Wednesday, November 07, 2007

Paperstand (GM, MS, AIG, )

According to the WSJ, General Motors (GM) will take a $39bn, noncash charge to write down deferred-tax credits, a signal that it expects to continue to struggle financially despite significant restructuring and cost cutting in the past 2ys. GM was to report 3Q results today.

“Heard on the Street” column reports that 2 analysts are projecting Morgan Stanley (MS) may take a 4Q write-down of $3-6bn. David Trone, of Fox-Pitt, projected the possible write-downs at $4-6bn, Mike Mayo, of Deutsche Bank, $3-4bn. While the firm may not have underwritten as many CDOs, Morgan Stanley may have been involved in transactions with other firms that left it with exposure to CDO risks. Such proprietary trading with the firm's own money already cost the firm $480m on money-losing quantitative stock trading in the 3Q, with $390m in losses occurring on a single day in Aug. Asked by a CNBC reporter Mon about possible 4Q write-downs, Morgan Stanley CEO John Mack indicated he expected numerous firms would report such hits b/c mkt prices have declined. But he wouldn't address specifics about Morgan Stanley.

“Ahead of the Tape” column discusses American International Group (AIG), saying that investors are worried about co’s exposure to the subprime mortgage mkt. They might want to redirect their attention. AIG acts as a mortgage investor and lender, and as a seller of mortgage insurance. But its subprime exposures look contained. The 3Q earnings the co reports after the mkt closes today could show its core insurance businesses face many other challenges. The report comes 5 days after former chief Maurice R. "Hank" Greenberg declared his interest in "strategic alternatives" for the firm. He controls a hoard of AIG shares and seems to want to shake things up. Competition is also intense abroad, which can cut into profits in places with greater growth potential than a mature insurance mkt like the US. In Japan, domestic and foreign insurers, AIG included, are scrambling to serve the life insurance and retirement needs of a wealthy, aging population. Then there's the threat posed by natural catastrophes. 2ys of benign hurricane seasons have helped boost insurer profits, but a massive event could be costly. For the 3Q05, when Hurricane Katrina hit, AIG reported a 36% drop in net income.

Also, “Ahead of the Tape” discusses Cisco (CSCO), saying that if history is any guide, Cisco will put up strong earnings numbers today. And its stock could still drop. Cisco has beat the Street's qrtrly forecasts 88% of the time in the past 6ys, not once posting results below expectations. Consistency leads to high hopes among investors, who are prone to diving out of the stock on even slight missteps. Over that 6yr period, the stock has finished the trading day following the report below water 46% of the time.

“Inside Track” section out saying that stock sales by the top brass of Burlington Northern Santa Fe (BNI) are a cause for concern, but investors who plan to be on board for the long haul should pay more attention to stock purchases by investing guru Warren Buffett of Berkshire Hathaway (BRKA). Burlington Northern Chmn and CEO Matthew Rose, CFO Thomas Hund and COO Carl Ice recently reported selling 122K shares for $10.5m. "I think these guys taking profits could mean the short-term outlook is looking fuzzy," said Ben Silverman, of "If you look at mgmt comments recently...this makes sense."

Barron’s Online highlights Abbott Labs (ABT), saying that Wall St. seems to have started warming up again to the co. It has, however, been a gradual thaw. Up 13% over the last 12mo’s due to expectations surrounding Abbott's experimental Xience V heart stent, Abbott has been hit by recent concerns that the FDA could delay approving the device next year, curtailing profit growth. Yet Abbott's earnings could climb substantially in ‘08, even if Xience gets held up by regulators, thanks to rising sales of Abbott's blockbuster rheumatoid arthritis drug, Humira and new drug launches. "The story surrounding Abbott and its stock is not going to break apart if FDA approval of Xience gets pushed back 6mo’s or so," says David Heupel, of Thrivent Investment Mgmt.

“Inside Scoop” section reports that 3 insiders at Under Armour (UA) have sold $142m in stock. On Thu founder, President and CEO Kevin Plank and his family foundation and trusts sold 1.5m class A shares for $88.5m. He continues to own 12.5m class B shares of the co, or 25.7% of Under Armour's outstanding shares. Class B shares don't trade publicly but can be converted to publicly traded class A shares on a 1-to-1 basis. Plank converted class B shares to class A as part of the sale. On the same day, two senior vice presidents also sold stock. Considering their large holdings, "these insiders can't be accused of running for the exits," says Jonathan Moreland, of Ladenburg Thalmann Asset Mgmt. "Still, given that they are all selling at the same time, at a time when analysts are downgrading the co, it's enough to make investors a bit concerned."

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