For Immediate Release
Chicago, IL – January 5, 2010 – Zacks Equity Research highlights RadioShack (RSH) as the Bull of the Day and Aetna Inc. (AET) the Bear of the Day. In addition, Zacks Equity Research provides analysis on Citigroup (C), Fannie Mae (FNM) and Freddie Mac (FRE).
Full analysis of all these stocks is available at http://at.zacks.com/?id=5506
Here is a synopsis of all five stocks:
We upgrade our recommendation for RadioShack (RSH) to Outperform based on our assessment that the company is likely to improve its earnings in future reporting quarters as a result of a significant boom in the wireless industry.
The company is generating healthy revenue growth from stronger sales for its Sprint Nextel postpaid wireless business, netbooks and prepaid wireless handsets and airtime. The addition of T-Mobile as a postpaid wireless carrier also contributed to revenue.
RadioShack’s decision to introduce iPhone 3G in all of its stores in 2010 will also boost its top-line. In addition, RadioShack began selling mobile phones in kiosks at about 100 Target stores.
Aetna Inc. (AET) reported third quarter earnings per share of 69 cents, which beat the Zacks Consensus Estimate of 66 cents per share. However, earnings declined 38% compared to $1.12 reported in the prior-year period.
Although revenues increased 9% year over year to $8.72 billion during the quarter, membership has slumped throughout the health insurance sector as employers have cut jobs, thereby leading to a reduction in the number of people covered by employer-sponsored plans.
While we are pleased with Aetna receiving the TRICARE contract, we remain concerned about the current litigation revolving around it. Given these issues, we downgrade the stock to Underperform with a price target of $28.50.
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A Decade of Zeroes
The dollar had soared to new highs, which helped keep inflation low, and was great for our sense of national pride (though not so good for our net exports). The stock market was fully pricing in a very optimistic outlook for the economy and was trading at record high valuations, not just for the tech-heavy Nasdaq, but for the S&P 500 as a whole. The Federal Reserve was warning that our biggest economic problem was that the Federal debt was in danger of being fully paid down, and that would make it difficult for the Fed to conduct monetary policy.
Under the surface, some things had happened that would prove to be extremely harmful. The culture had grown so that entrepreneurs were celebrated above all others, and the feeling was growing that the best thing the government could do for the economy was to get out of the way.
That the game was best played when the refs kept their yellow flags in their pockets. The financial rules were made far less strict under the passage of Graham Leach Bliley and the Commodities Futures Modernization acts. The first largely repealed the Glass-Stiegel separation between banks and investment banks (it had been greatly eroded over time, so in some ways the law was only recognizing and legitimizing the reality of the time). Bob Rubin, who was most responsible for the undermining of Glass-Stiegel at the government end of things before the law was repealed had quit government and gone on to become Vice-Chairman of Citigroup (C), which was at the forefront of the new “financial supermarket” model.
Unemployment never got to horrendous levels in the 2001 recession, but it led to a weak recovery, particularly in terms of net job creation, but the percentage of people in the work force was no longer growing, which helped keep a lid on the unemployment rate.
The low interest rates greatly helped the housing sector. With house prices rising, people were able to tap the new found housing wealth and consume it through refinancing, second mortgages and home equity lines of credit. Housing prices soared, but as they did, a strange thing happened — in aggregate the percentage of equity people had in their homes did not go up. Normally with a leveraged investment, if the price rises, the amount of debt remains the same, so the equity portion soars. In the housing bubble, though, the country was pulling that equity out as fast as it was being created. Since “real estate only goes up” people were using more and more leverage to buy it in the first place, once bought it was used as an ATM machine.
However, as soon as housing prices started to fall, things started to go bad in a very big way. Cash flow problems lead to defaults and foreclosures as soon as the sell or refinance options go away due to falling prices. If you owe more on a home than it is worth, then it is economically rational to simply default on the loan and lose the house.
All the players in the mortgage market, which by this time included every major bank and investment bank, as well as Fannie Mae (FNM) and Freddie Mac (FRE) was standing in front of a tsunami of bad debt. This led to a massive bailout of Wall Street. Had this not occurred, the dominos were all lined up for a cascade of financial failures which would have plunged the world into a second Great Depression.
At the end of last year, the financial system was completely frozen, and even letters of credit were not being honored. That can be more effective in shutting down world trade than a fleet of submarines roaming the oceans and sinking ships. Unfortunately, many of the people who were at the heart of the failures that led to the crisis were the ones who benefited the most from the bailout.
The net result was essentially the worst decade this country has seen economically since the end of WWII. Taken as a whole, there was zero net job creation for the decade. Each of the previous two decades had seen cumulative 20% growth in total payrolls, and even those were slowdowns from earlier postwar decades. Total payrolls expanded by 27% in the 1970’s and by 31% in the 1960’s. Industrial production (as measured by the industrial production index) was unchanged between the beginning and the end of the decade. The average gain for the prior six decades was 49.3%, and the previous worst decade was the 1980’s when the industrial production index gained “only” 20% over the 10-year stretch.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=5507.
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