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Stock Futures Rise Ahead of Fed Statement

Wed, 10 Feb 2010 07:48:31 EST

NEW YORK (TheStreet) -- Stock futures pointed to a higher open Wednesday, as markets anticipate further information regarding a possible rescue plan for Greece.

Futures for the S&P 500 were higher by 3.1 points at 1069.3 and were 1.68 points above fair value. Futures for the Nasdaq were ahead by 6.5 points and were 5.96 points above fair value.

>>Top Large-Cap Stocks With High Ratings

Stocks recovered the prior session's losses on Tuesday with the Dow back above 10,000 on expectations that a rescue plan is in the works for debt-laden Greece.

Expected at 10 a.m. EST is the release of Federal Reserve Chairman Ben Bernanke's statement on exit strategies. The chairman was scheduled to appear before the House Financial Services Committee, but the hearing was canceled because of inclement weather. Bernanke's testimony, however, will still be released.

Late Tuesday, Walt Disney surpassed first-quarter estimates, and Baidu topped analysts' expectations for its fourth quarter.

In other earnings news, ArcelorMittal swung to a profit of $1.07 billion and said shipments rose 17%.

After the close of trading, the market will receive fourth-quarter earnings from financial services company Prudential Financial and interactive software maker Activision Blizzard, among others.

In other news, Honda widened its U.S. airbag recall to an additional 378,758 vehicles.

Crude oil for March delivery was trading 15 cents higher at $73.90 a barrel, the morning after the American Petroleum Industry said crude inventories rose by 7.2 million barrels in the week ended Feb. 5. The build far surpassed the additional 2 million barrels that analysts polled by Platts had been expecting.

The API's supply data for gasoline and distillates also exceeded analysts' expectations, with gasoline stocks gaining 1.55 million barrels, compared with an anticipated million-barrel increase, and distillates shedding 1.53 million barrels, while projections had been for a larger drawdown of 1.75 million barrels.

The market will have to wait until Friday morning for inventory data from the Energy Information Administration after the report was delayed in anticipation of severe weather.

The greenback rose against a basket of currencies, with the dollar index higher by 0.03%.

The most actively traded April gold contract added $4.10 to trade at $1,081.30 an ounce.

The benchmark 10-year Treasury note strengthened 1/32, diluting the yield to 3.639%.

Overseas, Hong Kong's Hang Seng was higher by 0.7%, and Japan's Nikkei was up by 0.3%. The FTSE in London was 1.1% higher, and the DAX in Frankfurt was ahead by 1.4%.

--Written by Melinda Peer in New York.

Sprint, Mad Catz: Early Volume Plays

Wed, 10 Feb 2010 07:36:02 EST

NEW YORK (TheStreet) -- Several stocks trading near $5 were poised to move on above-average volume during Wednesday's session.

Sprint Nextel was indicated to open lower after the wireless company posted a fourth-quarter loss of 34 cents a share, which was wider than the Thomson Reuters average estimate for a loss of 19 cents a share. Revenue of $7.87 billion was also below estimates. Sprint's total subscriber count fell to 48.1 million from 48.3 million at the end of the third quarter. The three-month average daily volume for Sprint is 56.09 million, according to Yahoo! Finance. The stock closed Tuesday at $3.65 and was down nearly 5% in early trading.

Mad Catz Interactive shares are set to surge Wednesday after the video-game accessories maker swung to a fiscal third-quarter profit of 9 cents a share, reversing the year-ago loss of 49 cents a share. Sales jumped nearly 20% to $48.8 million, the company said. The three-month average daily volume for Mad Catz is 255,000. The stock closed Tuesday at 34 cents and was up roughly 30% in late trading.

Lion's Gate Entertainment is set to open lower Wednesday after the movie and television production company reported a fiscal third-quarter loss of 55 cents a share, compared with the average analyst target of a loss of 23 cents a share. The three-month average daily volume for Lion's Gate is 799,000. Shares closed Tuesday at $5.19 and were down in late trading.

drugstore.com should trade higher after reporting a fourth-quarter loss of 2 cents a share, which matched a two-analyst average, according to Thomson Reuters. Revenue of $117.4 million was above expectations, and the company offered better-than-expected revenue guidance for the first quarter. The 50-day average daily volume for drugstore.com is 387,000, according to the Nasdaq. The stock closed Tuesday at $2.75 and were up nearly 5% in the after-hours session.

Ramtron International shares are poised to rally Wednesday after the semiconductor company notched a fourth-quarter profit of 3 cents a share, which was unchanged from the year-ago quarter. The 50-day average daily volume for is 40,000. Shares finished trading Tuesday at $1.83 and were up 9% in late trading.

-- Written by Robert Holmes in Boston.

Check out all of Wednesday's high-volume, under-$5 stocks at the Dollar Store

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January ETFs Report Card

Wed, 10 Feb 2010 06:05:03 EST

NEW YORK (TheStreet) -- ETF investors stuck with fixed income in January, but they also headed in new directions, thanks to fund launches and pockets of outperformance in an otherwise down month for equity ETFs.

Overall, $19.2 billion flowed out of long-equity ETFs, the bulk of which came from the $16 billion that left SPDR S&P 500 (a reversal of the previous month's inflows). Investors put $2.9 billion into long fixed-income ETFs, with more than a third of which went into one fund.

ETFS Platinum made an auspicious debut on Jan. 8 and attracted over $350 million by the end of the month.

Established ETFs, such as iShares Japan, attracted significantly more capital than in previous months. Still, the top two ETFs for January, in terms of net inflows, were iShares Barclays TIPS and Vanguard MSCI Emerging Markets, two of the consistently popular ETFs of 2009.

Inflation concerns remain paramount in the minds of investors and net inflows into iShares Barclays TIPS were $1.174 billion, the largest single inflow for the month. The fund more than doubled in size between January 2009 and January 2010 and the bulk of that growth came via inflows since TIP gained only 9% over the one-year period. TIP was the sixth largest ETF at the end of January with nearly $20 billion in assets.

Behind TIP was Vanguard MSCI Emerging Markets, with $982 million in net inflows. Emerging market ETFs were not a popular destination in January though, thanks to the big corrections in China and Brazil. VWO was fueled instead by head-to-head competition with iShares MSCI Emerging Markets, which saw the third largest net outflows, at $1.224 billion.

Since January 2009, VWO has quadrupled, from less than $5 billion in assets under management (AUM) to over $19 billion. Over the same period, EEM almost doubled, from $18 billion AUM to $35.5 billion.

ETFS Platinum also may have attracted capital from a competitor, the SPDR Gold Shares. PPLT saw $356 million flow into the fund, and $169 million flowed into ETFS Palladium, also launched last month. Offsetting the more than $500 million flowing into these two ETFs was $776 million flowing out of GLD. Gold prices tumbled in January, but not as much as platinum prices. Some of the flows out of GLD likely went into PPLT and PALL, the first physical platinum and palladium funds offered to U.S. investors, as investors diversified some of their precious metal investments.

iShares MSCI Japan saw $232 million flow into its coffers last month. Although it was a small inflow of $23 million in December, it saw triple-digit outflows in the three previous months and from January 2009 to January 2010, AUM declined very slightly, from $5.15 billion to $5.11 billion.

The inflows came during a month when No. 1 holding Toyota initiated a major recall, but investors were focused on the relatively strong performance from the Japanese stock market and the Japanese yen. EWJ bucked the trend in January and finished with a 1% gain. This may be a one-month anomaly, but it is worth paying attention to.

Other notable inflows were in Vanguard Barclays Total Bond, iPath S&P 500 VIX Short Term Futures ETN, Vanguard Mergent Dividend, iShares Barclays 1-3 Year Credit and Vanguard Morgan Stanley REIT.

Most ETF investors were looking for safety from a declining stock market last month and went with bonds, but some looked to profit from it, with VXX.

On the other side, investors exited iShares FTSE/Xinhua China 25 to the tune of $1.270 billion. China tightened monetary policy last month and the government ordered some banks to halt lending in order to stop a lending spree. FXI is heavily weighted in banks that are the target of the government's policies and performance suffered.

By contrast, Claymore/AlphaShares China Small Cap, which has a small financial allocation, enjoyed $25 million in net inflows and outperformed FXI.

Another outflow leader was PowerShares DB U.S. Dollar Index Bullish Fund , where $1.031 billion exited the fund in January. That reversed much of the $1.766 billion in inflows from the previous month, which came at a time of U.S. dollar strength.

The difference in January was that the U.S. dollar was not so much strong as the euro was weak, and the currency comprises close to 60% of the U.S. dollar index. Despite dollar bulls exiting the ETF, UUP returned 1.6% for the month.

With February starting off the way January ended, investors are making many of the same decisions with their money. However, even if market performance reverses, the trend into fixed income, especially TIPS, and platinum and palladium, will likely continue.

The most interesting fund to watch though may be iShares MSCI Japan, since investors' interest in Japan is very low. If sentiment has started to turn favorable on the country, that would be big news.

January Inflow Leaders

iShares Barclays TIPS, $1.174 billion

Vanguard MSCI Emerging Markets, $982 million

Vanguard Barclays Total Bond, $418 million

iPath S&P 500 VIX Short Term Futures ETN, $386 million

ETFS Platinum, $356 million.

January Outflow Leaders

PowerShares DB US Dollar Index Bullish, -$1.031 billion

PowerShares QQQ, -$1.206 billion

iShares MSCI-Emerging Mkts, -$1.224 billion

iShares FTSE/XINHUA China 25, -$1.270 billion

SPDR S&P 500, -$16.018 billion

-- Written by Don Dion in Williamstown, Mass.

Corporate Governance in Sad Shape

Wed, 10 Feb 2010 06:04:34 EST

A new book documenting how poor the state of corporate governance is in America -- and how it was a major cause of the financial meltdown -- will make you sick.

Money for Nothing, authored by former Lehman Brothers banker John Gillespie and Salon.com founder David Zweig, lays out a compelling case for how CEOs and their minions have subverted the purpose of boards to oversee management and made them their lapdogs.

The book outlines numerous solutions to fix this problem. If they weren't so sensible, they might have a chance of being implemented.

We've now lived through two different stock market crashes in the last decade, and we learned each time in retrospect how poor a job boards did to protect the companies they served.

We thought we learned our lesson after Enron and Worldcom when Sarbanes-Oxley was implemented in part to improve corporate governance.

But, if taking your shoes off for TSA screeners is "security theater" designed to make us feel safer -- even if we're not -- Sarbanes-Oxley was the governance equivalent.

The stories of poor governance that fill the book would make you laugh, if they didn't cause you to be outraged.

Gillespie and Zweig discuss former Merrill Lynch CEO Stan O'Neal, who eliminated anyone from his board and management team who disagreed with him. Instead, he packed eight of the 10 directors with his friends, including John Finnegan, a friend of O'Neal's for 20 years who headed the Merrill compensation committee, and Alberto Cribiore, who had once tried to hire O'Neal and who was also put on the compensation committee.

O'Neal was ousted in October 2007, after initiating secret merger talks with Wachovia that would have resulted in a $274 million payout to O'Neal and ramping up Merrill's CDO exposure from $1 billion to $40 billion in 18 months. O'Neal was rewarded with a $162 million golden parachute by his board.

Other shocking tales from the book include Rick Wagoner, former CEO of General Motors. As late as August 2008 following a $16 billion quarterly loss, GM's chairman, George Fisher, praised Wagoner: "Rick has the unified support of the entire board to a person. We are absolutely convinced we have the right team under Rick Wagoner's leadership to get us through these difficult times and to a brighter future."

Wagoner told a reporter his view on his board: "I get good support from the board. We say 'Here's what we're going to do and here's the time frame,' and they say, 'Let us know how it comes out.' " Some estimate the final bill to the U.S. taxpayer for the GM bailout, once they emerge from bankruptcy, will be $50 billion.

The authors describe how the board of Chicago-based media company Hollinger International approved lavish spending in 2004 by its now-imprisoned CEO Conrad Black. They included:

"Summer drinks" for Black and his wife in the amount of $24,950;
A birthday party for Black's wife for $42,870;
Three dinners for Henry Kissinger (a Hollinger director) and his wife for $28,480;
A Rolls-Royce for $90,000;
Staff for the Blacks' personal residences for $1.4 million;
A collection of Franklin Roosevelt memorabilia (Black is a history buff and later wrote a book on FDR) for $8.9 million;
Corporate donations for $6.5 million.

Shareholders for Hollinger, which went bankrupt in 2009, paid for all these expenses.

My favorite story of lax board oversight in the book is Shaw Group, a $3 billion market capitalization engineering firm in Louisiana that provided a "golden coffin" provision for its chairman J. M. Bernhard Jr.

His estate will get an estimated $38 million on his death, plus an additional $15 million, as long as he "will not compete with Shaw Group after his employment is terminated, whether by death or otherwise." That's right: as long as he doesn't compete with Shaw after he dies, his estate gets $53 million from Shaw's shareholders.

Money for Nothing also documents how CEOs routinely select sports stars and celebrities to serve on their boards -- unqualified by anyone's standards and also unlikely to rock the boat against the CEO's wishes.

O.J. Simpson served on the audit committee of Infinity Broadcasting before he was arrested for murder. Ex-NFL quarterback Fran Tarkington was on the audit committee for Coca-Cola Enterprises before it came to light that another company he ran had an $8 million accounting fraud. Cyclist Lance Armstrong was forced to leave the Morgans Hotel Group board in 2008 after he had missed every one of the 11 board meetings the previous year (although he still kept $71,644 in cash and stock).

The authors have many sound suggestions for how to improve these transgressions. They include:

Opening up the process for nominating directors to more candidates;
Establishing a higher bar for who is qualified to serve as a director on public company boards
Imposing term limits on directors;
Limiting directors to serving on three or fewer boards;
Requiring directors to put some real skin in the game by buying meaningful amounts of company stock before serving;
Allowing shareholders to call Extraordinary General Meetings to replace incumbent directors (as is the case in the UK and Canada);
Establish risk committees for all companies

Although I agree with all these prescriptions, I'm troubled that we're now almost two years removed from Bear Stearns' failure and no real change has occurred to make U.S. boards more accountable to shareholders.

Although Mary Schapiro came in to head up the SEC with promises that her tenure would be much different from her predecessor, corporate boards continue to operate as they always have. Schapiro promised to give shareholders more access to nominate directors to corporate proxies but this effort has been delayed and watered down.

If you can't muster the will to change the way boards operate after what's happened in the last five years, what has to happen in order to change the status quo?

Bank Stocks That Pay Outsized Dividends

Wed, 10 Feb 2010 05:00:00 EST

(The following story is the last in a two-part series on bank and thrift stocks that outperformed their peers last year and still pay attractive dividends. Three bank stocks were featured yesterday.)

NEW YORK (TheStreet) -- Bank shares, as measured by the S&P 500 Regional Banks Index, have soared 142% since the stock-market low in early March, leaving companies with skinny dividends.

Following an earlier look at three bank stocks with outsized dividends, published in November, this expanded list features more conservative measures, excluding companies whose dividend payouts exceeded their 2009 net income.

The group was pared further by leaving out current participants in the Troubled Asset Relief Program, or TARP. Thinly traded names were also avoided, as were those with a Texas ratio of more than 20%. (The Texas ratio is nonperforming loans/core capital and loan-loss reserves.)

Yesterday's story featured New York Community Bancorp, United Bankshares and OceanFirst Financial.

OceanFirst Financial

OceanFirst Financial, based in Toms River, N.J., is yielding about 4.8% after the company cut its quarterly dividend to 12 cents from 20 cents. (See TheStreet.com's Banks to Watch After TARP Redemption for a discussion of the company's fourth-quarter earnings and prospects.)

Renasant Corp.

Renasant Corp., based in Tupelo, Miss., had assets of $3.6 billion as of Dec. 31. Based on a quarterly dividend of 17 cents, the shares yield 4.73%.

While its Dec. 31 nonperforming-asset ratio of 2.98% was the highest on the list, Renasant's Texas ratio was a moderate 15.15%, because more than half of the nonperforming assets were repossessed real estate.

Looking deeper at asset quality, the ratio of net charge-offs to total loans for 2009 was 0.91%, with the pace peaking at 1.12% in the third quarter and slowing to 0.83% in the fourth quarter. Loan-loss reserves covered 1.67% of total loans as of Dec. 31. Fourth-quarter net income fell to $4 million, or 19 cents a share, from $4.3 million, or 20 cents, in the third quarter but vastly improving from the fourth quarter of 2009, when the company reported a slight profit. Renasant took a "kitchen sink" approach in covering and preparing for future charge-offs by setting aside a $15 million provision for loan-loss reserves.

For 2009, net income was $18.5 million, or 87 cents a share, down from $24.1 million, or $1.14, in 2008. The company's return on average assets for 2009 was the weakest on the list, at 0.50%.

But there are silver linings. The shares are selling for just 0.7 times book value. Since the company doesn't face pressure to raise capital, has remained profitable and meets our other criteria -- including earning enough to comfortably support its attractive dividend -- Renasant looks like a great way to get paid while you wait for the shares to rise.

Hudson City Bancorp

Shares of Hudson City Bancorp , based in Paramus, N.J., pays a 15-cent quarterly dividend with a yield of 4.65%.

The company has prospered through the credit crisis, with its "nothing fancy" approach to mortgage lending. Earnings last year were flat, and there were minimal loan losses.

The company reported a strong fourth quarter. It earned $137 million, or 28 cents a share, up from $135 million, or 27 cents, in the third quarter and $124 million, or 25 cents, a year earlier.

Hudson City's net interest margin widened to 2.3% in the fourth quarter, but there's still room for improvement, considering the aggregate margin for the thrift industry in the third quarter was 3.21%, according to SNL. The shares have been flat since TheStreet.com featured Hudson City in our series on banks primed for growth and are selling for 1.2 times book value and 12 times 2009 earnings of $1.07 a share.

Considering that the shares were going for 16 times earnings at the end of 2008 and 24 times earnings at the end of 2007, an investment in Hudson City could easily double over the next two years, while you get paid handsomely to wait.

-- Reported by Phil van Doorn in Jupiter, Fla.

Analyst Love for Brocade Not Enough

Wed, 10 Feb 2010 05:00:00 EST

NEW YORK (TheStreet) - - Tech reporter James Rogers points out the positive reports from analysts on Brocade, but the stock doesn't respond.