• Tech stocks spurred a rally among U.S. markets yesterday (Wednesday), as by Intel Corp.’s (Nasdaq: INTC) earnings exceeding of Wall Street expectations. All three major indices rose: The Dow Jones Industrial Average was up 3.07% to close at 8,616.21, the Standard & Poor’s 500 was up 2.96%, closing at 932.68, while the tech-laden Nasdaq Composite was up 3.51%, closing at 1,862.90. “There’s no doubt that the catalyst started with the report from Intel,” Chemung Canal Trust Co. Senior Investment Officer Tom Wirth told Bloomberg News. “It seems obvious to me that there’s more optimism, that we’ve seen the bottom and things are getting progressively better.”

• Crude oil futures on the New York Mercantile Exchange (NYMEX) rallied $2.02, or 3.37%, to $61.54 a barrel yesterday (Wednesday) after Energy Department figures showed a smaller-than-expected increase in oil and diesel inventories. “There’s no demand number that you can point to … it’s just that (distillate) inventories didn’t build as much as expected,” Standard Chartered PLCcommodities trader Morgan Downey told The Wall Street Journal.

• The newly launched Bing search engine from Microsoft Corp.(Nasdaq: MSFT) couldn’t touch the stranglehold Google Inc.(Nasdaq: GOOG) has on the market. Bing recorded just a 0.4% gain in its market share to settle at 8.4% last month. The gain came at the expense of second-place Yahoo! Inc. (Nasdaq:YHOO), which saw its market share fall to 19.6% in June, down from May’s 20.1%, The Washington Post reported, citing data from Comscore Inc. (Nasdaq: SCOR). Google’s share, meanwhile, held steady at 65%. Bing was launched in early June to much buzz from tech pundits and Wall Street analysts.

• States will get a $4.7 billion boost in federal stimulus funds to weatherize drafty homes, dwarfing the $447 million originally planned by Congress this year and the $227 million spent last year. The increase is so huge it has raised fears of waste and fraud, and set off a scramble to find workers and houses for them to repair. President Barack Obama said the program would lower utility bills for cash-strapped families, create new construction jobs and make the United States more energy efficient. “You’re getting a three-fer,” President Obama said. “That’s exactly the kind of program we should be funding.” Some worry that states won’t be able to keep track of the copious amounts of money. Council for Citizens Against Government Waste spokeswoman Leslie Paige said the program is open to fraud because of the way oversight is divided: The government passes the money to states, the states pass it to community action agencies and the agencies pass it to contractors who work with customers. “It’s such a Rube Goldberg operation it should be setting off alarm bells,” she toldThe Associated Press.

• Former U.S. Treasury Secretary Henry Paulson will tell the House Oversight and Government Reform Panel in Washington today (Thursday) he acted appropriately in warning Bank of America(NYSE: BAC) Chief Executive Officer Kenneth Lewis that top executives could be ousted if they abandoned merger plans withMerrill Lynch, Reuters reported. “It would be unthinkable for Bank of America to take this destructive action for which there was no reasonable legal basis and which would show a lack of judgment,” Paulson said in his prepared testimony. Some lawmakers are criticizing what they say was government heavy-handedness in pressuring the taxpayer-funded Bank of America to go through with the deal after escalating losses at Merrill came to light.

• U.S. Commerce Secretary Gary Locke has weighed in China’s detainment of Australian and Chinese Rio Tinto PLC employees accused of espionage, saying multinational companies in that nation “need to have assurances and confidence” that their workers will be treated fairly, adding he will raise the case in a meeting with Chinese Premier Wen Jiabao today (Thursday), The Wall Street Journal reported. The workers are accused of bribery to obtain state secrets relating to iron-ore price talks, but Australia has yet to be officially advised of the allegations, The Journal said.

• Microsoft Corp. (Nasdaq: MSFT), which in February said it would open branded retail stores in the United States., will place them “next to existing Apple Inc. (Nasdaq: AAPL) stores this fall,”ZDNet reported, citing a statement from Microsoft’s Chief Operating Officer Kevin Turner. Microsoft has been mum on details of what exactly the stores will sell, but it is said they will be “more showcases than actual retail outlets,” anonymous sources within the company told ZDNet.

Investment News BriefsThursday July 16, 2009

• Microsoft Corp.’s (Nasdaq: MSFT) Bing search engine has gained market share from rivals Google Inc. (Nasdaq: GOOG) andYahoo! Inc. (Nasdaq: YHOO) just weeks after its launch. The Redmond, Wash.-based software giant grabbed 12.1% of total U.S. Internet searches for the workweek of June 8-12, according to market research firm comScore, Inc. (Nasdaq: SCOR). That was up from the previous week’s share of 11.5% and May’s share of 8.2%. While the start is good for Bing, Microsoft Chief Executive Officer Steve Ballmer was cautiously optimistic. “We have had some very good initial response,” Ballmer said. “I don’t want to over-set expectations. We are going to have to be tenacious and keep up the pace of innovation over a long period of time.” comScore did not offer the share numbers for Google or Yahoo in the same periods, but said it would have a bigger picture for the entire month when the final tallies are in.

• Natural gas reserves in the United Stats are much bigger than once thought, according to a report released yesterday (Thursday) from the Potential Gas Committee. The country possesses a resource base of 1,836 trillion cubic feet (Tcf) and a total available future supply of 2,074 Tcf. Some, such as Texas oilman T. Boone Pickens, are pushing hard for natural gas as an alternative fuel for transportation. “I launched the Pickens Plan a year ago to help reduce our dangerous dependence on foreign oil, and using our abundant supply of natural gas as a transition fuel for fleet vehicles and heavy-duty trucks is a key element of that plan,” Pickens told The Associated Press. “On the same day this report is going out, diesel prices are again on the rise, squeezing the trucking industry. Now more than ever we need to take action to enact energy reform that will immediately reduce oil imports.”

• Shares of Carnival Corp. (NYSE: CCL) closed up more than 7% yesterday (Thursday) following news that the cruise line operator beat Wall Street earnings estimates and discounting is starting to abate. Carnival’s net income fell 32% to $264 million, or 33 cents per share for the quarter ended May 31. That compares to a net income of $390 million, or 50 cents per share. Average analyst estimates compiled by Bloomberg News had Carnival earning 29 cents per share. Executives called the rise of fares on some itineraries since the end of March “encouraging.”

• Prices of Treasury bonds fell for a second day as the U.S. government said note sales will increase to a record $104 billion next week and other reports showed the deepest recession since the Great Depression may be coming to an end.  Yields on ten-year notes, which move in opposition to prices, touched the highest in almost a week amid concern President Barack Obama’s record borrowing will overwhelm demand, Bloombergreported.  The yield gap between two- and 10-year notes widened to 2.56%, the most in over a week. “There’s so much focus on the borrowing amounts Treasury will face over the next couple of years,” said Carl Riccadonna, a senior economist at Deutsche Bank Securities Inc. (NYSE: DB) in New York. Deutsche is one of 17 primary dealers that trade with the Federal Reserve. “There’s evidence that the economy may be turning the corner. That’s pushing yields up.“

• General Electric Co. (NYSE: GE) may have to consider the government’s new stance on regulatory reform when it restructures its giant GE Capital finance unit.  The possibility that the Federal Reserve might gain regulatory authority over the unit arose when President Barack Obama this week unveiled his proposal for the most sweeping overhaul of U.S. financial regulations since the 1930s.   He proposed the central bank oversee not just banks but “other large firms that pose a risk to the entire economy in the event of failure.”  GE investors said the label could apply to the U.S. conglomerate’s finance business, a major commercial lender. “I could definitely see that potentially becoming an issue if companies like GE and their finance arms came under more scrutiny,” said Perry Adams, vice president and senior portfolio manager at Huntington Private Financial Group in Traverse City, Michigan, told Reuters.

• Tourism in Mexico took a severe hit from the swine flu scare as Cancun, Cozumel, Los Cabos and other destinations reported fewer foreign tourists since the outbreak that began in April killed 108 people, the Mexican Health Ministry said. Cancun’s hotel occupancy plunged as low as 20% in May, when 13 inns with 5,200 rooms shut down, Bloombergreported.  It rebounded to 45% in the first week of June and is forecast to reach 60% next month, said Rodrigo de la Pena, president of the Cancun Hotel Association. That’s still down from 80% last July. “We’re recovering quicker than we thought,” de la Pena said. “The hotels have almost all their workforce back and tourists are arriving.” To fend off unemployment, the government rolled out a $91 million campaign urging Mexicans to vacation at home and encouraging hotels and restaurants to cut prices.

• Discover Financial Services (NYSE: DFS), the fourth-largest U.S. credit card network, reported a smaller-than-expected quarterly loss as it cut costs and bad loans weren’t as bad as forecast, sending its shares up more than 4%. The company’s expenses fell 10% after it cut 500 jobs and trimmed marketing costs.  Credit card default rates also remained well below levels of its bigger rivals. The Riverwoods, Ill.-based company posted a net income of $226 million, or 43 cents per share for the quarter ended May 31. That compares to a net income of $234 million, or 48 cents per share in the same period last year.

Source: Investment News Briefs Friday, June 19, 2009

The site of the coming-out party for the new Web search engine apparently will be a high-tech conference called “D: All Things Digital,” which is sponsored by The Wall Street Journal. The conference, slated for The Four Seasons Aviara in North San Diego, Calif., begins Tuesday and ends Thursday, and features as speakers some of the top executives in the media, entertainment and high-tech fields. Interestingly enough, Microsoft Chief Executive Officer Steven A. Ballmer is one of the scheduled speakers.

According to a Journal report, the new Microsoft search engine – code-named “Kumo” -has been in private tests inside the company for months. Kumo is aimed at consumers and is supposedly designed to achieve two goals:

• Decrease the amount of time they spend clicking their way across the Web in search of information. The technology is designed to cut down on the length of typical Web searches by grouping the results of a search for, say, a particular model of car into helpful categories like parts, used car listings, online discussion forums and videos showing the vehicle.
• Offer better ways of organizing search results. For instance, the search results for a special-interest car might be grouped into more-helpful categories such as sales listings of that type of car, parts distributors, car clubs and online discussion forums, and even videos of that model car, published reports state.

Microsoft is planning a major promotional push and advertising campaign to boost the search-engine’s visibility and has hired the agency JWT (formerly known as J. Walter Thompson), a unit of London-based WPP PLC (Nasdaq ADR: WPPGY), to develop a campaign for the product, people familiar with the matter say.

Microsoft has a tough road to travel in order to overcome Google’s massive market-share lead in the Internet-search arena. On Monday, research firm comScore Inc. (Nasdaq: SCOR) reported that Google’s share of the U.S. Internet search market during April was 64.2%, an increase of 0.5% from March.

In fact, Google was the only major search engine to post a market-share gain for April. Microsoft and Yahoo! Inc. (Nasdaq: YHOO) both saw market-share declines of 0.1% for the month. That left Yahoo with 20.4% of the market and Microsoft with 8.2%, according to a report by ITProPortal.com.

Ask.com – part of IAC/Interactive Corp. (Nasdaq: IACI) – saw its market share hold steady at 3.8%, while AOL LLC experienced a 0.3% decline to finish April with a U.S. market share of 3.4%, comScore and ITProPortal both said. AOL is a subsidiary of media heavyweight Time Warner Inc. (NYSE: TWX).

A look at actual search queries underscores the huge lead enjoyed by Google. There were 14.8 billion search queries in April, a 3% increase from March. Google accounted for 9.5 billion of the searches, followed by Yahoo (3 billion) and Microsoft (1.2 billion).

This huge chasm between the leaders and the laggards is a key reason Microsoft and Yahoo are still pursuing a possible partnership, even though Microsoft’s proposed $45-plus billion acquisition of Yahoo went sour due to founder ego, greed and internal shareholder disputes, Money Morning has reported. The two tech firms continue to discuss a tie-up in which Yahoo would divest its search and search-advertising technology to Microsoft, in return for an upfront payment and a percentage of the search-ad revenue the partnership generates, sources familiar with the talks reported.

It isn’t known how far the talks have progressed or whether any deal is imminent, as spokesmen for both Microsoft and Yahoo declined comment on the negotiations.

Google search – originally developed by by Larry Page and Sergey Brin in 1997 – remains the most-widely used search engine on the Web, and receives several-hundred-million queries a day via Google’s assortment of services.

Source: Hot Stocks: Microsoft Takes Aim at Google’s Web Dominance With New Search Engine

The Fed extended the lives of recently initiated programs (lending facilities for investment firms, for instance) and is exploring additional moves (like Treasury purchases) aimed at reviving the credit markets.  Bernanke believes more needs to be done to slow the pace of foreclosures, especially since they jumped another 10% in September.

Meanwhile, the U.S. Treasury Department is working on a plan to rejuvenate the housing market by slashing mortgage rates to 4.5% on new purchases.  Experts say that at some point these stimuli must take hold, but that’s not necessarily true.

This week’s economic calendar is highlighted by two late-week releases that are sure to garner much analysis.  The producer price index (PPI) brings another look into the inflation picture, though the dramatic decline in energy prices may renew “premature” talks of deflation.  And November retail sales should offer few positive surprises for the holiday season.

Are there any 12-step programs for overcoming “gloom and doom?”

Market Matters

Black Friday has passed. And so has Cyber Monday (the Monday after Thanksgiving when online shopping begins in earnest).  So let the analysis begin.

While retailers continued to cry “gloom and doom,” the so-called experts did not appear to be quite as pessimistic.  According to National Retail Federation, holiday sales will climb by 2.2% from last year’s levels.  Research firm ShopperTrak claimed that sales on Black Friday rose by 3%, and ComScore Inc. (SCOR) said Monday’s online activity soared by 15% from 2007. Toys “R” Us Inc. execs “were definitely pleased with sales” during the initial holiday shopping weekend, and Internet data collector, Hitwise, revealed that web traffic increased by 21% at Amazon.com Inc. (AMZN).

While November sales remained bleak (see below), analysts point out Thanksgiving came late in the month (Nov. 27) and Cyber Monday actually fell in December.  The optimists (rare as they are) are hopeful holiday activity may be skewed with December faring far better than November.

Automakers returned to Capitol Hill. But for “Begging for a Bailout II,” the “Big Three” CEOs were smart enough leave their corporate jets at home and arrive in hybrid sedans.  Maybe next time they can carpool. But there’s a problem: Combined, the Big Three are this time are requesting $34 billion in loans, which is $9 billion more than they’d been lobbying for all along. Ford Motor Co. (F) implied its situation may be less dire and a mere $9 billion standby line of credit would suffice (assuming the others don’t fail).  The execs also expressed a willingness to operate under a federal oversight board, and even the unions offered concessions regarding health plans and the jobs bank.  While some politicos used scare tactics to predict even greater economic hardships should relief not be granted, others remained skeptical of the unlimited bailouts.  Mostly, they chose to grandstand and politicize the tragic times to win support at home (as if their constituents even watch C-SPAN).  Stay tuned…

In other corporate news, Goldman Sachs Group Inc. (GS) may be forging more into the banking world as it considers launching an Internet operation to increase its deposit base.  Meanwhile, analysts predict its fourth quarter loss could skyrocket to $2 billion.  Beezer Homes USA Inc. (BZH) and Blackberry-maker Research in Motion Inc. (RIMM) both lowered their quarterly outlooks and AT&T Inc. (T) became the latest domestic giant to announce layoffs.  While General Electric Co. (GE) believes its earnings will be weaker than initially expected, the company plans to maintain its dividend and solid commitment to shareholders.  Merrill Lynch & Co. Inc. (MER) shareholders approved its sale to Bank of America Corp. (BAC), though total valuation plunged to $20 billion (from $50 billion at announcement) as a result of the stock market decline.

Oil continued its never-ending decline below the $41 a barrel level, a point not seen in four years, while gas fell below $1.80 a gallon nationally. While winter weather generally means higher energy prices, the economic doldrums have more than offset the traditional trend.

Treasury yields plunged to historic lows on speculation that the Fed may purchase government securities to support the credit markets (as well as the ongoing “flight-to-quality” moves).  Stocks resumed their overall bearish ways on dramatic volatility, as investors grew more fearful about the economy before totally disregarding the awful unemployment data (see below) and staging a late-week “illogical” rally.  Then again, since when have markets been considered logical?

Economically Speaking

In what could one of the worst kept secrets of the year, the National Bureau of Economic Research (NBER) revealed the domestic economy has been in a recession since December 2007.  In the post-World War II era, the average length of recession has been 11 months, with the downturns of 1973-74 and 1980-81 lasting 16 months.

And the current recession will likely surpass the norm.  As the data gets weaker with each passing release, most economists expect this recession to last beyond the next four months and to set a new duration record in post-World War II times.

Then again, each new month means we are getting closer to the end; additionally, equity markets typically serve as leading indicators and begin to rebound months before a recovery starts – meaning we’ll see a bull market get under way while the economy is still in the depths of recession.

The weekly releases revealed that any pending rebound should remain on the back burner for some time.  In November, the unemployment rate jumped to 6.7% as the U.S. economy lost more than 500,000 jobs, the largest monthly decline in 34 years.  In the last three months alone, more than 1.2 million individuals have moved into the ranks of the unemployed.

November represented the 11th straight month of labor contraction.  Both the manufacturing and services sectors continued to struggle according to Institute for Supply Management and factory orders plummeted by the largest amount in eight years.  Retailers reported weak same-store sales numbers, with only Wal-Mart benefiting from the dire times.  Even Costco Wholesale Corp. (COST) experienced a steeper than expected decline.   And of course, dismal auto sales brought more ammunition to those Congressional hearings as General Motors Corp. (GM) (-41%) and Ford (-31%) were joined by Honda Motor Corp. (ADR: HMC) (-32%) and Toyota Motor Corp. (ADR: TM) (-34%) in the “if misery loves company” category.  Meanwhile, Bernanke and friends are hard at work dreaming up creative ways to shore up the economy, particularly after the Beige Book reported softer activity across the country.

Weekly Economic Calendar

Source: Fed Looking at Another Rate Cut, While Treasury Has New Plan for Housing

More from Horacio in this piece from Money Morning:

When – on August 22, 1851 – schooner-yacht America defeated 15 other yachts representing the Royal Yacht Squadron, racing around the Isle of Wight in England to win the renamed “America’s Cup,” Queen Victoria asked who was second.  The famous answer was: “Ah, Your Majesty, there is no second.”

Similarly, in the search-engine category, Google Inc. (Nasdaq:GOOG), has run away with the trophy, leaving its competitors so far behind that they’re actually still over the horizon. Today, Google controls at least 60% of the search activity on the Internet, eclipsing all its rivals, most notably, Yahoo! Inc. (Nasdaq:YHOO), whose market share hovers around 20%.

And in an even more important landmark: Since the middle of the year, Google has finally been topping content-heavy Yahoo.

In fact, October traffic data released by comScore Inc. (Nasdaq:SCOR) showed Google growing to 147 million visitors, an advance of 12%, over the past year, versus only 6% growth for Yahoo. Google, with the increased ability to meet the new information needs of the public, is clearly gaining momentum.  Can you live through a single day without Googling? Probably not.

Also, this search engine dominance allowed Google to veer away from establishing an ad search partnership with Yahoo, which would have posed a significant regulatory problem, creating a controversial and administrative morass that would have diverted critical time and resources away from its mission.

Google’s success increasingly extends to new initiatives: Cloud computing, Internet telephony, search-sensitive ads just launched in the Google-owned You Tube LLC, and the recently-launched GPhone.  These are all extension strategies of its dominant presence in search on the Web, and Google is now pushing them aggressively to increase its ability to monetize them. For example, Google is now offering voice-recognition Web search in the IPhone.  And this soon will come to the GPhone.  So the Internet-search war has been quickly expanded.

Economic Backdrop

In the financial systems of the developed world, as well as in some unprepared emerging markets, valuations have collapsed.  What’s more, given the news, we expect no change anytime soon, for it will take months for the more than $3.5 trillion in global stimulus packages to take effect. In the meantime, job losses will keep escalating, especially in the United States, since unemployment typically peaks after a recession ends. It is a lagging indicator.  The financial markets typically discount the situation some six months ahead of an actual uptick in the economy.

And in this situation, where many leveraged institutional players were forced to dump the good with the bad, tons of apparently cheap stocks have hit the radar screens of value players have entered the radar screens of value players.  And Google is one of them.

Google, with a forward Price/Earnings (P/E) ratio of only 14.0 and a Price/Earnings to Growth Rate (PEG) ratio of less than one 1.0, is a one-time momentum play that is now a value play. And since it traded at $700 a share a year ago, it appears to be very cheap, and to have most of next year’s economic slowdown already built into its current price. Indeed, it’s quite possible that even if the economy does slow, some or all of Google’s new growth initiatives could generate a revenue or profit surprise.

The shares closed Friday at $262.43.

The company recently beat Wall Street expectations quite handily, with profits for the quarter ended in September rising to $1.35 billion, or $4.24 a share, from $1.07 billion, or $3.38 a share.

Revenue rose 31% from last year, even though it was up only 3% sequentially.

Google is well-managed, is very resourceful and has plenty of maneuvering room. Its managers wisely started controlling costs by reining in expense growth, long the focus of criticism by Wall Street. And it has accelerated the monetization of some of the new initiatives. For instance, even though the economy’s slowdown has weakened consumer spending, competition by advertisers for performance-driven pricing is going to drive pricing-per-click up in the year-end shopping season.

In addition, Google’s vast dominance in its home U.S. market still leaves it room to grow in the rest of the world, including such promising markets as Japan and China, where it lags the market leaders. And the name of the game for global growth next year will be the emerging markets. These economies, even though they have been hit by the global financial crisis, have recently implemented strong stimulus plans, which will create growth opportunities as they take hold.

Google’s afore-mentioned “cloud computing” initiative, which involves having users utilize software and computing resources located in Google’s servers for a fee, as opposed as having to buy and manage their own software, is no longer laughed at: Google has recently achieved gains over Microsoft Corp. (Nasdaq:MSFT), with important enterprise clients adopting some of Google’s e-mail services, and dropping Microsoft Exchange and Outlook.

In an economy where cost-cutting is increasingly important, the opportunity to adopt Google’s lower-priced initiatives becomes increasingly attractive to an ever-growing population of small and medium-sized companies that are looking to control expenses.

Microsoft has responded by launching its own cloud computing initiative, Azure, in order to hedge its bets.  But the tide is turning away from boxed software towards cloud computing, meaning Google is clearly ahead once more.

Finally, Google’s GPhone is 10% cheaper than the rivaling Apple Inc.’s (Nasdaq:AAPL) iPhone, sports an “open architecture,” and emphasizes fast browsing, G-Mail and Google Calendar. This allows for third-party developers to create all sorts of software to run in it.  Web services and search are integrated across applications, allowing users to jump directly from applications into Web search or Google maps. Another advantage is the data plan, starting at only $25 a month.  The GPhone still has some kinks to work out, but in a few months it should be a serious play in the market. [For a view of the Apple iPhone, check out a recent “Buy, Sell or Hold” feature on Apple from Money Morning.]

The bottom line: The temporary slowdown in the rate of ad revenue growth gives us the perfect opportunity to establish a position in Google, at a very attractive valuation, and before the $3.5 trillion worth of global stimulus money starts to work its economic magic. Could Google’s shares tumble more? Sure. Some extreme bears consider $200 as a possibility.  I seriously doubt it could get there.  But we are not going to take the risk.  Determine how much of a position you want to establish. I would buy one-third of the position initially, and then add in on down days, until two-thirds of the position is established by the end of the year. Keep that remaining third ready, just in case we get the low-probability occurrence of seeing it down to $200.

Action to Take: Buy Google Inc. (Nasdaq:GOOG). Buy one third of your position initially, and then add to it on down days, until you complete two thirds of your position by year-end.  Keep the remaining third ready, just in case you get the admitted low-probability occurrence of seeing it down to, or below, the $200-a-share price level.

Source: Buy, Sell or Hold: Google Inc.