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Stocks

Predict the Dow Contest Update: Where Do You Think the Dow Will Close?

By , Executive Editor, Money Morning - • Print | Email

The Dow Jones Industrial Average ended its six-week losing streak last week as fears of debt defaults eased and the global economy appeared to improve.

The blue-chip bellwether rose for the third straight day yesterday (Monday) to close at 12,080.38 as bargain-hunters moved in and investor concerns about a Greek debt default continued to ease.

But where does the Dow go from here?

That's what we're asking Money Morning's readers as part of our "Predict the Dow/Win an iPad2" contest, which started last week. We're asking readers to predict where the Dow will be when the second quarter comes to a close on June 30. Deadline for entries is June 26.

Margaret Riddagh of Wilmington isn't sanguine about the market's outlook. She sees a second-quarter Dow close of 11,489.25 – a drop of more than 500 points, or about 5%, from present levels.

"I believe that the market will reflect more closely how the economy is really doing," she wrote with her entry. "The decline will start slow but continue as people realize that bad times are ahead, due to governmental policies."

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After 100 Years of Service, IBM Corp. (NYSE: IBM) Is Still a 'Buy'

By , Money Morning - • Print | Email

IBM Corp. (NYSE: IBM) has provided information technology (IT) products and services worldwide for 100 years, making it the very definition of a blue-chip stock.

And when the market gets weak and starts to show signs of volatility, it usually is the blue-chip stocks that are the strongest in the pack.

So with the markets going through a bit of a rough patch, let's look for an opportunity to pick up shares of IBM during any pullbacks (**).

Four Reasons to Buy IBM

There are four big reasons why I like IBM right now:

  • It's 100 years old, so you know it's stable.
  • The company generates $100 billion in sales, which is a level few companies ever reach.
  • IBM has an unleveraged balance sheet with $40 billion in gross profits.
  • And the stock is relatively strong, as it's currently trading near its 52-week high, even as the greater market declines.

When I think about IBM, I think about stability. The company has never been accused of trying to be sexy from a marketing point of view. Yet, IBM has grown into one of the largest companies on the planet and has built a good reputation for being conservative.

In high growth periods, stocks like IBM fail to keep up – but in uncertain times, they really shine.

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Hot Stocks: Don't Let Groupon Inc. Play You For a Fool

By , Associate Editor, Money Morning - • Print | Email

Groupon Inc. will try to get you to jump on its initial public offering (IPO) by touting its extreme growth and its profit potential – but don't believe it.

Even though Chicago-based Groupon, an e-commerce player that offers daily discounts to subscribers via e-mail, has exploded since it entered the online coupon world in 2008, that growth is threatened by the company's competition and mounting losses.

"The market opportunity isn't as big as the industry players would like you to believe," Sucharita Mulpuru, an analyst with Forrester Research Inc. (Nasdaq: FORR) wrote in an open letter to investors considering Groupon. "This IPO game isn't about finding value, it's about finding a greater fool who actually believes the valuation is true. Trust me, you will be the fool."

Here's why buying into what Groupon's saying about its profitability is a foolish move.

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With the Sale of Arby's, Wendy's Stock Deserves a Fresh Look

By , Associate Editor, Money Morning • @DavidGZeiler - • Print | Email

With the sale of Arby's, Wendy's Arby's Group Inc. (NYSE: WEN) may finally be ready to compete with rival McDonald's Corp. (NYSE: MCD). And the company's stock, which has plunged nearly 80% over the past four years, may finally see a rebound.

It was announced yesterday (Monday) that private equity firm Roark Capital Group would pay $130 million in cash for Arby's and assume $190 million in debt. Wendy's also will receive an $80 million tax benefit and retain an 18.5% stake in Arby's. The full value of the deal, expected to close in the third quarter, is $430 million.

The sale will furnish Wendy's with the cash the company needs to focus on its turnaround efforts, which include improving its breakfast offerings, remodeling its restaurants and expanding its overseas franchises.

"This transaction provides substantial value to our stockholders, as it is expected to be accretive to earnings, deleverage the balance sheet and allow us to devote our full attention and resources on the exciting growth opportunities we have at Wendy's," Roland Smith, Wendy's/Arby's chief executive, said in a statement.

Smith told Bloomberg News that the cash portion of the deal would be invested in "Wendy's growth opportunities" and not used to pay down more debt.

The split comes less than three years after Triarc Cos, Arby's parent in 2008, acquired Wendy's for $2.2 billion and created the third-largest fast-food chain in the world. At the time Wendy's was looking for a way to reverse a series of disappointing earnings reports, having stumbled in the years following the 2002 death of founder Dave Thomas.

The merger was intended to generate $60 million in annual savings by streamlining support services and corporate functions.

Unfortunately, the timing could not have been worse – the deal closed just before the 2008 financial crisis struck.

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Buy, Sell or Hold: Bank of America Corp. (NYSE: BAC) Is a House of Cards on the Verge of Collapse

By , Money Morning - • Print | Email

Bank of America Corp. (NYSE: BAC) is one of the largest banking complexes in the United States. But its strategy of growing through acquisitions has left the company terribly vulnerable to an economic downturn.

That's why it's time to "Sell" Bank of America Corp. (**).

For complete disclosure: I worked for Bank of America as a teller 20 years ago. So I have a slight bias. I want that to be clear upfront.

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Financial Reform Follies: By Upstaging Bernanke, JPMorgan's Dimon Shows Us Where Washington Went Wrong

By , Chief Investment Strategist, Money Map Report - • Print | Email

By upstaging U.S. Federal Reserve Chairman Ben S. Bernanke at the International Monetary Conference in Atlanta on Tuesday, JPMorgan Chase & Co. (NYSE: JPM) Chief Executive Officer Jamie Dimon drove home a crucial point: The U.S. version of "financial reform" just doesn't work.

The fact that Dimon is one of Wall Street's own – and that he stole the show from Bernanke, who made a speech at the conference – made for high drama. More importantly, though, I believe the incident served as a reminder of why Washington's attempts at financial reform don't work.

In his speech to international bankers, a tired-looking Bernanke conceded that the U.S. economy was functioning "below its potential," something that's become very clear following a spate of recent reports that show weak output and scary job trends.

Dimon – a longtime critic of financial reform (particularly the Dodd-Frank Wall Street Reform and Consumer Protection Act) – said he fears that the attempted fixes are actually stifling the recovery. He even asked Bernanke if people won't come back in 20 years and write a book showing that the Fed and our bailouts were too heavy- handed and have become a hindrance instead of a help.

"Has anyone bothered to study the cumulative effect of all these things?" Dimon asked Bernanke. "Is this holding us back at this point?"


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Sorry Mr. Bernanke: There Will be a Double-Dip Recession

By , Money Morning - • Print | Email

Despite what U.S. Federal Reserve Chairman Ben S. Bernanke said in his speech at the International Monetary Conference yesterday (Tuesday), it looks very much like we're headed for a double-dip recession.

Indeed, the economic reports of the last week or so demonstrate that the U.S. job machine was never really jump-started after the Great Recession of 2008-09.

The upshot: The U.S. economic recovery is stalling, and we're almost certainly looking at a double-dip downturn.

Recessions are always painful – and double-dip recessions are even more so.

And this second "dip" may be more of the same – a bloody economic downturn that leads into a feeble recovery with unemployment spiking to even higher levels than we're currently seeing.

But there's a slight chance that this double-dip recession could prove quite productive for the U.S economy.

Let me explain.

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Goldman Subpoena, Investigation Add to Pressure on Bank Stock Prices

By , Associate Editor, Money Morning • @DavidGZeiler - • Print | Email

Big bank stock prices, already suffering from an avalanche of difficulties, suffered another setback when news broke last Thursday that Goldman Sachs Group Inc. (NYSE:GS) had received a subpoena from the Manhattan district attorney for records relating to its role in collapse of the mortgage market.

The subpoena served as a reminder that the fallout from the financial crisis that hit its apex in 2008 is far from over.

The banking sector already has had a rough year, as its 6% decline is the worst performance among the 10 industries tracked within the Standard & Poor's 500 Index.

"Financials have become hated in recent months," Alan Villalon, a senior bank analyst at Chicago-based Nuveen Investments, told Reuters.

The Goldman subpoena is part of a probe based on the findings of the Senate Permanent Subcommittee on Investigations, released in April. The panel's report accused the bank of profiting at the expense of clients when it bet against the mortgage market in 2007 by taking large short positions in mortgage-related securities.

Goldman disagreed.

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Hot Stocks: Why LinkedIn Is More than Just a "Bubble"

By , Money Morning - • Print | Email

LinkedIn Corp. (NYSE: LNKD) has had quite a ride since its initial public offering last week.

The stock surged 109% in its first day of trading to a peak of $122.70 a share, but has since tumbled back to close yesterday (Thursday) at $78.63.

Optimism about the potential for new-wave social media companies and a genuine thirst among investors desperate for a serious growth play drove LinkedIn's meteoric rise. But profit-taking and fears that the stock had entered "bubble" territory led to a quick drop.

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