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1. CAT Calls
2/4/2009 2:08 PM EST
is seeing heavy options activity as its stock trades moderately higher today. Calls outnumber puts by a 3-1 ratio and are concentrated at the February 33 strike, where contracts were bought for 77 cents, 80 cents and 81 cents. Some May 40 calls also traded for 88 cents, according to OptionMonster's real-time tracking systems.
CAT is up some 3% to about $31 this afternoon on fairly strong volume, but the construction equipment giant has been steadily declining since the first trading day of the year, when it closed at $46.91. The shares were hit particularly hard after Caterpillar released a dismal earnings report on Monday of last week, which had been preceded by bearish options action.
2. China and Commodities: The New Early Cycle
2/4/2009 9:58 AM EST
Cramer is so right with his China call. And, since China is the driver of so many commodities, it makes them the early cycle recovery plays.
It's still popular to like the U.S. early cycle stocks under the "first in, first out" theory. That is so last cycle. As bad as it is, the paring in retail and consumer durable consumption is still in the very early innings of the game. Many theme investors don't grasp that.
We know two things. The U.S. consumer will consume a lot less over the next five years. The Chinese consumer will consume a lot more of the same period. This makes China the driver for any incremental commodity demand. Should it occur, commodity prices will be the first to show it.
Today, the world's biggest mining company said iron ore inventories in China have dropped significantly. And spot iron prices have recovered strongly. Commodities are the new early cycle stocks in the global economic recovery/reflation play, not U.S. housing/auto/retail as many old-timers believe.
3. Time Warner: Relatively OK but Not Great
2/4/2009 9:48 AM EST
had a great quarter. This is mostly due to the fact that in the current economic environment, TWX has a better mix of assets.
2009 guidance looks good compared with my model, but at an operating level, I was below the Street. The company is calling for "about flat" results. However, if I understand the guidance correctly, it is unadjusted for one-time items. Guidance on one-time items at AOL is mentioned, but the total is a lot less than in 2008 on a corporate basis. Thus, it appears the flat guidance is against an easier-than-expected comparison and implies slightly down operating income in 2009.
This should be the issue on the conference call. Even slightly down is good for a media stock, however, so for now, my opinion remains that TWX is the best relative play among mega-cap media for 2009. The market seems to agree with me so far, as DIS is down 6% and TWX down 1% after opening down 5%.
4. Allos Therapeutics
2/4/2009 8:20 AM EST
to any "could be acquired soon" list of small bio/drug stocks.
Last night, Allos reported a 9.4-month median duration of response for patients treated with its experimental blood cancer drug pralatrexate. That's very robust. Coupled with a previously reported 27% response rate, pralatrexate would fit in well inside a larger hematology/oncology-focused drug company.
These types of drugs (and the companies that develop them) tend to be bought up. Here's a list of recently acquired hem-onc drug companies: Corixa, Ilex Oncology, Pharmion, Salmedix, MGI Pharma, Millennium, Xanthus, Anormed, and Bioenvision.
I think Allos stands a good chance of being added to that list.
5. P&G Still Spending
2/4/2009 7:34 AM EST
Monday's daily email from
All Things Digital
had an interesting tidbit on the advertising market.
Procter & Gamble
is the largest U.S. advertiser, and CEO A.G. Lafley was quoted as follows from last week's earnings call:
We have held our marketing spending, advertising spending and in fact what is really going on is the advertising markets are softening and for the same dollar we are buying more delivery... we have been shifting support in general to the store and the point of purchase... It is couponing in markets where couponing is a well established consumer habit and coupon redemptions go up in recessionary times. In markets like the U.S. we have clearly shifted dollars to coupons...Then depending on the market we are doing more digital and there are a number of categories that are doing quite well with the digital.
On the one hand, this is positive for ad-supported media, as it reminds investors that there is a reason to keep spending to support brands, products and services even as volumes soften. However, it seems quite clear that PG is able to get the same amount of exposure in offline media like TV and radio by spending less, because the price per spot they are paying has fallen. $100 million might have bought X minutes early in 2008. In 2009, the price of those spots might be down 10%-20%, so PG can spend $10 million to $20 million less on the same campaign and still get X minutes and the same reach.
Those dollars appear to be getting redirected to coupons and digital campaigns. The shift to coupons is cyclical, but the shift to digital is cyclical and secular.
Overall, the picture for advertising remains bleak and still has not bottomed on a cyclical basis. The only thing an investor can do is look for pockets of relative strength. Digital (
decent report) and possibly cable networks (we hear from Disney, Time Warner,
this week) represent relative strength.
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This article was written by a staff member of RealMoney.com.