Safeway & iPhone 5S

Safeway Falls Short & Apple 5S Rumors

By Andy Cao-Pham & Pasha Zand

Market Performance:

Friday, April 26, 2013

On Thursday, April 25th, the Dow Jones Industrial Index closed up at +24.50 (+0.17%) at 14,700.80, whereas on Friday morning the DJIA opened down -43 points but closed at 14,712.55 only down -11.75.

Some notable movers, included Apple and JCPenney, who seemed to rally after poor performances from last week and earlier in the beginning of this week. On Friday Apple rose up 2.2%. Although Apple reported its first quarterly earnings drop in a decade earlier in the week, Apple raised its dividend by 15% to $3.05 a share.J.C Penney was able to gain almost 12% by close Friday due to hedge fund investor George Seros reportedly having a 7.9 percent stake. This was viewed as a strong vote of confidence and helped raise stock prices.

Some notable fallers on Friday we highlighted where Amazon, Expedia, and Safeway. Amazon fell 7.24% on Friday due to reports late Thursday that Amazon’s first quarter profits had fallen. It also didn’t help that Amazon issued a lower than expected revenue for the second quarter. The online travel site Expedia also reported first quarter loses on Thursday that resulted in a 9.87% drop. Those two examples show that stock prices are dramatically affected by quarterly earnings. On the contrary, Safeway met expectation and experienced first quarter earnings but still had a historic drop on Thursday. Not only are stock prices affected by earnings but by investor expectation as well.

Monday, April 29, 2013

Having been up by as much as 132 points, the Dow Jones Industrial Average (US:DJIA) ended with a gain of 106.20 points at 14,818.75, a level putting it 46 points from its record close, set April 11. U.S. stock indexes advanced on Monday, lifting the S&P 500 to a record close, the S&P 500 index (US:SPX) ended up 11.37 points at a 1,593.61, with technology the best performing of its 10 major sectors. The S&P 500 is up 1.6% for the month, and a positive finish to April would deliver a sixth straight month of gains.

Some notable headline gainers included Apple Inc, which rallied 3% on Monday after a leaked document reportedly indicated that it may launch iPhone 5S earlier than anticipated. Apple shares advanced for a third day on speculation that iPhone 5S could roll out as early as July. Several news outlets are citing a document, purportedly leaked from KDDI, which showed that the Japanese carrier will begin taking preorders for the new iPhone in June for a July launch. Also, Microsoft has seen its stock rising to 14% over the past three months. Keeping with the technology trend, Blackberry Inc. saw its shares rise 2.4% to $15.38 on Monday morning also. 

Financial News #1:

Safeway: Not Good Enough

Safeway took a dramatic hit Thursday as stock prices fell 14% followed by a 4.2% drop Friday. Thursday’s free fall was the worst daily percentage drop in a decade. The reason behind Safeways poor outing is due sales not being as strong as investors had hoped for. Despite having first-quarter earnings rise and match analysts expectations, investors were not pleased. High expectations from investors came from Safeway’s partnership with ExxonMobil in March 2013 to create a new loyalty and gas rewards program for its members. Similar to Giant Foods Gas rewards, Safeway investors expected higher earnings due to the loyalty and gas rewards program. In addition, Safeway has been experiencing increased competition as dollar stores and competitors like Wal-Mart have expanded their grocery and food departments.

Financial News #2:

Apple: iPhone 5S Rumors

Over the past few days, Apple’s stock value  has unprecedentedly vaulted which relates to the leaked contents of the pre-order form of the iPhone 5S. On Monday April, 29th documents displaying that the company intends to release the new product between the June-July timeframe and introduce its next generation of the iPhones, was reportedly leaked. While mere speculation, the information quoted in the purportedly leaked material does coincide with Apple's upcoming conference, which is scheduled to take place in June. If the iPhone 5S were to be announced at the conference, it would be one week prior to the June 20 pre-sale date referred to in the supposed KDDI document. This is a clear attempt by apple to hype up its new product with hope of garnering investor’s interest once again. Timothy D. Cook, company’s chief executive, recently dropped a hint about “exciting new product categories” which may suggest that the company is preparing a move into a new market. 

Citations:

www.marketwatch.com

http://blogs.marketwatch.com/behindthestorefront/2013/04/25/george-soross-stake-in-penney-is-another-yes-for-new-ceo/

http://www.marketwatch.com/investing/stock/SWY/charts

http://www.dow-jones-djia.com/2013/04/26/chevron-reports-earnings-market-happenings-for-friday-april-26-2013

http://www.marketwatch.com/story/fridays-movers-jc-penney-dr-horton-2013-04-26

http://www.marketwatch.com/story/mondays-movers-conceptus-sturm-ruger-2013-04-29?link=MW_story_hoverstory

http://finance.yahoo.com/news/p-500-closes-record-led-035128022.html

http://finance.yahoo.com/q?s=AAPL&ql=0

http://www.nytimes.com/2013/04/24/technology/as-profit-slips-apple-increases-efforts-to-reward-shareholders.html?_r=0&adxnnl=1&ref=applecomputerinc&adxnnlx=1367309167-XB/Gu3lyD46frHjseYLIkw

Andy Cao-Pham & Pasha Zand

Carbon Bubble

Carbon Bubble

A research came out of the London School of Economics and Carbon Tracker Initiative that forecasts that if governments are to keep their promises about the agreements on carbon emission and seriously start curbing their carbon emission, many carbon based investments traded publicly might implode (causing market bubble)

It is said that governments plan to keep their national carbon emission below in line with the global carbon emission limit of2c.

This Suggests that around 60 to 80 % of coal, oil and gas reserves held by 200 main oil gas and mining companies will be unusable and therefore assets of these companies will be less valuable.

A carbon budget of 900 gigatons of CO₂ in the atmosphere from now to mid-century would give an 80 percent chance of 2-degree warming. And this, its use will not cause the planet’s carbon budget to change significantly.

According to a former World Bank researcher, the 200 major oil companies spent over 600 billion dollars in developing oil reserves and related projects. If nations such as China and U.S are to commit to reducing carbon emission by 2015, only 4% or 2/3^rd of the current reserves can be used as it will have to remain underground if the world is to achieve the internationally agreed target.  This study is supported by HSBC, Citi, Standard and Poor's and the International Energy Agency. The London Bank also confirms that the World might be heading to another major financial crisis as a result of overvalued oil and gas market. Another researcher from carbon tracer also suggests that short termism is the main reason for the upcoming carbon bubble. "Analysts say you should ride the train until just before it goes off the cliff. Each thinks they are smart enough to get off in time, but not everyone can get out of the door at the same time. That is why you get bubbles and crashes." Another oil and gas market analyst at HSBC claims that "The scale of 'listed' unburnable carbon revealed in this report is astonishing. This report makes it clear that 'business as usual' is not a viable option for the fossil fuel industry in the long term. [The market] is assuming it will get early warning, but my worry is that things often happen suddenly in the oil and gas sector." HSBC also argues that 40 to 60% of the market capitalization over oil industry is at risk out of which just the 200 top companies have around $4 tn and $1 tn debt.  According to a report from Commons Treasury select committee the “ The world's currently indicated fossil fuel reserves equate to 2,860bn tons of carbon dioxide, but that just 31% could be burned for an 80% chance of keeping below a 2C temperature rise. For a 50% chance of 2C or less, just 38% could be burned”(The Guardian”. Carbon capture and storage technologies also promise to save only 4% of this unburable carbon. Similarly, sesearcher in the London School of Economics also confirms this saying that “The financial crisis has shown what happens when risks accumulate unnoticed”. Jens Peers, who manages Mirova, a £3bn asset suggests that the risk is massive than investors think. He claims that investors cannot be waiting for 2015, when countries commit to the global carbon emission limit.  Accordingly, wise investors are advised to pull out their investments on time before the already ballooning market starts to crumble.

Jcp

JCP is a mid-range department stores based in Plano, Texas. The company operates 1,107 department stores in all 50 U.S. states and Puerto Rico, and previously operated a catalog business and several discount outlets.^[3In addition, JCPenney stores often house several leased departments such as Sephora, Seattle's Best Coffee, optical centers, portrait studios, and jewelry repair.(taken from –Wikipedia )Lately the company has not been doing so well. At the end of 2012 the company had just$930 million in cash remaining, down from $3 billion at the end of 2009. The free cash flow in 2013 was -$830 million, and if this doesn't improve the cash balance will be almost completely depleted by the end of 2013.

The company is $3 billion in debt, on which it pays $226 million in interest annually.

On April 6^th 2013 JCP won the right to sell Martha Stewart products – as long as they’re unbranded.

Macy's Inc. sued Plano, Texas-based J.C. Penney Co. over J.C. Penney's new deal to start selling some of Martha Stewart Living's products.

The J.C.  Penney arrangement was to supply certain Martha Stewart Living items, after J.C. Penney acquired a 17 percent stake in the household goods company in December 2011, and made plans for mini-stores dedicated to Martha Stewart Living and other brands

As a measure of transforming the company's image, JCP brought Ron Jonson as the CEO  on November 2011.

Ron Jonson was a senior  vice president of merchandising for Target and Apple’s  Senior Vice President of Retail Operations since January 2000.

He (Ron Jonson)came to JCP hoping to turn the company back to its feet He came up with new strategies  such as: opening up new shops with in old stores , removing big sales and replacing it with constant low/fair prices, replacing employees from former department, restructuring stores etc.He also scrapped salespeople’s commissions in favor of fixed hourly wages.

However 2/3^rd of customers did not understand the new scheme, and fled away from JCP.

Even online sales dropped during Mr Johnson’s tenure

It had one of the worst retail quarter , a 32% drop of same store sales,  lost another $552 million for the fourth quarter. it lost almost a billion $ for the whole year. Which  made almost 28% of loss from the year before.

Macy’s had already filed an appeal towards the court’s decision.

Jonson had to go..

Earlier this month, JCP had to remove Jonson from his chair.

Former CEO Mike Ullman was called back for urgent recovery.

Early investor reaction to the shake-up was negative. J.C. Penney shares (JCP) by 9% in early trading to $14.43.

Investors hope Mike Ullman will bring back JCP core costumers and some of JCP’s signature marketing strategies including sales discounts.

The question remains : Is JCP going to go bankrupt ??

Should investors start dissolving their assets??

Speculators suggests that privet equity firms will not be interested in JCP as it has market capital that’s barely larger than its long term debt.(3.12$ vs 2.28$)

The retailer's bonds are trading at around 70 cents on the dollar, suggesting investors think it could be headed for bankruptcy.

York Capital's James Dinan recently said at a conference that the $15 billion hedge fund had shorted the bonds, according to press reports.

Many are looking forward for JCP to go bankrupt by the end of 2013, as it is a company with weak sales performance, high debt and confused sales strategy. Compared to its main competitors. 

Work Cited

www.economist.com/

www.finance.yahoo.com/

www.guardian.co.uk/

www.wikipedia.org/

 

kalkidan mamo