Portfolio Review


Web site features new sector reports
You’ll notice a sector theme in this week’s Dow Theory Forecasts.

We use sector screens in our never-ending quest for new recommendations. Feedback from our subscribers suggests many of you also find value in data on market sectors.

With that in mind, we have added new features to our Web site at www.DowTheory.com. Log into the Subscriber Area and follow the “Sector And Industry Analysis” link to access three useful features:

Sector Overview: This new table presents average returns and Quadrix® scores for stocks in each of the 10 market sectors in the S&P 1500 Index.

Sector Scores: This new feature presents our two sector-specific Quadrix scores, as well as other data, for stocks in the S&P 1500 and all of our monitored stocks.

Industry Group Studies: Here, subscribers can find Quadrix data and other statistics on more than 100 industry groups, as well as most stocks in our research universe of more than 4,000 companies. This data has been available at www.DowTheory.com for several years, and we find it very useful for comparing stocks within industries. If you haven’t yet tried it, check out this powerful stock-analysis tool.

Profit report
Chevron ($67; CVX) warned that profits in the March quarter would be “sharply lower” than earnings in the December quarter, mostly because of lower prices for crude oil and natural gas. Chevron earned $2.14 per share in the December quarter, while the consensus for the March 2009 quarter was $0.94 at the time of the announcement and has fallen 7% since. Chevron appears positioned to rebound once energy prices recover, and while the warning was not good news, Wall Street already expected Chevron to post “sharply lower” profits. Chevron retains its Buy and Long-Term Buy ratings.

In the March quarter, Intel’s ($16; INTC) per-share profits slumped 56% to $0.11 but topped the consensus by $0.08. Revenue, down sharply in all segments and geographic regions, fell 26% to $7.15 billion. Management suggested the personal-computer market has “bottomed out.” Intel shares fell on the news, possibly because Intel said current conditions make predictions difficult and provided less detail in its guidance than the market expected. Intel is rated Neutral.

Abbott Laboratories’ ($45; ABT) earnings rose 16% to $0.73 per share excluding special items in the March quarter, $0.03 better than the consensus. Sales dipped 1% to $6.72 billion on a stronger dollar and generic competition for epilepsy drug Depakote. Abbott Labs is rated Neutral.

Goldman Sachs ($115; GS) earned $3.39 per share in the March quarter, up 5% and more than double the consensus. Total revenue rose 13% to $9.43 billion. Goldman also sold $5 billion in common stock at $123 per share, boosting the share count by 9%, to help repay $10 billion in federal loans. Goldman is rated Neutral.

Boeing ($37; BA) warned of lower-than-expected profits for the March quarter, citing weak airplane pricing and order cancelations. All 32 canceled orders were for the 787 Dreamliner, which could also dampen sales for suppliers such as Precision Castparts ($60; PCP). Boeing is rated Neutral. Precision Castparts is a Long-Term Buy.

Wells Fargo ($18; WFC) surprised Wall Street by announcing it expects to earn $0.55 per share in the March quarter, well above the $0.23 consensus. The company still expects to report $3.3 billion in charge-offs and set aside $4.6 billion for future credit losses. Wells Fargo is rated Neutral.

Stress-test update
The Obama Administration plans to release certain details of stress tests administered by the Federal Reserve to gauge the health of major U.S. banks. Regulators have already said that all 19 banks taking federal stress tests will pass. However, that news won’t necessarily translate to stock-market gains, as the tests are literally impossible to fail.

Regulators said the tests suggest many banks will need more capital — which could lead to the government taking larger stakes. These stress tests measure banks’ ability to cope with a worsening economy and also review assets not held on balance sheets. Some banks may be forced to sell bad assets; the most troubled ones will have six months to raise private capital or receive additional federal loans.

News roundup
The Treasury Department told General Motors ($2; GM) to prepare to file for bankruptcy by June 1 in case the automaker fails to reorganize on its own. GM has struggled to convince bondholders to exchange $28 billion in debt for equity. The government hopes a quick, “surgical” restructuring process will protect GM’s image and sales. According to published reports, President Obama does not want workers to be harmed by the restructuring, which raises the possibility that the new GM might remain saddled with the same labor-related costs that contributed heavily to its financial problems. GM is an Underperform … U.S. retail sales fell 1.1% in March, dragged down by broad declines in automobiles, clothing, appliances, and furniture. Wal-Mart Stores ($51; WMT) increased U.S. same-store sales 1.4% in March. The company said April-quarter per-share earnings from continuing operations will be toward the top end of its target range of $0.72 and $0.77, versus the $0.76 consensus. Wal-Mart is a Long-Term Buy … Former Motorola ($5; MOT) chief financial officer Paul Liska claimed he was fired after questioning the accuracy of financial forecasts for its cellphone unit. In his lawsuit against Motorola, Liska says executives were “intentionally or recklessly, materially misstating its 2009 forecasts.” Motorola is an Underperform … Procter & Gamble ($47; PG) raised its quarterly dividend 10% to $0.44 per share, continuing a run of 53 consecutive fiscal years with dividend hikes. P&G is rated Neutral.

Health-care review
Express Scripts ($60; ESRX) agreed to buy WellPoint’s ($43; WLP) pharmacy-benefit management unit for $4.68 billion. The deal should boost Express Scripts’ prescription volume by about 50% as it seeks to gain traction against larger rivals CVS Caremark ($29; CVS) and Medco Health Solutions ($43; MHS) for large contracts. Express Scripts, WellPoint, CVS, and Medco are rated Neutral … The Food and Drug Administration wants to re-examine the safety of certain medical devices that weren’t previously required to undergo rigorous testing. Companies must submit information demonstrating the safety of 27 device categories — such as external defibrillators and pacemaker components — placed on the market before 1976. It is uncertain how long the review process will take or how much this extra layer of regulation will cost medical-device companies.

Mergers and deals
Microsoft ($19; MSFT) is in preliminary talks with Yahoo ($14; YHOO) about a partnership involving Internet search and advertising. Together, Microsoft and Yahoo would control roughly 28% of the market, helping them compete against market leader Google ($369; GOOG). Microsoft is a Long-Term Buy. Yahoo and Google are rated Neutral.

Harris ($30; HRS) received a $150 million order to upgrade the U.S. Army’s radios, a move that could potentially trigger wider telecommunication upgrades for the military. The contract is part of a five-year, $500 million deal. No other deals have been announced, but with 30,000 older Harris radios in use by the Marine Corps, this deal could represent a greater willingness from U.S. military leaders to spend on communications upgrades. Harris is a Focus List Buy and a Long-Term Buy.

Cognizant Technology Solutions ($23; CTSH) reportedly withdrew from bidding on Satyam Computer Services, the Indian consulting firm in turmoil since its founder admitted to overstating profits. An Indian rival ended up purchasing Satyam. Cognizant is a Buy and a Long-Term Buy.

eBay ($14; EBAY) announced plans to sell Skype, an Internet-phone business with revenue of $551 million last year, through an initial public offering in the first half of 2010. eBay is rated Neutral.

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