and expecting a correction – two weeks of sideways trading hasn’t eliminated the possibility of a 1,000 point sell-off.

    GOOG – I’m playing Google to be flat so I hope that’s right!

    EBAY is a tough one as they raised their rates to drive out “powersellers” who take advantage of the system. It is not Ebay’s job to provide a dirt-cheap platform for them to operate a business and they decided they’d rather get more money from less transactions – it’s a gutsy but sensible move.

  18. IGW – After that INTC news these might be toast, we’ll see how badly the semis take it today.

    New post is up!