Tag - General Growth Properties

Yesterday I gave a somewhat tongue in cheek treatment to the question of whether Alcoa (NYSE:AA) had beaten analysts’ earnings expectations or not. 

Intel (Nasdaq:INTC) left no room for doubt. The chip-maker crushed estimates by $0.05 a share, beat on revenues and profit margins and guided higher for the second quarter.   

What’s next for Intel? Fixing the housing problem?

Seriously though, Intel’s earnings give us insight that Alcoa doesn’t. Namely, that corporate IT spending is strong. And that bodes well for profits at a range of companies, reinforces the pace of economic recovery and may even have implications for unemployment.   

Intel’s earnings come at an important juncture for the stock market. Stocks have been struggling to take out resistance at Dow 11,000 and S&P 500 1,200. 

The grumblings that the market was headed for a correction were getting louder. And while the recent low-volume push higher may still be vulnerable to a reversal, there’s finally a solid, tangible reason to buy stocks.  

And a good catalyst for stocks prices is something that’s been lacking lately.   

Not that there’s been no catalysts for stock prices. Gold’s been strong, oil’s been rallying and employment figures have improved, giving new hope for retail stocks.   

But still, the rally was mechanical, grinding higher a few points at a time. And volume was notably light. Enthusiasm was missing.   

I’ve been trying to put my finger on exactly what was missing from the recent rally, and why stock seem vulnerable to the correction talk. I think “enthusiasm” was the word I was missing. That rally just had little enthusiasm.   

And I think the enthusiasm seemed lacking because individual investors were not putting new money to work in mutual funds. That left the market to grind away, driven by institutional program trading.   

Will Intel be enough to bring the individual investor back to the stock market? Probably not in droves. But I suspect the enthusiasm level will pick up nonetheless.   

Commercial real estate stocks were the top performers for the last couple of days. And Daily Profit readers have made excellent gains on Maguire Properties (NYSE:MPG) on two separate occasions in the last 6 months.

This Friday, April 16, is a day that could push commercial real estate stocks higher. That’s because a bankruptcy judge is due to rule on a bid to bring shopping mall owner General Growth Properties (NYSE:GGP). And so if rival Simon Property Group (NYSE:SGP) wants to up its buyout offer for General Growth, it needs to do it by tomorrow.   

This is significant because investors are unsure what debt-laden commercial real estate companies are worth. The fact that hedge funds, and even China’s sovereign wealth fund, have been sniffing around commercial real estate, is a big positive.   

TradeMaster has identified a few beaten-down commercial real estate stocks that could make big moves as hedge funds move in. You can get details HERE. 

The stock market rally that started on February 5^th, 2010 appears to be absolutely unstoppable. Bullet-proof. However you want to say it, there seems to be very little downside to stock prices, even after a strong rally.   

Now, we are not surprised. I’ve been relentlessly bullish here in Daily Profit. Sure, I may point out some discrepancies once in a while, maybe even shoot a few holes in the financial media’s neat and tidy explanations, but I’ve had us focused on upside targets for a year now, and there’s one main reason: earnings.   

This time last year, it was brutally obvious that analysts were seriously underestimating the earnings potential for bank stocks, even after the government changed the accounting rules to encourage profitability.   

And in subsequent months, analysts continued to lowball earnings estimates. Companies kept beating them, and the market kept rallying.     

How did we know estimates were too low? Well, partly because stocks kept rallying. It was one if the worst-kept secrets in history.

Of course, common sense tells us that, eventually, analysts will get estimates right, or <gasp> overshoot. How will we know when that time is at hand? Ironically enough, hiring will need to pick up.  

Corporate expenses were trimmed to the bone during the financial crisis and recession. And since payroll additions have only recently started to be noticeable, that means corporations haven’t noticeably adjusted their cost structure for the single biggest expense they face – workers.   

So until we see some true, meaningful gains in employment, stocks will move higher.   

Or, the Fed could start raising interest rates. That would sure give us some quick downside for stock prices.   

But getting back to earnings, Barron’s ran an interesting earnings table this weekend showing earnings growth by sector, based on analyst estimates. 

Three sectors are expected to show triple-digit earnings growth in the 1^st Quarter. Those sectors are Consumer Discretionary (115%), Financials (194%) and Basic Materials (179%).   

Now, we must remember that the 1^st Quarter last year was absolutely dismal. Poor earnings helped drive the S&P 500 to 20 year lows. Last year at this time the S&P 500 was trading with a P/E of 32, and it was below 850.   

Today, it has a P/E of 23, but the forward P/E based on estimates is a reasonable 15. 

Things get interesting if analysts have once again lowballed 1^st Quarter earnings. And judging by the stock market action, investors seem to believe another quarter of beaten expectations is in the works.   

The minutes from the last FOMC meeting were released yesterday. Aside from re-committing to low rates for an extended period of time, there wasn’t much worthy of comment, so I’m just going to re-print the headline from Bloomberg: “Fed Officials Saw Recovery Curbed by Unemployment”.   

You don’t say, Ben.   

I started following the commercial real estate sector last September when I noticed breakout moves from Maguire Properties (NYSE:MPG) and a few others.  

Daily Profit readers have had a couple opportunities to make nice gains from Maguire. In fact, it looks like it has started another move yesterday when the former CEO and founder offered to buy a few buildings from Maguire.   

Maguire’s not the only one running. And April 16 may mark a launching point for commercial real estate stocks.   

That’s the day shopping mall REIT General Growth Properties (NYSE:GGP) is expected to present its plan to exit bankruptcy as a stand alone company, thereby rebuffing the buyout offer from rival Simon Property Group (NYSE:SGP).   

Now, many people think Simon will make a better offer between now and the 16^th. And if so, we may see a bidding war for a bankrupt REIT break out. On one side will be Simon, and on the other will be a group of hedge funds that has backing from the Chinese Investment Corp (CIC).   

The presence of the CIC is significant for a few reasons, but none are as important for our purposes than the fact that it has $300 billion to invest and it’s looking at U.S. commercial real estate. That much investment capital could certainly re-price a lot of impaired assets.   

To learn more about the CIC’s involvement in commercial real estate, click HERE. 

The AP is reporting that China has trimmed its holdings of U.S. Treasury’s by $5.8 billion in January. I’m sure members of the doom and gloom economic faction will point to this as solid evidence that the U.S. is losing its ability to fund spending and is inching ever closer to default.   

In my opinion, this line of thinking is completely unrealistic.  

China still holds $889 billion in T-bills. It’s clearly not “dumping” American debt. And as I discussed last week, there is evidence that China is moving to more direct investments in the U.S.   

China’s state-run investment company, the China Investment Corporation (CIC), is already involved in a buyout offer for shopping mall owner General Growth Properties (NYSE:GGP) through Brookfield Asset Management (NYSE:BAM).   

And according to a Financial Times article from this morning, China’s not the only country who’s getting involved. Sovereign wealth funds from Qatar, Canada, Australia and Abu Dhabi may be getting in on the bid for General Growth Partners.   

I find the burgeoning interest in U.S. commercial real estate fascinating. It’s clear that foreign investors are helping support the economic recovery. China may sell some U.S. Treasuries, but a direct investment in commercial real estate will help cash-strapped companies restructure their debt and lift a major overhang off the market.   

Still, the news that inflation is picking up in China is a bit worrisome. China has been an important driver of economic growth for the last year. As China moves to slow its economy, it’s possible that global growth will suffer.   

One option for China is to revalue its currency higher. That would have the net effect of making it more expensive to do business with China and help offset inflation. But China never signals anything, so we have no way of gleaning any clues about a potential Yuan revaluation.   

On the subject of China, it appears that Google (Nasdaq:GOOG) may be close to a decision as to whether it will continue to stay in China. You may recall in January, Google accused China of hacking into its systems and stealing information. Google threatened to leave the Chinese market if China didn’t stop censoring search results.   

China appears to have made its stance to Google clear. The ball is now in Google’s court. And judging from the 7% move from Chinese Internet and search company Baidu (Nasdaq:BIDU), investors seem to think that Google will follow through on its threat.   

Such a move is potentially bad news. The last thing we need right now is an even more contentious trade environment with China than we have now.  

But on the other hand, it may be overvaluing Google’s importance to think that it could significantly impact trade between China and the U.S.   

Merger and acquisitions have been an important catalyst for stock prices. Today, CONSOL Energy (NYSE:CNX) said it would buy Dominion Resources (NYSE:D) Marcellus shale natural gas assets for $3.4 billion. And Phillips-Van Heusen (NYSE:PVH) will buy Tommy Hilfiger for $3 billion.   

A steady stream of merger and acquisition deals is important for several reasons. It suggests that companies see attractive valuations, it suggests companies see growth ahead and it suggests that companies are able to get financing.   

All three are good signs for economy and a continued advance from the stock market.  

Also, the amount of deals taking place in the energy sector is particularly interesting. It’s easy to see why companies would want to acquire natural gas assets. My question is: why would any company want to sell?   

I’m about to add two companies to the Energy World Profits portfolio. One is a $500 million oil company in the Gulf of Mexico that has a forward P/E of 6 and generates nearly $100 million in free cash flow. Currently priced around $12 a share, I expect this company will be fetching $18 a share in the not-too-distant future.

So far this year 15 banks have been closed by the FDIC. Last year, it was 134, if I'm counting the closing figures right as posted on the FDIC website. Some of you may remember the last time there were mass amounts of bank closings during the S&L crisis of the late '80s and early '90s. At the time, a special agency, the Resolution Trust Corporation (RTC) was set up to dispose of the assets of these banks.

The RTC was controversial because many times it sold assets at prices far below market value. Ultimately though, the RTC succeeded in getting assets seized from insolvent banks into stronger hands. And because some of these "stronger hands" had low cost structures due to low up front costs, a new phase of growth was born.

A similar thing is happening now. Lennar Corporation (NYSE: LEN), a homebuilder, recently picked up $3 billion worth of unfinished homes from the FDIC for about 40 cents on the dollar. Lennar only had to put up $243 million. The FDIC kicked in $365 million and provided 0% interest financing.

Because Lennar's upfront costs are so low, it will be able to hire the workers needed to finish the homes and offer those homes for sale at a price that makes sense for buyers. This is how growth returns after a bubble.

But this time there's a twist. The $365 million put up by the FDIC? It's an equity stake. Yes, rather than simply disposing of the assets to the highest bidder the FDIC, and by extension the government, now has a stake in those unfinished homes.

The FDIC could turn a profit here. But by offering financing and providing an interest-free loan, the FDIC is also supporting home valuations by not letting these unfinished homes sell at absolute rock bottom prices.

S&P 500 Breaks Out

From TradeMaster Daily Stock Alerts' Jason Cimpl:

Finally, the bulls took back 1085...Stocks across all industries were higher yesterday. Volume was up and advancers to decliners favored bulls by 9 to 1 on NYSE. Once again the Russell and NASDAQ led the way higher as each posted an almost 2% gain.

We predicted a price move back up to at least 1100 last Monday, and SPX is getting close. We were also very bullish in the weekend video, which detailed 18 long trades for this week. Seven of those trades are up better than 3% from Friday.

Nice work, Jason.

I reported yesterday that shopping mall owner Simon Group (NYSE: SPG) offered $10 billion for bankrupt mall owner General Growth (NYSE: GGP). General Growth's market cap is currently $3.94 billion.

Sounds like a good deal. But General Growth rejected the bid. Apparently, it thinks it can do better. This is good news for the commercial real estate sector.

21% in 2 Days

I recently recommended a Chinese coal company to my Energy World Profits readers. My energy economist Gregor Macdonald, who handles the macro analysis for Energy World Profits, is quite bullish in coal, especially in emerging economies. The company is perfectly positioned to take advantage of rising coal use in China.

Unfortunately, I recommended this stock right before the market corrected in January. But the stock has bounced back strong, up 21% since yesterday. Over the next 12 months, I expect this stock to hit $14 a share, a 133% gain from current levels.

Not only that, but I'm treating new Energy World Profits members to $40 in gasoline coupons just for trying the service. For more, click HERE

Bespoke Investment Group is reporting that 10% of U.S. corporations are raising earnings expectations, compared to 4.1% that are lowering them. That's the largest gap on record, and suggests that analysts still have earnings projections that are too low.

It's hard to blame the analysts for being cautious. While the economy has improved, uncertainty about unemployment is an issue. It's easy to imagine that consumer demand could drop. Still, let's not ignore what corporations are saying. After all, they are the ones in direct communication with their customers. I can't help but be a little optimistic that there is more upside for the stock market.

Don't ignore the consolidation news from the commercial real estate sector this morning. Mall owner Simon Properties (NYSE: SPG) is offering $10 billion for its rival, General Growth Properties (NYSE: GGP).

Several investors and economists believe commercial real estate will be the next shoe to drop. And within that sector, shopping malls are probably the most beaten down group. That Simon Properties is considering a buyout means that it sees opportunity. And it is moves like these that often mark a bottom for an industry or sector.

I've recommended a commercial real estate stock that may have some terrific upside. Maguire Properties (NYSE: MPG) is back to its support level at $1.50. If you didn't catch it there last time, you might want to give it a look.

You've probably noticed that I've started featuring commentary from TradeMaster Daily Stock Alerts' Jason Cimpl more prominently in Daily Profit.

I tend to focus on what you might call "big picture" trends regarding unemployment, the economy, oil, China, etc. And while I will discuss the movement of the major indices (Dow Industrial, S&P 500, etc.) on occasion, I'm not what you'd call a "technical analyst." I only dabble in the art of analyzing moving averages and On Balance Volume.

Jason Cimpl, on the other hand, lives and breathes this stuff. He is a bona-fide financial analyst, and has the collegiate credentials and investing track record to prove it. He can also read an earnings report and balance sheet with the best of 'em.

Jason's also a trader, seeking to profit from the day to day movement of the stock market.

It's not uncommon to hear long-term investors belittle the technical analyst for ignoring fundamentals. At the same time, it's clear that investors do sometimes lose sight of fundamentals, like during the Internet bubble or during the 2009 sell-off.

I received an email from a Daily Profit reader that I think sums up the conflict between the technical and fundamental analyst, and also offers us an opportunity to understand and incorporate the strengths of each discipline.

Garry R. writes:

Ian, I find statements such as this statement in your 1/20/2010 email to be confusing, as well as very annoying:

TradeMaster's Jason Cimpl... "Typically, indices in a bull trend would have made a push higher into the close. Despite the weak close and his growing pessimism, he did note that market internals were "spectacular."

Shouldn't the market (prices) be based in "internals"? I'm no expert but I'm of the opinion that we'd be much better off if there were no Technicians and/or "trend line" investing. When there's a market crash or an "Irrational Exuberance" bull market, trend line (technical) investing just aggravates the excessive "trends"?!

It's seems to be so common now to see a stock price with no relationship to the company's fundamentals! I see "Technician" comments every day about "trading ranges"; when to sell, when to buy, when to go short or long. I only see negatives in this kind of trading; certainly, this is "great sport" for the insiders; but it also makes the average 401K investor feel like he/she's just a pawn in a rich man's game. Where am I going wrong?

Somewhere around 70% of the daily volume on the New York Stock Exchange (NYSE) is institutional trading. (That's hedge funds, mutual funds, pension funds, etc.) So, as individual investors, our trading (or investing) volume is a tiny part of a huge pie. I don't mean this to be discouraging. Rather, it's a truth that can set us free.

It's vital for us to understand that Wall Street's goals are not always aligned with those of individual investors. Likewise, fundamental valuations aren't always the driving force behind stock prices.

Mutual find managers measure their performance against benchmarks. One of the most popular is the S&P 500. If the S&P 500 rises 8% in a year, and a fund manager makes 12%, he or she is considered a success and makes his or her bonus. Fund managers will absolutely take profits on positions to lock in performance, regardless of fundamentals.

Now, over time, a stock's price will tend to reflect its fundamental valuations. But price also reflects investors' expectations, and those are always subjective. That's why in bear markets, P/Es of 15 might be considered expensive, while in a bull market, the same P/E might be considered cheap.

At the end of the day, investors, even the institutional ones, are human. And human investors are largely driven by two emotions: fear and greed. I would never call Warren Buffett a technical analyst. But even he hints at a technical perspective when he tells us to "...be greedy when others are fearful..."

How do we decide when investors are fearful or greedy? We pay attention to what they are doing. The technical analyst looks for clues in investor selling and buying activity to discern what's coming next. In other words, if we know that market direction is largely influenced by institutional activity, then watching what they do can give us an edge.

The bottom line is that technical analysis doesn't drive the market. It gives us a clue as to what the big players are doing, and by extension, where the market is headed. And we can use that information to make money. In fact Jason Cimpl used his analysis to lead TradeMaster Daily Stock Alerts members to 5.4%, 6.5% and 15.5% gains between February 4 and February 8.

Right now, Jason has been advising us that the bulls are taking a stand and pushing prices higher. Specifically, he's watching the S&P 500 level of 1085 as an indication of the bulls resolve. I can also tell you that he was getting his readers positioned for more profit opportunities in his weekly subscriber's video from Friday. But if you want to find out what he's recommending, you'll have to ask him at TradeMaster Daily Stock Alerts.

Ultimately, technical and fundamental analysis methods work together to not only identify the right stock to buy, but the right time to buy it.