FOCUS ON THE 15: Key 15 falls after fitful week for stock market

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By Jim Victor | Saturday, July 05, 2008 |

Conflicted investors continued to push and pull stock markets last week. Healthy news from some quarters, weakening reports from others, and continued media reports of $4 gasoline kept investors on edge. Heading into July was no different, with both reported improvement in the manufacturing outlook and a record-high oil price greeting them the same day. In the week of conflicted investors, our Quad-City Times Key 15 fell 40.15 to 1,187.10.

First, the manufacturing report: The purchasing managers index climbed from 49.6 in May to 50.2 in June. That is a 50.2 percent majority showing rising purchasing activity in the buying of parts and supplies for manufacturing. The Institute of Supply Management index is a closely watched forward-looking barometer because those purchases today are for manufacturing use of those supplies tomorrow. Exports are doing well for the U.S., helped by a lesser-valued dollar, and their report cited strong export orders index as well. But, their input prices index leaped because oil prices have increased. So, the manufacturing good news is conflicted.

Semiconductors are the basic building blocks of everything electronic these days. The Semiconductor Industry Association report showing worldwide sales up 7.5 percent in May over the same period last year makes another positive statement. They credit strong sales of consumer electronics products, such as cell phones, video games, personal computers and portable music devices. Excluding memory products, where prices have fallen steeply, the remaining semiconductor categories have logged a 12.3 percent year-over-year sales increase.

Auto sales in the U.S. tumbled as buyers awaited the next move on gasoline prices. Industry-wide sales of U.S. made models fell 18 percent in June, according to the Big Three. That’s poor, but better than analysts’ expectations, contributing again to a conflicted view.

Isle of Capri, whose Davenport gaming boat just reopened after a forced closing due to flooding, posted quarterly results. Revenues rose and profits declined. Their fourth quarter revenues surged a healthy 17.7 percent to $298.3 million. But, their net loss per share deepened from 43 cents one year ago to $1.66 in the recent quarter. What happened? Isle suffered a “pre-tax impairment charge” of $1.60 per share net of income taxes relating to their operations in the United Kingdom. Excluding that charge, Isle saw considerable improvement. Flooding-related closures in Natchez and Davenport were mentioned. The upcoming re-branding of Davenport to the Lady Luck name was also discussed. Isle of Capri shares finished .94 lower at 4.23.

Tyson Foods endured area flooding as well, with closures in Columbus Junction caused by the confluence of two flooding rivers, the Iowa and the Cedar. But, Tyson was talking global expansion last week, announcing their purchase of a 51 percent ownership stake of Godrej Foods, Ltd., based in Mumbai, India. Expecting to see their annual sales in the $50 million range, Tyson says these operations primarily involve two sizable chicken production facilities, with a total production capacity of 60,000 birds per day. Tyson shares were off .29 at 14.35.

Corporate earnings reports for most corporations will be released in coming weeks. With extensive operations here, ALCOA (a) (b) is always among the first to report. ALCOA’s profit announcement is scheduled for Tuesday morning, with a consensus of analysts now expecting 69 cents per share profit compared to 81 cents one year earlier. Each of these upcoming reports promises to be more than just history, most will include insight into their industry and overall economic trends. Some will include their own forecast. For these reasons, ALCOA and others have the opportunity to explain and, maybe, help conflicted investors. ALCOA shares lost 2.60 to 32.78 last week.

Two economic reports also may shape opinion this week. Tuesday’s consumer credit report will tally how much debt we’ve used to buy anything. Friday’s international trade report will be highly regarded: the last Commerce Department report showed that amazing 19.2 percent year over year increase in exports, helping American manufacturers. Look ahead.

Jim Victor is senior vice president-wealth management and financial advisor for Smith Barney, Davenport. Smith Barney is a division and service mark of Citigroup Global Markets Inc. and its affiliates and is used and registered throughout the world. The information contained herein has been obtained by the writer from sources believed to be reliable, but he does not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. a) The firm is a market maker in the publicly traded equity securities of this company. b) Within the past 3 years, Citigroup or its affiliates has acted as manager or co-manager of a public offering of securities of this company.