Tag - EUBK

Notwithstanding yesterday's positive market activity, stocks continued their month-long downward trend with the Dow closing down 161 points to shave 1.94% and close at 8,163.

Investors already on edge about upcoming earnings failing to meet even low expectations were spooked by an Obama administration panel suggesting that the economy is far from well and that another round of government stimulus plans may be necessary.

In addition to the Dow closing down, the Nasdaq was down 2.31% to close at 1,746 and the S&P 500 dropped 1.97% to close at 881.

The Russell 2000, a composition of major small-cap stocks, closed down 1.91% to 485.

Bucking the downward trend were small-cap stocks like Novogen Limited (Nasdaq:NVGN) up 37% on news that a Novogen-licensed oncology drug used by Marshall Edwards, Inc. showed promise for treating acute lymphoid leukemia. Researchers have also indicated that the drug in question, phenoxodiol, may be effective in treating autoimmune disease as well. Besides licensing agreements with Marshall Edwards, Novogen is its majority owner. 

Other small-caps leading the market today include EuroBancshares (Nasdaq:EUBK) up 26%; Community Financial Corp. (Nasdaq:CFFC) up 24%; Mexican Restaurants (Nasdaq:CASA) up 20%; and Beasley Broadcast Group (Nasdaq:BBGI) up 19%.

Small-cap decliners were lead by Hansen Medical (Nasdaq:HNSN) down 33% on news of weaker than expected Q2 revenues and lower sales.

Other leading small-cap decliners included First National Bancshares (Nasdaq:FNSC) down 29%; Bridgeline Software (Nasdaq:BLSW) down 23%; and trucking heavyweight YRC Worldwide (Nasdaq:YRCW) down 23% on news that the management and the Teamsters would continue their discussions on seeking ways to help YRC continue operating. The company reported loses of over $250 milling in the first quarter.

*****Stocks rallied out of the hole yesterday. And the financial media, which started the day reporting that pessimism about the economic recovery was driving stocks lower, finished by saying that improvements in credit markets were driving stock prices higher.  

Neither explanation gets to the heart of the matter.  

"Buy the rumor, sell the news" remains one of the most important rules for investing. When it became clear that stocks were grossly oversold and the global financial system wasn't going to self-destruct, investors bought stocks. In essence, they were buying the rumor that the economy would recover. 

There have never been any rosy recovery projections that investors could be disappointed in. Rather, now that we are at the start of the third quarter, the one most economists say will be the first to show growth in a year, it's time for some actual numbers to back up valuations.  

According to Barron's online, the current P/E for the Dow Industrials is 12.29. That's not cheap, but it's not expensive, either. Let's call it just right. With little reason to expect any upside, investors will be inclined to take their profits. In other words, they are selling the news. 

*****It will be particularly interesting to see how this dynamic plays out during earnings season. My early read on earnings is that estimates are low enough right now that companies should be able to beat expectations. But what will they say about the future? And how will investors react?  

I don't expect a lot of upside this earnings season. We'll find out soon enough,Alcoa (NYSE:AA) reports today… 

*****It's been a while since I answered any reader mail here in Daily Profit. Time to change that… 

Dan W. writes: I have been reading your newsletters for many months now and thanks for your talent. There is something I wanted to pass on. I grew up in the Far East and experienced communism with its May Day parades as an American dependant. I learned a most important fact even as a youngster that everything is or can be "owned by the state". What would prevent the Chinese government (communism) from taking over my stock if I invested in some of "their" companies in the near future? 
Normally when we talk about financial markets, there's an underlying assumption that we're also talking about free markets. The ideal of a free market is that investors and consumers are the ultimate regulators. If your business stinks, no one will buy your stock, debt or product. 

Of course, as has been proven time and time again, the ideal is not functional. From Carnegie and Vanderbilt to Enron to AIG (NYSE:AIG), it seems pretty obvious to me that financial markets cannot go completely unregulated because greed will motivate some people to behave in unethical ways.  NYSE:AIG, NYSE,PTR

Investors must believe their money is fundamentally safe from deliberate fraud (but not necessarily protected from incompetence, poor market conditions, and unwise decisions). That's what regulations achieve - you might lose money, but it won't (or shouldn't) be because the game is rigged.  

In my opinion, monopoly and anti-trust laws were America's first attempt to move from laissez-faire capitalism to a sort of hybrid, regulated capitalism. Also in my opinion, China's is approaching a similar hybrid capitalism, albeit from the opposite side of the spectrum.   

No need to debate the relative merits of China's economic development. The point is that China well understands that the road to its prosperity means fostering domestic business and accessing the capital markets.  

So I don't believe China's communist government is any threat to domestic business. In fact, given China's willingness to spend its currency reserves to support its economy, I'd say China's government is a friend to its domestic business.  
And besides, investing in China can mean buying companies already owned by the government, like Petrochina (NYSE:PTR) or Sinopec (NYSE:SNP). I probably don't need to remind you that American investors - including Warren Buffett - have done pretty well with state-run Chinese companies. 

Now, I don't mean this to sound like an endorsement of communism. It isn't. But I'm here to make money. And my sense is that China's government is smart enough to know that it is China's growing prosperity that keeps it in power. I can think of nothing that would threaten that prosperity more than a government takeover of a private business.  

On Thursday, July 2, I reported that there may be as many as 100 Chinese companies getting ready for an IPO (initial public offering). All it would take to completely shut China out of the global capital markets is for the government to take over a company.  
Just yesterday, Fiat announced that it was putting up $559 million for a joint venture with Guangzhou Automobile Group. Fiat's obviously not worried about the Chinese government taking the operation over. You shouldn't be either. 

*****As you probably know, I am very bullish on companies in certain segments of the Chinese economy. Energy and commodities, especially, will do well as China spends heavily on infrastructure to support its economy. I've been covering a few of them in my SmallCapInvestor PRO service to the delight, and profit, of my subscribers. Click HERE to find out more.

It started off as another ugly day for stocks. But the major indices rallied out of the hole after hitting their lows for the day around 11 AM. There was no particular fundamental catalyst propelling stocks prices higher. The move appears to be technically based, with traders apparently considering the drop to 886 on the S&P 500 close enough to support At 880 to start buying.

The S&P finished the day with a slight 2.3 point gain. The Dow Industrials finished up 44 points, completing a 122 point reversal. Only the Nasdaq finished in the red. The 9 point loss there was led by Apple (Nasdaq:AAPL) and Amazon.com (Nasdaq:AMZN).

 

Once again, there plenty of regional banks on the top performers' list. Park Federal (Nasdaq:PFED) was up 34%. Eurobancshares (Nasdaq:EUBK) rose 18% and Community Shores Bank (Nasdaq:CSHB) was up 18%. The only problem is that these stocks are rallying on extremely light volume.

At least with today's decliners, there are some stocks that aren't regional banks. TerreStar (Nasdaq:TSTR) dropped 20%. Spectrum Pharmaceuticals (Nasdaq;SPPI) was off 16% and Republic Airways Holdings (Nasdaq:RJET) was down 16%.

*****Despite the early declines, TradeMaster technical analyst Jason Cimpl had us prepared with his excellent video chart analysis that accompanied Thursday's Daily Profit. If you missed Jason's analysis, here's the link again.

 

Jason is expecting some upside later in the week. That would coincide with the start of earnings season. Alcoa (NYSE:AA) kicks things off tomorrow.

*****Bloomberg is reporting that the earnings decline is slowing. Year over year corporate earnings fell around 60% in the first quarter. Earnings were expected to have dropped another 34% last quarter and may slow to a 21% drop in the third quarter.

67% of companies beat expectations in the first quarter. But of course, when expectations were as low as they were, that's not particularly impressive. Plus, gains were accomplished through cost-cutting, which is only a temporary fix. Still it was enough to get a rally going. It will be interesting to see if earnings season can send stock prices higher again...

*****Oil has dropped to $64 a barrel. Demand is down as the economic recovery is not exactly robust. Back in 2005 and 2006, oil was the leading indicator for the economy. Even though oil prices were taking a bite out of consumers' budgets and even sparking some price inflation, stocks moved higher as oil demand indicated a thriving global economy.

Not much has changed. Even though comparatively lower gasoline prices give us a bit more spending money, rising unemployment is indicative of a still-weak global economy. Some analysts are saying that oil could fall to $50 a barrel.

*****China's still about the only country in the world that's growing. Its Purchasing Manager's Index rose for the 4th straight month. Current estimates are for a 7.8% GDP expansion this year. The U.S. will contract 2.7%, and that includes slight growth for the fourth quarter.

At SmallCapInvestor PRO, we've been ahead of the curve, adding Chinese stocks for the last two months. You can get our complete analysis on 4 top Chinese investments here.

*****Now, let's have a look at this week's economic data...

Wednesday, July 8, we get weekly crude oil inventories and the consumer credit report for May.

Thursday, July 9 we get weekly unemployment claims numbers and wholesale inventories for May.

Then on Friday, July 10, we get import and export prices along with the trade balance. We'll also be treated to a preliminary look at the Michigan Consumer Sentiment poll for July.

 

Shares of EuroBancshares Inc. (Nasdaq:EUBK) are on a tear today after the holding company for Eurobank, which provides commercial banking products and services to small and mid-sized businesses in Puerto Rico, was upgraded by Keefe Bruyette and Woods to “outperform” from “market perform” on valuation.

Keefe Bruyette and Woods analyst Bain Slack said there is still 73% upside to the current stock price and is maintaining a price target of $8.

“We think that due to lack of liquidity, it is better to be early rather than try and time the bottom,” Slack wrote in a research note today. “While the Fed cuts will help all of the Puerto Rican banks over the next year, Eurobank is the only stock where … we believe that credit risk, while still significant, is priced in the stock.”

The analyst says  that though credit costs are still elevated, management has been able to stabilize lease net charge-offs, which represented . . .

Eurobancshares Inc. (Nasdaq:EUBK), The Pantry, Inc. (Nasdaq:PTRY) and Seneca Foods Corp. (Nasdaq:SENEA) are among the biggest percentage gainers in Friday's trading among companies with market capitalizations under $750 million.

GS Financial Corp. (Nasdaq:GSLA), Good Times Restaurants Inc. (Nasdaq:GTIM) and Carver Bancorp, Inc. (Nasdaq:CARV) are also among the top small-cap percentage gainers.

Here are Friday's biggest percentage gainers among small caps:

The Russell 2000 (NYSE:IWM) managed a miniscule last-minute rise despite news of a weak government jobs report. The small-cap index climbed 0.16 points, or 0.02%, to 713.73, its fifth consecutive rise. The Dow Jones Industrial Average fell 16.61 points, or 0.13%, to 12,609.42.

On a year-to-date basis, the Russell 2000 has declined 6.83%, while the Dow is down 4.94% and the S&P 500 is off 6.67%.

Small-cap stocks began the day in the red following news before the opening that payrolls fell by a larger-than-expected 80,000 in March, according to the U.S. Labor Department. The same report also revised higher the job losses from the previous two months.

The March unemployment rate rose to 5.1%, the highest level in more than two years, from 4.8% in February.

“The job loss numbers today make it all but certain that the economy entered a recession in the first quarter,” said Arun Raha, vice president of economic research and consulting for the North American operations of reinsurance company . . .

The Russell 2000 (NYSE: IWM) and the other major U.S. indices declined for the second day in a row on news of bearish economic reports. The small-cap index fell 3.80 points, or 0.54%, to 701.52. The Dow Jones Industrial Average (INDU) declined 28.77 points, or 0.23%, to 12,348.21.

On a year-to-date basis, the Russell 2000 has let go 8.42%, while the Dow has shaved 6.91% and the S&P 500 has fallen 8.06%.

The session belonged to the bears as news of government reports that showed a weak economy and hinted at a rise in inflation spooked investors.

The U.S. Labor Department reported that import prices jumped 1.7% in January due to higher energy and food prices. Economists had projected a rise of 0.5%. The year-over-year rise in import prices was 13.7%, which is the biggest change since the measure was introduced in 1982.

The United States has long relied on cheap foreign imports to keep domestic inflation low.

Adding to the economic worries was news of a report from the New York Federal Reserve that its index of general business conditions fell to its lowest level since May 2005. The numbers show that new manufacturing orders and shipments decreased while the index of prices climbed to its highest level in more than a year.

The reports suggest that the U.S. Federal Reserve might have difficulty holding inflation in check while keeping the economy growing.

Separately, preliminary numbers released by the Reuters/University of Michigan indicate a sharp drop in consumer sentiment in early February. The index fell to a level of 69.6 from 78.4 at the end of January. The result was worse than the decline expected by economists and the lowest reading in 16 years.

Here are the day’s biggest percentage gainers and losers, along with top volume leaders, among companies with a market cap between $100 million and $750 million:

The Russell 2000 (NYSE: IWM) opened in the red on concerns that the U.S. Federal Reserve may not move to lower interest rates.

At 10:45 a.m. ET, the small-cap index was down 1.76 points, or 0.21%, to 819.96. The Dow Jones Industrial Average (INDU) had lost 44.38 points, or 0.32%, to 13,825.88.

Investors are turning their attention to the U.S. Federal Reserve today, which begins a two-day policy meeting.

On Monday, observers were confident that the Fed will cut its target interest rate up to 0.50%, but today an article in The Wall Street Journal is casting doubt on that expectation, claiming that policy makers will likely either cut the federal funds rate 0.25% or leave it unchanged.

The federal funds rate, the rate at which commercial banks make overnight loans to each other, currently stands at 4.75%, after the Fed voted on Sept. 18 to lower it from 5.25%.

The central bank will announce its decision on Wednesday.

In economic news, U.S. consumer confidence continued to fall in October. The Conference Board reported after the start of trading that its index of consumer confidence fell to 95.6 from 99.5 in September.