Contenders in the Swine Flu Frenzy
Two of the biggest producers of processed poultry and frozen foods in Latin America are worth looking at with increased talks of a merger even as overall demand for meat products lowers with rising pandemic alert levels.
Sadia (SDA) has been struggling with debt (S&P lowered its rating by 3 levels this week as exports drop), but price levels have soared to a five month high after word of a potential takeover from rival Perdigao. (PDA). There are reports that National Bank for Economic and Social Development will fund the merger, increasing the likelihood of the deal.
Gold Infected with Swine Flu?
The swine flu scare maybe be contributing to the fear of an elongated global economic recovery, but its attachment to gold holds little relevance, says Seymour. The price decline (closing Tuesday below the $900 per ounce mark) is always linked to economic activity, and so this isn’t anything out of the ordinary.
There is also a softening demand for gold in India, gold sales were down 8 percent from last year on the Hindu holy day Akshaya Trithya, one of the biggest gold buying days in the country.
As for silver, if the swine flu was in fact slowing production in Mexico (the second largest producer in the world), said Seymour, then prices of silver should actually be going up.
Gold slipped to the lowest it had been in 3 weeks, while silver and platinum were all down significantly from December.
The Baidu Bump
Google may pose an eventual threat to Baidu (BIDU), as it continues to pick up market share to compete with the China’s most used search engine, but Seymour says the Wall Street analysts have been continually wrong in their outlook.
Pali Capital downgraded the stock at $95 and it shot up to $228. It was then upgraded to neutral but fell $8.
The company beat expectations this week with its Q1 earnings report, with revenue up 41 percent year on year to $118.6 million. And it has an equally positive outlook for Q2.
Telecom Pick
Tim says Qualcomm (QCOM) is a good buy, a company which is taking advantage of the increasing demand for and gradual rollout of 3G networks in emerging markets. It gets paid for every handset used, charging royalties for its CDMA chipset technology.
Qualcomm beat expectations in its Q2 earnings report, citing a $289 million loss for the second quarter offset by a settlement in a patent suit with Broadcom.
Deutsche Bank and Germany's Toxic Mess
Deutsche Bank (DB) reported an earnings beat Tuesday with a 1.19 billion-euro ($1.6 billion) profit in the first quarter. Seymour says we knew this was coming – and had guidance, but the big issue was increased loan provisions and ominous statements by CEO Josef Ackerman.
Back in February, Ackermann wouldn’t make any predictions about Q1, but said there was a potential for more “earthquakes.” It was also recently announced that Ackermann would stay on as CEO for another three years, with a backing from Clemens Boersig, the chair of the supervisory board, saying he "steered the Bank safely through the crisis."
Meanwhile, Germany’s publicly-owned Landesbanks are heavily contaminated, and Commerzbank (CBK.DE) is a toxic waste land.
German banks claim about 300 billion euros in toxic assets of the IMF worldwide estimate of 3 trillion euros.
Proportionally to overall assets and the amount of toxic loans, German banks are worse off than American banks, says Seymour.
Bad News for Steel Leaders
Arcellor Mittal (MT) is set to report their second quarterly loss in earnings on Wednesday. They have 36 billion dollars in debt that needs to be refinanced, steel production is not going up, prices are not going up and demand is not going up
Seymour suggests going after Asian an U.S. steel, or taking profits on Brazilian steels and mining ahead of Q1 results. He predicts weaker quarter over quarter earnings and that a combination of low volumes, cost issues, write-offs and management pressure will continue through Q2.
Two companies that should be affected by unanticipated earnings downgrades are Gerdau (GGB) and Usiminas (USIM), which had a very strong Q4.
Green Shoots in Economy are Bamboo Shoots
Seymour predicts Chinese oil refineries will rally under the current conditions, and is bullish on two in particular: Sinopec (SNP) and PetroChina (PTR).
Sinopec, Asia's largest refiner, reported Tuesday that profits rose 85 percent in Q1 due to hikes in domestic fuel prices and a decline in international crude oil prices.
With the government’s interest in cutting price subsidies, less of a burden falls on them.
Final Trade: Mobile TeleSystems (MBT)
