• Patent peace. Qualcomm and Nokia put an end to their patent battles - a move that could benefit both companies. Financial terms weren't disclosed, but the companies described it as a 15-year agreement that includes Nokia making an up-front payment, and paying ongoing royalties - which implies NOK may now become a QCOM customer. "This is a landmark deal," Lehman's Timothy Luke said. "This removes a ton of uncertainty from the industry." He estimates NOK should owe QCOM about $600M for 2008 alone. In early pre-market trading, QCOM is up 20.5%; NOK is up 1%.
• Amazon profit surges; margins shrink. Online retail giant Amazon.com (AMZN) said its 2Q profit doubled as revenue jumped 41% (see below). It also raised its sales forecast for the year. Analysts say aggressive discounting and free-shipping helped lure cash-strapped shoppers. CFO Tom Szkutak said gross margins were constrained by lower prices and by its product mix; it sees full-year operating margin of 5.7%, down from a previous forecast of 5.8%. Sales of books, music and movies rose 31% to $2.41B; electronics and other general merchandise revenue rose 58% to $1.53B. (Earnings call transcript)
• State budgets slashed. States, facing a $40B shortfall, are slashing spending and cutting jobs. The gap is more than triple last year's; the State Budget Update report (.pdf) says it stems from broad U.S. economic weakness, and that its repercussions may be felt straight through to 2010.
• Microsoft online chief goes, Ballmer talks tough. Kevin Johnson, head of Microsoft's (MSFT) online unit and in charge of MSFT's Yahoo (YHOO) bid, resigned. He will take over as CEO of Juniper Networks (JNPR), sources say. The move reflects CEO Steve Ballmer's "deep dissatisfaction" with MSFT's online presence. In an internal memo yesterday, he vowed to "out-innovate" Google (GOOG) in search by upping the ante in R&D and through acquisitions. "This is a long-term battle for our company."
After you finish reading Wall Street BreakfastSeeking Alpha's Market Currentswill keep you current all day long.
• Goldman raises $10B for LBO debt fund. Goldman Sachs (GS) has created a $10B fund to invest in senior leveraged buyout [LBO] debt. GS already has a $20B fund that invests in 'mezzanine' debt - which is second in line to collect behind senior. The two funds enable Goldman to finance sizeable deals without needing to recruit outsiders.
• The Fed's Beige Book was downbeat, but held few surprises. Consumer spending was reported as mixed, weak, or slowing. Rebate checks boosted sales for some items - especially electronics. Manufacturing activity slowed, although export demand remained high. Both residential and commercial real estate markets were sluggish.

Earnings: Thursday Before Open

• AU Optronics (AUO): Q2 EPS of $0.84 beats by $0.27. Revenue of $4.06B (+25.7%) in-line. [PR]
• Bunge (BG): Q2 EPS of $5.45 beats by $2.18. Revenue of $14.37B (+73.1%) vs. $13.25B. Sees full-year EPS of $11.60-11.90 vs. $9.16. "Looking to the second half of the year, fertilizer fundamentals should remain strong." [PR]
• Canon (CAJ): Q2 profit fell 13% to $1B. Sales fell 1.9% to $10.26B. Weak results were mainly due to the strong yen vs. the weak dollar. [AP]
• Credit Suisse (CS): Net profit fell to 1.22B francs from 3.19B - roughly doubling analyst expectations. It attracted 17.4B francs in new assets. CS says the outlook remains difficult. Shares were up 5.5% in Zurich. [WSJ]
• Daimler (DAI): Q2 EPS of €1.40 beats by €0.07. Revenue of €25.38B (+9%) vs. €24.12B. Shares [PR]
• Dow Chemical (DOW): Q2 EPS of $0.81 misses by $0.04. Revenue of $16.38B (+23.5%) vs. $14.89B. [PR]
• Elan (ELN): Q2 EPS of -$0.15 misses by $0.02. Revenue of $246M (+30.3%) vs. $250M. [PR]
• EnCana (ECA): Q2 EPS of $1.96 beats by $0.12. Revenue of $7.32B (+30.4%) vs. $5.95B. [PR]
• Kinetic Concepts (KCI): Q2 EPS of $0.98 beats by $0.05. Revenue of $462M (+16.5%) vs. $447M. [PR]
• Medco Health Solutions (MHS): Q2 EPS of $0.56 beats by $0.02. [PR]
• National City (NCC): Q2 EPS of -$2.45 (-$1.8B) vs. consensus of -$0.26. Provisions for loan losses rose to $1.59B from $145M a year ago and $1.39B in Q1. [PR]
• Petro-Canada (PCZ): Q2 EPS of C$2.38 misses by $0.15. [PR]
• Potash (POT): Q2 EPS of $2.82 beats by $0.21. Revenue of $2.62B (+93.7%) vs. $2.55B. [PR]
• RadioShack (RSH): Q2 EPS of $0.35 beats by $0.09. Revenue of $995M (+6.4%) vs. $908.5M. Announces $200M buyback. [PR]
• Suncor Energy (SU): Q2 EPS of $0.88 beats by $0.17. [PR]
• Smith International (SII): Q2 EPS of $0.91 beats by $0.02. Revenue of $2.49B (+18%) vs. $2.38B. [PR]
• Starwood Hotels (HOT): Q2 EPS of $0.56 beats by $0.04. Revenue of $1.57B (+0.1%) vs. $1.49B. Sees Q3 EPS of $0.52-0.57 vs. $0.66 and full-year EPS of $2.17-2.32 vs. $2.44. [PR]
• Xerox (XRX): Q2 EPS of $0.24 in-line. Revenue of $4.53B (+7.77%) in-line. [PR]

Earnings: Wednesday After Close

• AFLAC (AFL): EPS of $1.01 in-line. Revenue of $4.34B (+15.2%) in-line. -4%. [PR]
• Amazon.com (AMZN): EPS of $0.37 beats by $0.11. Revenue of $4.06B (+40.8%) vs. $3.96B. +7%. [PR]
• Amdocs (DOX): EPS of $0.71 beats by $0.06. Revenue of $194M (-9.1%) vs. $185M. +2.5%. [PR]
• Ameriprise Financial (AMP): EPS of $1.01 beats by $0.14. Revenue of $2.02B (-8.9%) vs. $2.09B. [PR]
• Chipotle Mexican Grill (CMG): EPS of $0.74 misses by $0.01. Revenue of $341M (+24.3%) vs. $344M. -4.7%. [PR]
• Citrix Systems (CTXS): EPS of $0.38 beats by $0.02. Revenue of $392M (+17.2%) vs. $387M. -0.6%. [PR]
• F5 Networks (FFIV): EPS of $0.23 beats by $0.01. Revenue of $166M (+25.1%) vs. $161M. -3.2%. [PR]
• Fidelity National Financial (FNF): EPS of $0.03 misses by $0.10. Revenue of $1.18B (-21.1%) vs. $1.09B. [PR]
• Intersil (ISIL): EPS of $0.39 beats by $0.01. Revenue of $216 (+21.3%) in-line. [PR]
• LSI Logic (LSI): EPS of $0.13 beats by $0.04. Revenue of $692M (+3.3%) vs. $665M. +11%. [PR]
• McKesson (MCK): EPS of $0.83 beats by $0.03. Revenue of $26.7B (+8.9%) vs. $26.03B. Sees 2009 EPS of $4.00-4.15 vs. $3.83. +2.5%. [PR]
• MEMC Electronic Materials (WFR): EPS of $0.92 misses by $0.08. Revenue of $531M (+6%) vs. $558M. Sees full-year EPS of $4.00-4.30 vs. $4.30. -13%. [PR]
• Netgear (NTGR): EPS of $0.41 beats by $0.06. Revenue of $204M (+24.5%) vs. $196M. [PR]
• NutriSystem (NTRI): EPS of $0.71 beats by $0.06. Revenue of $194M vs. $185M. +9%. [PR]
• Robert Half International (RHI): EPS of $0.48 beats by $0.06. Revenue of $1.22B (+6.6%) in-line. [PR]
• Skechers (SKX): EPS of $0.31 misses by $0.03. Revenue of $355M (+0.7%) vs. $360M. -4.5%. [PR]
• Sybase (SY): EPS of $0.49 beats by $0.06. Revenue of $283M (+15.4%) vs. $262M. -0.5%. [PR]
• Terex (TEX): EPS of $2.32 beats by $0.32. Revenue of $2.94B (+25.3%) vs. $2.76B. +10%. [PR]

Today's Markets

• Asia Thursday was a mixed bag. Nikkei +2.2% to 13,603. Hang Seng -0.2% to 23,088. Shanghai +2.55% to 2,910. BSE -1.1% to 14,777.
• In Europe, markets are lower at midday. London -0.4%. Paris -0.8%. Frankfurt -0.7%.
• Futures have inched down overnight. Dow -0.44%. S&P -0.43%. Nasdaq +0.05%. Crude +0.14% to $124.65. Gold +0.22% to $925.

3Com (COMS) is a drastically undervalued and oversold stock that should be trading 50% higher than its current price of just $1.97 a share. The company has a healthy $1.25 per share in cash and the stock trades below its book value of $2.49. The forward price to earnings ratio is less than 9, yet the estimated earnings growth rate is estimated to be approximately 33% YOY. These figures have been based on analyst estimates.

Although the company has issued guidance on the lower end of the analysts' range for FY09, it would not be surprising if the actual numbers significantly exceed expectations. The company has beaten analyst estimates the past four quarters by a minimum of 50% each quarter, because management has been quite conservative on its guidance and provided near- flawless execution on its strategies.

I'm less concerned about publicizing an issue that would help the shorts and more interested in raising an important philosophical issue. In my opinion, RJF is a case study of the arbitrary and unfair nature of how different regulatory rules can result in the massive destruction or preservation of wealth. This fact is of primary concern in this market, where we see major brokerages getting almost wiped out (Bear, Lehman, etc) when they may have similar risk profiles to other companies (RJF) that are also public but don't have to play by the same rules. I think this example speaks well to a constant critique of how regulation via the Fed, Treasury Dept. and SEC can play a role in the current state of credit markets and financials.

Boy oh boy, crude oil sure did an about face didn’t it?  We’ve seen spot market oil collapse from $147 to $128 in a heartbeat.  And it's these declining crude oil prices -- along with the Fannie (FNM) and Freddie (FRE) bail out plan -- that appear to be fueling this nascent move higher.

Sentiment has changed dramatically over the last few days, and a very tradeable rally appears to be in the offing.

Following eight trading days when Nextwave Wireless (WAVE) stock shot up 35%, we find out why, and the reasons are multi-fold:

1. WAVE sold $150m worth of AWS spectrum, primarily to T-Mobile USA. My preliminary analysis suggests that approximately 600m MHz POPs were sold, implying an average price of $0.25 per MHz POP. This price, while significantly lower than the recent prices paid in Canada, was still materially higher than the price suggested by short-sellers (see SeekingAlpha article “Why I’m Short NextWave Wireless” from May 16, authored by an anonymous source). This would leave WAVE with 347m MHz POPs in the AWS band to be sold at a future date, perhaps at higher prices resembling the recent Canadian auction.

The global economy can do a lot of things to a man…but if you threaten to mess with his job AND his beer, that may just be the last straw. By many of the reactions - from TV and barstool talking heads to the 31,000 member Facebook Group protesting the deal - the InBev (INBVF.PK) purchase of Anheuser-Busch (BUD) is an unacceptable encroachment on American life, liberty and the pursuit of happiness. The reaction is not only emotional, it also stems from an underlying fear that the projected $1.5 billion in annual “synergies” saved by the acquisition is a euphemism for job cuts.

It is sad to lose the sense of pride and tradition that US ownership of Budweiser - a beer that’s as American as apple pie - brings. But there are some aspects of the deal that make the pint glass half full rather than half empty.

Last week the markets definitely turned a corner, and the Wilderness investors maintained a cautious stance. But the last few trading sessions have exposed a new found internal strength to this market. Has the Bear lost its bite? Well it seems there’s a massive rotation out of commodities and Oil and Financials and Tech are the main benefactors.

There’s still gobs of pessimism out there, with a bull-bear spread at extremes rarely seen. And today, after an initial surge and over bought conditions, most would not have been surprised if we experience a hard decline. That’s what normally happens in Bear markets. But it never came. Instead the markets held fast, and even demonstrated strength into the close.

Are we there yet? The plaintive plea of the summer car trip can just as well be applied to the weird odyssey the American economy is on. The destination, of course, is the end of the recession—or slowdown, or meltdown, or whatever you want to call it. And if you carefully study the right indicators, it looks like we'll have to buckle in for a good while before the economy stops sputtering.

For all the headlines about undercapitalized banks and unpronounceable securities, most consumers just want to know when the bad news will end, so they can plan their lives. Nobody can say for sure, of course. Yet in real life, people have to make guesses all the time about whether it's a good time to buy a new home or car, make a risky career move, or borrow from their savings. And Americans are clearly spooked about doing much of anything: Consumer confidence numbers are the most dismal in 40 years.

Aside from that, annual guidance continues to call for 22 to 26% production growth and the upper end of that range is growing more likely due to increased volumes from the Woodford Shale and Monument Butte plays, and a plethora of onshore U.S. plays as well as rising production in NFX's international division (especially in Malaysia). Street estimates here have risen swiftly in recent weeks and this release should help that trend continue although at a more muted pace as analysts may begin to back off some price deck assumptions for the third quarter. 

Yesterday, Chipotle (CMG) reported its 2Q 2008 results. (Click here for the conference call transcript.)

Highlights

Originally written on July 11, 2008

Experienced investors in biotechnology companies have learned to think like venture capitalists: they spread the risk. This makes biotech-focused ETFs, which are inherently diversified, ideal vehicles for investors in the sector. But which ETF is the best? Although there are currently only four ETFs focused on biotech to choose from, because their holdings tend to be so diverse, ranking these funds is more difficult than many other sub-asset classes. The four funds and their expense ratios follow:

by Eric Roseman

If you're bullish on mining, don't buy the companies. Instead, buy the companies that make the shovels and picks...

I have several investment strategies in play to exploit the macroeconomic trends that continue to unfold. Many of these strategies have paid off handsomely – shorting the financials, homebuilders, and mortgage companies – and playing the market trading ranges. While I feel there is still more to be made by shorting the financials, the fact is that shorting strategies are not suitable for many investors.

Here, I attempt to provide some more practical guidance for everyday investors. As you will see, I gradually progress into more sophisticated strategies. You need to determine what the best approach is for you based upon your risk tolerance, investment needs and horizon.

When I look for signals of a bottom in any sector, first and foremost will be the technicals, followed by rallies on bad news.  Long before companies get back on track financially, their stock charts will have already had a big run as most of the bad news was built in.  As a distant secondary indicator, I like to keep tabs on the insider buying habits of key executives, particularly the CFO and CEO. 

These insiders know their company better than anyone and if they're making a large bet, there is good reason to assume the prospects for the company in the future are bright.  The financials have been beaten mercilessly here in 2008, with several big banks trading in single digits.  Who would have thought that a Wachovia (WB) would be trading under 10 or that a Washington Mutual (WM) would hit nearly $3 bucks a share.

Microsoft’s Kevin Johnson, president of the Platforms & Services Division, has decided to leave the company to head up Juniper Networks (JNPR), a Silicon Valley maker of networking hardware.

Johnson, who is 47 years old and has been with Microsoft (MSFT) for 16 years as one of three divisional presidents under chief executive Steve Ballmer, was seen as the point person in the company’s attempt to acquire Yahoo (YHOO). Whether this development will further complicate matters for Yahoo! is still unclear.

We recently reviewed Tom Lydon and John Wasik’s excellent ETF book, iMoney: Profitable ETF Strategies for Every Investor and deem this superb ETF resource as the most reader and user-friendly book on exchange-traded funds published to date.

Chapter 1 presents a perfunctory, but pleasantly concise, historical summary of ETF evolution. Chapter 2 reveals the authors’ bias toward traditional indexed ETFs. However, it also juxtaposes the goals, benefits and disadvantages of traditional indexing versus the newer fundamentally-weighted indices for ETFs. The authors simply conclude that the vote is out, the battle of index methods will continue, and we will just have to wait and see which ones survive.

Investors are pulling the chute on Cargojet Income Fund (CGJTF.PK) Tuesday morning after the company cut its monthly distribution by 30% due to rising expenses and warned it would report lower-than-expected second quarter results next month.

Cargojet, an overnight air cargo service provider said it was reducing its distribution from C$0.0964 to C$0.0675 per unit, blaming "unforeseen" expenses related to the delay in introduction of three new freighter aircraft and lower customer demand as a result of a slowing economy.  Units in Cargojet were down more than 28% or C$2.75 to C$7 approaching noon yesterday.  

About six months after first announcing a private beta test of its Knol project, Google (GOOG) has thrown the doors open, and is inviting anyone who wants to create an entry to jump on board. Unlike Wikipedia — to which it is most often compared — Google’s Knol allows authors to effectively take ownership of articles they write about topics in which they are (or believe themselves to be) experts. And instead of there just being one article on a subject, to which multiple authors contribute, Google says that it expects there to be multiple entries about a given topic, written by different people. Contributors can also offer their own edits to a particular article, which the author can choose to accept or not.

Obviously, a user-generated compendium of knowledge about a variety of topics sounds a lot like a little thing called Wikipedia, and there’s no question that Knol is going to compete with the crowd-sourced encyclopedia to some extent (Wikipedia has also been considering the addition of an “approval system,” which would make it even more like Knol). But I think Knol poses an even bigger threat to Mahalo, the people-powered search service created by Jason Calacanis — and to a lesser extent other directory-style tools like Seth Godin’s Squidoo and About.com (owned by the New York Times (NYT)), not to mention Wikipedia co-founder Larry Sanger’s Citizendium project.

The big news here in the UK this morning (lead story in the FT and I just saw the minister of culture on the BBC) is the deal between the broadband ISPs in the UK and the music and film companies on downloading.

The ISPs have agreed to send warning letters to thousands of their customers who are the most active downloaders of music and films. The UK government will do their part by discussing legislating regulations on the ISPs if the warning letters don't work.

The newspaper La Presse has cited rumors that McKesson Corp. (MCK), a distributor to Canadian and U.S. pharmacies, is buying Uniprix Inc., a banner group for 400 independent pharmacies in Quebec. Should McKesson buy Uniprix, says BMO Nesbitt Burns analyst David Hartley in a note to clients, it may have a bigger impact on Shoppers Drug Mart Corp. (SHDMF.PK)  than The Jean Coutu Group Inc. (JCOUF.PK), given it could remove potential independent acquisition opportunities for an aggressively expanding Shoppers network of stores.

Mr. Hartley believes that McKesson - which recently bought Proxim, a 250-store banner group - may be motivated to buy the Uniprix banner in an effort to protect against losing distribution business to an expanding Shoppers and Jean Coutu Group. Quebec is a highly coveted market given the high number of scrips (prescriptions) dispensed versus the rest of the country, he says - approximately 90,000 per drug store annually, on average, versus approximately 40,000.

Over the last few months I have been writing articles on the improving housing market in the Sacramento region, with a little Las Vegas thrown in. I write on these areas because I am familiar with the markets and these were some of the leaders of the recent boom and bust. Over the last 3 months these markets have shown growth in numbers of home sales in both year-over-year and month-to-month, though at significantly lower median prices than a year ago. Yesterday’s data show the other side of the equation, foreclosures have not turned the corner yet.

In the 2nd quarter of 2008, foreclosures for the 8 county Sacramento region totaled 6,075 compared to 5,278 in the first quarter. The total foreclosures of 11,353 is in comparison to 17,117 homes sold year-to-date in the region. Over half of the resales have been foreclosure properties.

The hue and cry from the press regarding Hedge Funds continues unabated. Obviously a good number of funds have blown up over the past year, causing a sizeable investor headache.

One recent article “4 Reasons Why Investors Should Avoid Hedge Funds at All Costs” outlines issues with oversight, managerial churn, investment concentration, and short life spans. These aspects should be concerns for many individual investors, but should not serve to rule out hedge funds as appropriate portfolio component for qualified investors. Despite the recent turmoil, Hedge Funds have a long history of serving the needs of qualified investors; one excellent summary can be found here.

Three consumer staple stocks reported earnings yesterday. Typically, these types of stocks are sought out as safe haven investments during slowing economic conditions.

First was Philip Morris International (PM) (Call Transcript). PM reported 2q08 EPS of 86 cents which bettered consensus estimates by 3 cents. Furthermore, PM raised its FY08 guidance by 14 cents on each end of the estimate range to $3.32 - $3.38. During the quarter PM declared its initial quarterly dividend of 46 cents which implies a yield of about 3.5%. I own PM together with Altria (MO) which I received as part of the old Altria split-up. I like the international growth in PM core Marlboro brand.

While Suncor (SU) is building a sulphur plant to manage emissions for the long term at an estimated cost of C$340-million, which was 15% complete at the end of the first quarter, it will also provide additional capacity for future expansions at Firebag, RBC Capital Markets analyst Gordon Gee told clients.

Late in the third quarter or early in the fourth, he expects volumes there will rise by roughly 5,000 barrels per day each month until full capacity of 90,000 is achieved in the second half of 2009.

Reader e-mail has come streaming after I posted a piece here yesterday that argues the financial stocks are at or near a bottom. Let’s just say a lot of people aren’t convinced. Here’s a sample, along with my reaction:

You must have a lot of bank stocks you need to sell to the general public and get out of your bad positions. Anyone that follows these companies’ balance sheets knows they are ticking time bombs. PUMPER.

With all the buzz created during the months-long wireless spectrum auction, Rogers Communications Inc. (RCI) has seen its stock slide almost 10% on the Toronto Stock Exchange.

But UBS analyst Jeffrey Fan believe the time is right for Rogers' shares to recover as he removes his "short term sell" rating on the stock and upgrades to a "buy."

We recently found this cool ETF guide in Wealth Manager magazine.  The print version is much better, but if you're looking for an all-in-one list online, their PDF version is pretty good (download PDF file for full size image - image below is too small to read).

click to enlarge

Canadian Pacific Railway Ltd.’s (CP) worse-than-expected second quarter results this week led to a series of earnings estimate revisions Wednesday.

Walter Spracklin, RBC Capital Markets analyst, reduced his 2008 and 2009 guidance by about 7% due in part to higher fuel costs and weak economic conditions.

Below we highlight our trading range charts of ten major commodities.  The green shading represents two standard deviations above and below the commodity's 50-day moving average.  When the price moves above/below the green shading, it is considered overbought/oversold. 

Even after a $20+ decline in oil, the commodity still isn't oversold.  This shows how strong the uptrend in oil was leading up to the recent declines.  But now that the uptrend is broken, it looks like oversold territory could be reached soon.  Natural gas is oversold, however, after declining more than 25% from its peak on July 3rd.  It also broke its uptrend, and the technical damage done in recent days is nothing to laugh at.

Bankrate.com's 30-year average US fixed mortgage rate was at 6.5% Tuesday, which is the highest it has been since April 2002.  New highs for rates can't be tempting potential home buyers to pull the trigger.

click to enlarge