SAN FRANCISCO -- The good news about today's session is there will now be a moratorium, for a few days at least, on the "
10,000" hype revival. The bad news, for those long, is that the negatives continue to mount, and the stock market proved unable to ignore them for a second-straight session.
The Dow Jones Industrial Average fell 1.6%, or 161 points, to 9711.86, while the
shed 1.8% and the
slid 2.5%. The Dow lost 110 points on Tuesday.
At the micro level, the big news today was the collapse of the merger talks between
after major rating agencies cut Enron's debt to junk status. Dynegy slid 12% while Enron fell 85% to 61 cents on the heaviest ever trading day for an individual stock in
New York Stock Exchange
The bigger impact for market proxies was
the fallout for lenders with close ties to Enron.
lost 5.8%, and
, whose financing unit has exposure to Enron, shed 4.2%.
Brokerage firms such as
also fell on the news. The Philadelphia Stock Exchange/KBW bank index slid 3.1%, and the American Stock Exchange brokerage index fell 4.8%.
fell 5.5% after being downgraded to sell by Prudential Securities.
On the macro level, the
beige book survey of economic activity in the 12 regions of the Fed banking system.
The beige book declared that overall U.S. "economic activity generally remained soft in October and the first half of November," which probably isn't surprising. But the report's finding that "additional slowing in most regions
was outweighing signs of recovery in a few districts" proved disconcerting to those betting on the economic recovery scenario.
The message from the beige book and yesterday's comments from Fed governors have rekindled expectations for another rate cut by the Fed at its Dec. 11 meeting; the odds of a 25 basis-point cut have doubled this week to more than 60%, according to the fed fund futures.
Nevertheless, the Treasury bond market failed to make any headway; the price of the benchmark 10-year note fell 6/32, to 100 14/32, its yield rising to 4.94%.
Best Ideas, Continued
Picking up where we left off
last night, today's market action be damned, Aaron Edelheit of Sabre Value Management, whose managed accounts are up more than 20% after fees year to date, offered the following "best ideas."
First, he recommends
, which was spun out of
Ultramar Diamond Shamrock
Like most bulls on the stock, Edelheit believes
acquisition of Ultramar will provide Shamrock Logistics with more opportunities to transport and store refined crude oil products.
Additionally, he likes the company's 6.6% dividend yield and its low debt-to-equity level, currently just 0.09 vs. the industry average of 1.12, according to Media General Financial Services.
Still, UBS Warburg, which has done underwriting for Shamrock Logistics, recently lowered its recommendation to buy from strong buy, citing valuation concerns after the stock's nearly 50% gain since its IPO on April 10.
Second, Edelheit recommends
, which he dubbed "a neat little turnaround story."
The wholesale bakery firm was spun off this year when Flowers Industries sold its interest in
Although the stock has nearly doubled since its debut on March 23, Edelheit argued it is "still cheap." The company is trading about 6.5 times its enterprise value based on his estimate of about $6 per share in earnings before interest, taxes, depreciation and amortization for next year.
Also, he noted that the company should generate about $250 million in free cash flow in the next three to four years.
Though baked goods aren't likely to get most investors salivating (save for
), I'll also point out they are a good play on the so-called "nesting" trend.
Note: Flowers Industries announced a 3-for-2 stock split on Nov. 16 that takes effect on Jan. 2. The split is payable to shareholders of record on Dec. 14, but the firm's shares outstanding will increase from about 19.9 million to 29.8 million so there's a dilution issue to consider.
Additionally, the firm's general counsel and board member G. Anthony Campbell resigned on Nov. 19. The firm said he left to pursue other business interests, but the departure of a high-ranking executive less than a year after the company was spun-off might be a red flag for would-be buyers.
Speaking of red flags, faithful readers of
Herb Greenberg's column will recall that Edelheit is one of the more outspoken shorts on
The fund manager offered two other short ideas,
Estee Lauder's rising inventory -- at over 200 days -- is contributing to a deteriorating cash flow situation, Edelheit contended, noting that the company burned more than $100 million in cash flow from operations last quarter.
Indeed, last month the Center for Financial Research and Analysis cited rising inventories, declining cash flow and declining operating margins in the firm's fiscal fourth quarter among its concerns about Estee Lauder.
However, Estee Lauder has long proved tricky for shorts, and these concerns are "not new news," according to Goldman Sachs, which recommends purchase of the stock "because valuation is very attractive." Goldman has done underwriting for Estee Lauder and has the stock on its recommended list.
Household International, meanwhile, benefited from lower interest rates, but Edelheit believes they will be "squeezed" as rates rise. Additionally, he believes the firm is using "balance sheet machinations" to enhance earnings.
On the other hand, TheStreet.com's
InsiderInsight column recently declared that Household International's insiders "are telling us it's buying time once more."
Once more, these contrasting views demonstrate why recommendations made in this column should be used as a starting-off point for your own research, not as the end of your decision-making process.