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Good morning,
Markets are called lower this morning. This is what's happening today:
Markets turned negative after days of being in the green. The negativity is caused by two main factors which are Japan's disappointing export figures and Dell's disappointing forecasts. Starting off with Japan, trade data from Japan’s Finance Ministry today showed shipments to China slipped 12% in July from a year earlier, while those to the European Union fell 25%, the biggest decline since October 2009.
The second reason why the markets turned negative is Dell's disappointing result which led to a sell off in technology stocks (including Apple). Technology shares fell after Dell forecasted that third-quarter revenue will drop 2% to 5% from the prior three- month period. That implies sales of between $13.8 billion and $14.2 billion, less than the $14.9 billion average analyst estimate. Dell shares tumbled 4.5% in extended New York trading. Lenovo Group Ltd., the world’s second-biggest maker of personal computers, sank 2.4% in Hong Kong. Samsung Electronics Co., the world’s largest semiconductor maker, lost 1.3% in Seoul.
Ironically Apple shares fell because of Dell's negative results however Dell's negative results are mainly due to Apple! The company forecast third-quarter revenue that missed analysts’ estimates and cut its profit outlook by 20%, as competition from Apple Inc.’s iPad and an anemic global economic recovery drags down PC demand. I would take days of weakness in Apple as an opportunity to buy more of the stock and not sell into weakness.
Talking about Dell, those shareholders who are exposed to Dell at this point in time should continue holding on to the stock. The slowdown in the pc market is being compensated by the improvement in the server market. (See 'stock to watch' at end of blog).
Moving on the Greece which was put on the back burner for some time however is a time bomb ready to explode and could seriously influence negatively sentiment in the market. However, analysts are saying that concessions are possible for Greece if Samaras shows a willingness to meet the main targets set out in his country’s bailout program. With Greece everything is possible and I would take every comment with a pinch of salt.
The Fed releases minutes of its most recent policy meeting today. With news improving in the US the likelihood that we see further quantitative easing in the US is decreasing. Having said that one must not lose sight of the bigger picture and that positive data and less stimulus is better for the markets in the longrun.
There are alot of opportunities still in these markets however a portfolio needs to be monitored frequently and actively managed in order to be able to keep up with the market. Prices have come up alot and it would be wise to identify those stocks in your portfolio which are now overvalued and shift into another company which offers higher returns. There is a consensus in the markets that companies are much stronger than they were way back in 2007. Balance sheets are strong, the dividend yield is attractive and despite the current economic turmoil, there are still companies which are optimistic about the future. However, one must not look at stocks individually but look at the return of a portfolio in order to gauge how well the portfolio is doing.
Regarding currencies, it is my opinion that an investor should start looking at the Euro again vis-a-vis the Dollar. We are not out of the woods in Europe, far from it, however there are many reasons why EU leaders should contribute towards saving the Euro and finding ways and means of boosting growth in Europe. Once we see some positive signals out of Europe, the markets will turn bearish on the US as their big debt problem will become a reason for concern once again. I am not saying to go 100% Euro, it is still not time. However, reducing exposure to the Dollar at this point in time in the markets is a wise thing to do.
Stock to watch: Dell (Price $12.56, Price Target $16)
At current levels, we continue to believe longer term investors (i.e., 12-18 month time horizon) will be rewarded as an improved product offering, increased operational efficiency and expanding retail presence translate to improving margins and revenue growth and ultimately drive a revaluation of Dell towards past levels. Further, we see growth opportunities in servers, storage, and services and for these reasons we rate Dell shares a Buy.
For further information on Dell and other stocks and bonds we follow, contact our offices on 25688688.
Good day and happy trading!
Kristian Camenzuli
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