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Industries on the Move: Brokers and Restaurants Fall While Chip Stocks Surge By Robert Martorana
June 22, 2007 11:00 AM ET
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Bear Stearns Weighs on Brokers
Stocks rose modestly on Thursday after a volatile session, as bond yields
stabilized and oil prices fell slightly. The market is off to a weak opening on Friday
due to rising bond yields and continued problems at Bear Stearns Corp. (BSC | charts | news | PowerRating). Bear Stearns has been stung by losses
at two of its hedge funds that invested in mortgage securities. BSC shares are
off 1.4% in early trading on Friday. The firm has been seeking capital to help
shore up its troubled hedge funds, but falling prices for mortgage securities is
making it challenging for the firm to borrow money right now. So now it appears
that Bear Stearns will assume loans at one of its hedge funds.
This is hurting the
entire brokerage group, as I
discussed on
Thursday. The Investment Brokerage--Regional industry fell 0.5% on Thursday
and this group has a PowerRating (for Industries) of 5. Brokerage stocks
continued to fall in early trading on Friday as problems continue at Bear
Stearns, which has a PowerRating (for Investors) of 7.
Restaurants Sink as Costs Rise
Specialty Eateries were also a laggard on Thursday as rising costs hurt
restaurant stocks. The group fell 2.1% and has a PowerRating (for Industries) of
4. The problems began when Starbucks (SBUX | charts | news | PowerRating)
announced that it will be "challenging" for EPS to reach the high end of
forecasts. Starbucks has a PowerRating (for Investors) of 8, which is
attractive, and its stock fell 3.9% on Thursday.
Higher food costs were also an issue at Sonic
Corp. (SONC | charts | news | PowerRating), and J.M. Smucker. (SJM | charts | news | PowerRating). Both firms reported results on Thursday
and both noted that higher material costs were a headwind for profit growth.
Sonic is also a member of Specialty Eateries, and the stock fell 8.9% on
Thursday. J.M. Smucker reported strong earnings as it slashed costs, and its
stock rose 6.9%. J.M. Smucker also benefited from problems at rivals, so the
latest quarter's growth is probably not sustainable. Sonic has a PowerRating
(for Investors) of 8, while J.M. Smucker has a PowerRating of 10, the highest
rating.
Historic
results show that stocks with high PowerRatings have outperformed the market
averages.
Meanwhile, Chip Stocks Are in the Black
Semiconductor stocks were big winners on Thursday on good news about pricing
for memory chips. Samsung may be holding back chip inventory from the market,
and it has the biggest memory chip business in the world. Samsung makes DRAM for
personal computers, and DRAM has suffered from a capacity glut in 2007.
|
Semiconductor Industry |
% Gain/Loss |
PowerRating (for Industries) |
| Memory Chips |
4.2% |
2 |
| Specialized |
2.9% |
7 |
| Equipment & Materials |
2.7% |
5 |
| Integrated Circuits |
2.6% |
3 |
| Broadline |
2.5% |
4 |
All five industries that make semiconductors were up sharply on Thursday and
are off to a good start on Friday. Memory chips rose the most on
Thursday, with a gain of 4.2%. This makes sense memory chips would get the
biggest relief from a reduction in chip inventories.
Unfortunately, none of these five industries have an attractive PowerRating
(for Industries). Our
quantitative data from 1995 through 1996 has shown that high PowerRatings do
an excellent job of highlighting industries that are poised to beat the market
on an annualized basis.
So despite today's surge in chip stocks, we think long-term investors are
better off looking elsewhere. A good place to start is our list of
Top Rated
Industries.
Rob Martorana is Director of Content
for PowerRatings.net.
Rob was most recently at TheStreet.com as the
Director of Content for Professional Products. Robert has spent 22 years on Wall
Street, and was a portfolio manager and head of U.S. equity research at Barclays
Private Bank. Robert also managed small-cap stocks at Schroder Capital
Management International, was an equity analyst at Vontobel USA, and was an
editor and senior industry analyst for The Value Line Investment Survey.
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