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1. eBay Continues to Fade
By Gary Morrow
12:18 p.m. EST
is off more than 2% today after beginning the day with a gap-lower open. The stock has been struggling this month and now looks to head lower over the next few weeks.
This is a sharp reversal from November's closing action. The stock enjoyed very a strong "Cyber Monday" performance, surging more than 5% on heavy trading. eBay followed up with a gap-higher open the next day, extending Monday's short-term breakout. The momentum quickly faded and, by Tuesday's close, the stock was off 2%. Volume was very heavy, with the bulk of it coming once eBay turned south early. By the end of last week, the stock was trading back below its 50-day moving average support.
eBay is now off 5% this week and dropping further below short-term support. I expect the stock to test its November lows near $21.50 before year-end. On the upside, the $23.50-to-$24 area will offer heavy resistance. A push back above this area will need a volume surge like we saw on "Cyber Monday."
2. Kroger Report and the Consumer
By Tim Melvin
10:47 a.m. EST
That was a really awful report out of
this morning. Consumers have gotten so cautious that there is rather fierce price competition, even for staples such as groceries. Lower fuel prices also hit margins, but the main cause of the earnings miss was the competitive environment. The company reported a loss of a $1.35 a share, including write-downs from the Ralphs chain of stores. Excluding those, the grocer earned 27 cents a share, compared with 36 cents a year earlier. The company also cut its outlook for the full year to a range of $1.60-$1.70 from $1.90-$2.00.
Clearly the consumer is still very cautious and cost conscious this holiday season, even on the basic food and supplies they are buying.
3. Refining Margins and Prospective Investors
By Howard Simons
10:31 a.m. EST
Refining margins are rebounding from recent lows as crude oil feedstock prices fall. The wider margins provide a second way for refiners and terminal operators to build and hedge inventories: Sell the refined product slate forward and lock in both an ordinal price level and a process margin level.
As I noted yesterday, this is a trade that works not only for the firms involved in storage, but also for producers, who are pleased with it as well. It allows them to monetize crude oil and forgo the opportunity cost of keeping it in the ground.
By Timothy Collins
9:57 a.m. EST
is up strong this morning on a better-than-expected earnings report, but more importantly due to a "merger" with
, which is a special acquisition company that really holds nothing more than cash. Since TLB is exchanging stock for BPW and its $350 million cash in trust, as well as BPW warrants (and TLB warrants for half of BPW warrants), why don't we call this what it really is: a secondary offering.
Think about it. TLB is exchanging shares to get a company that brings only cash and the ability for TLB to get a revolving line to pay off debt. The good news is TLB will retire stock from one of its largest holders. In reality, this is nothing more than creative financing. As for the big picture, it does greatly improve their current financial position.
I sold some Dec 7.5 puts on TLB for .20, to bring my position from yesterday closer to a pure straddle. I am not closing this position yet. It is down on paper, but the intrinsic value of the short position is currently less than what I sold it for.
Position: Short TLB Dec 7.5 straddles.
5. McDonald's Comps
By Brian Gilmartin
9:43 a.m. EST
reported a November comp that was +0.7%, or pretty much in line with expectations. The U.S. comp was -0.6%, as the U.S. continues to be weak. MCD continues to take share from its competitors, however, by contracting at a slower rate in a shrinking market.
The fascinating aspect of MCD is the free cash flow. Currently, it is sporting a 16% free-cash-flow yield, (that is a whopping percentage), according to a note out of Wedbush. As of the October earnings release, MCD returns 7% of market cap annually to shareholders in the form of share repurchases and dividends.
One of our best performers off of the '03 bottom, MCD is a buy for us again in size near the mid $50s (200 dma) or with a breakout over $66 on volume.
MCD is the proverbial cash cow right now, with a high single-digit, low-double-digit earnings growth rate. That being said, I wonder what the next catalyst is for the stock, given the well known fundamental story. Maybe a special dividend?
Position: Long one client position in MCD, with $22 cost basis from June '03
This article was written by a staff member of RealMoney.com.