All stock market averages fell last week, with the exception of the NYSE Healthcare Index and NASDAQ’s Insurance Index. The Dow Jones Average was off almost 194 points to close at 12606. The S&P 500 was off 11 points to 1401 and the NASDAQ Composite dropped 65 points to close at 2440.
The market internals looked worse than these aggregates. The number of new lows (2,081) were a whopping 7-times the number of new highs (267). Down-volume on all exchanges was 25% more than up-volume and of the 8,333 issues traded on the three major stock exchanges, issues trading down outnumbered issues trading up by a 5-to-3 margin (4,772 down; 3,432 up; 129 unchanged). (Check out the market tables at the end of this article.)
In our Daily Views articles from last week, we briefly revisit three — Mastercard (MA: $179.17; MV: $24 B) and two gold stocks, Yamana Gold (AUY: $16.40; MV: $6 B) and Kinross Gold (KCG: $23.02; MV: $14 B). Gold is likely to remain an area of active investor interest, all year long. An ounce for February delivery jumped to $900.10 on the New York Mercantile Exchange Friday morning, finally settling at $898.70.
There are two fundamental factors at work in this current gold-boom market that are likely to propel the price of gold beyond normally anticipated levels. First, Gold is quoted in US Dollars. As the dollar continues to depreciate against almost all other major currencies, that ounce of gold quoted in US Dollars is relatively cheaper to an overseas buyer than a US buyer. Second, ETF’s that specialize in gold speculation are required to hold actual gold bullion to back up their shares.
The percentage gains in gold stocks are usually greater than the percentage gains in the price of an ounce of gold. At the moment, most industry observers mirror Jon Nadler, an analyst with Kitco Bullion Dealers in Montreal, whose firm forecasts a trading range of $750 to $950 an ounce. While no one is sticking their neck out, yet, the $1,000 technical barrier in the price of gold appears certain to be pierced, in which case both Yamana and Kinross could see significantly higher stock prices.
The other big news last week was that US jobs growth came to a virtual halt in December. American Express (AXP: $44.00; MV: $51 B) soon followed on that news to announce it expected higher credit card payment delinquencies, reserving $440 million, and that its 84 million member card holders demonstrated reduced spending patterns in December. American Express lost $6 billion in market value since then, but the more interesting strategy was selling Mastercard short.
In fact, Mastercard was off 21 last week to close at $179.17. Shortly afterward, it was disclosed that Fidelity Management & Research reduced its holdings of Mastercard to 5.2% of issued shares, down from a 10% shareholding in January 2007. The analytical genesis for this strategy was the aggressive price-times-sales ratio for Mastercard (7 times sales), versus 2 times sales for American Express, and 1.5 times for Discover (DFS: $13.73; MV: $6.6 B). The number of shares sold short for Mastercard, as of December, was 12 million, or 9% of the 131 million issued versus 1% – 2% for American Express and Discover. So this is not a new discovery.
Nevertheless, any news in the week ahead from Mastercard on credit losses á la American Express, and rather than losing $21 in stock price for the week, as Mastercard did, it could lose $21 in a day. Moreover, with so many banks reporting fourth quarter earnings in the week ahead (Citigroup and US Bank on Tuesday; JPMorgan and Wells Fargo on Wednesday), this would be the week to let any unfavorable news seep out to shareholders. There is sure to be more of it. Stated another way, Mastercard is in a danger zone where more can go wrong than right in the weeks ahead. If you own it, time to give the stock a rest.
Last week featured JPMorgan’s big healthcare conference. The Biotech funds in attendance reported some developments that might be useful — Biotech Funds are now perceived as the same risk-class as emerging market funds, where returns have been better. Two stocks at the conference received SRO attendance, ZymoGenetics (ZGEN: $11.99; MV: $ 821 mm) and Seattle Genetics (SGEN: $11.69; MV: $ 788 mm). The Mederex (MEDX: $10.42; MV: $ 1.3 B) presentation was poorly attended.
In the vein of new names in emerging markets, taking a cue from the JPMorgan conference, here are three that have recently been showcased (i) Flughafen Wien (FLU.Austria: $11.00) whose business is operating the Vienna International Airport; (ii) Gemina (GEM.Italy: $11.00), operator of the Rome Airport; and (iii) Kangwon Land (035250.SouthKorea: $11.00), operator of South Korea’s only legal casino.
In a Special Edition later this week, we’ll present a thumbnail analysis of which of these we’d rank the best investment of the three.
In conclusion, here are the internal market stats for the week ended January 11th —
Let us hear your thoughts below: