AU Optronics Corp. - An Attractive Trade

AU Optronics Corp. (AUO) designs, develops, manufactures, assembles and markets flat panel displays. The Company's principal products are thin-film transistor liquid crystal display (TFT-LCD) panels. Its panels are used in computer products, such as notebook computers and desktop monitors; consumer electronics products, such as digital cameras, digital camcorder, car television, car navigation systems and portable digital versatile disc (DVD) players, and liquid crystal display (LCD) televisions. It offers small to medium-size panels, as well as large-size panels. AU Optronics Corp. sells its panels primarily to original equipment manufacturing service providers.

Recent News
Share price of AUO were higher March 20 after Jefferies & Co.’s Brian White launched coverage of the company with a Buy rating and $25 price target. White says the LCD panel market will be “tight” this year, following “capacity underinvestment in recent years.” He says recent visits with Taiwanese LCD panel makers lead him to conclude that “the LCD panel environment will be tight in 2008 and pricing reasonable." He says AUO is headed for “another year of record sales and profits.” He sees EPS of $2.79 this year and $3.11 in 2009. That certainly makes the stock look cheap: at current levels the shares trade for under 7x 2008 estimates. “AU Optronics is one of the most inexpensive stocks in our coverage universe,” he writes, “yet the company’s growth trends and profit metrics are currently among the highest.”

AU Optronics (AUO) has dismissed a Taiwan newspaper report that claims Sony is shifting some of its TV panel orders from the Taiwan-based LCD panel maker to its Japanese competitor Sharp. The share price of AUO dropped on March 24 in contrast to a large overall rise in the Taiwan stock market. The paper said investors were selling AUO shares on the possibility of Sony shifting orders.

Shares of AU Optronics Corp. dropped again on March 26 after television maker Jabil Circuit Inc. guided its third quarter below Wall Street's expectations. Jefferies & Co. analyst Brian White said news from Jabil - which uses LCD panels when making TVs, among many other products - could likely hurt shares of AU Optronics and competitor Corning Inc. "We continue to believe investors should remain selective when investing within the electronics supply chain in 2008 in light of a concerning economic environment and volatile demand trends," White said in a note to clients. Yet demand for LCD products will likely grow, said White, who increased his industry forecast. He now expects 2008 LCD glass shipments of 2.23 billion square feet, or 27 percent growth compared with a previous 23 percent growth expectation. Visits to Taiwanese plants helped formulate the bullish outlook, White said.

Quick Technical Analysis

• Relative Strength Index (RSI) is at 40.60, (entering slightly oversold zone)
  
• Slow Stochastics is at 27.60, (almost oversold)
  
• Money Flow Index (MFI) is at 48.91 and
  
• 50-Day Moving Avg (DMA) is 17.77.

Current Price: $17.04
Entry Price: $16.00 (price which has been good support + oversold RSI indicator)
Exit Price: $17.60 (just below the 50-DMA)
Gain = 10% Profit

Conclusion: All the current information makes AUO an attractive trade at $16.

Source: Google Finance

New Home Sales: Why Do Investors Care

New home sales measure the number of newly constructed homes with a committed sale during the month. The level of new home sales indicates housing market trends and, in turn, economic momentum and consumer purchases of furniture and appliances.

Why Do Investors Care?
This provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as new home sales, investors can gain specific investment ideas as well as broad guidance for managing a portfolio. Each time the construction of a new home begins, it translates to more construction jobs, and income which will be pumped back into the economy. Once the home is sold, it generates revenues for the home builder and the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items new home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month. Since the economic backdrop is the most pervasive influence on financial markets, new home sales have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the new home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.

Current New Home Sales Data
Sales of new homes fell in February for the fourth straight month, pushing activity down to a 13-year low. While the rate of decline has slowed, the worst slump in more than two decades has not run its course, analysts said.

The 1.8 percent drop sent the annual sales rate down to 590,000 units in February. That was the slowest pace since February 1995 and down 57.5 percent from the sales peak of 1.389 million units in July 2005. The median price of a home sold last month dropped to $244,100, 2.7 percent less than the level of a year ago. The median sales price is the point where half the homes sold for more and half for less.

A closely watched gauge of existing home prices, the S&P/Case-Shiller Index, reported recently that 16 of 20 major cities had record annual price declines in January compared with a year ago.

A separate report Monday showed that sales of existing homes posted an increase of 2.9 percent in February, the first gain after six months of declines. Nonetheless, analysts said they do not expect a sustained rebound for many months in the market for resales or new homes, primarily because the number of unsold homes is so high.

The report on new homes showed the number of unsold homes on the market at the end of the month was a 9.8 months' supply at the February sales pace, matching the 26-year high set in January.

Builders have cut construction and offered heavy discounts. Such efforts have been offset by record mortgage defaults, dumping even more homes on the market.

Analysts said buyers' demand remains weak heading into the spring sales season. Among the reasons are difficulty in getting loans because of tighter standards and potential buyers' hesitancy to commit to a purchase in an environment of falling prices.

Sales of new homes dropped the most in the Northeast, by 40.6 percent, and fell 6.4 percent in the Midwest. Sales rose 5.7 percent in the South and 0.7 percent in the West.

The two-year slump in housing has depressed overall economic growth. The government will provide its last look at economic growth in the final three months of 2007. Many economists believe that report will show the gross domestic product edged up by a barely discernible 0.6 percent from October through December. Many analysts believe GDP growth may have dipped into negative territory from January through March, which would be the strongest signal yet that the country has slid into a recession.

The worry is that the slumping economy and rising unemployment will make it more difficult for housing to mount a sustained rebound in the second half of the year.

Source: Bloomberg, ET

Durable Good Orders: Why Do Investors Care

Durable goods orders reflect the new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods.

Why Do Investors Care?
Investors want to keep their finger on the pulse of the economy because it usually dictates how various types of investments will perform. Rising equity prices thrive on growing corporate profits - which in turn stem from healthy economic growth. Healthy economic growth is not necessarily a negative for the bond market, but bond investors are highly sensitive to inflationary pressures. When the economy is growing too quickly and can't meet demand, it can pave the road for inflation. By tracking economic data such durable goods orders, investors will know what the economic backdrop is for these markets and their portfolios.

Orders for durable goods show how busy factories will be in the months to come, as manufacturers work to fill those orders. The data not only provide insight to demand for items such as refrigerators and cars, but also business investment such as industrial machinery, electrical machinery and computers. If companies commit to spending more on equipment and other capital, they are obviously experiencing sustainable growth in their business. Increased expenditures on investment goods set the stage for greater productive capacity in the country and reduces the prospects for inflation.

Durable goods orders tell investors what to expect from the manufacturing sector, a major component of the economy, and therefore a major influence on their investments.

Current Durable Good Orders Data
Orders for U.S. durable goods unexpectedly fell in February, led by a slump in demand for machinery, as the housing downturn and the prospect of a recession made companies hesitant to invest.

The 1.7% drop in demand for products made to last at least three years followed a 4.7% decrease in the prior month. Businesses are cutting equipment purchases as the biggest housing decline in a quarter century hurts sales, and rising fuel costs erode profit. Only exports are preventing manufacturing from declining even more. Economists at Morgan Stanley now predict the economy will shrink at an annual rate of 0.7% in the first quarter, from a previous forecast for a 0.4% contraction. This lead the Dow Jones Industrial Average to decline by 0.9% to 12,422.9.

Economists projected orders would rise 0.7%, after a previously reported 5.3% slump in January. Excluding orders for transportation equipment, which tend to be volatile, bookings fell 2.6%, the most since January 2007.

The slump in orders was paced by a 13% decline in demand for machinery that was the biggest since comparable records began in 1992. Bookings for non-defense capital goods excluding aircraft, a proxy for future business investment, decreased 2.6%, the most since October. Shipments of those items, used in calculating gross domestic product, dropped 2.1%, the most since January 2007. Orders excluding defense equipment decreased 1.6 percent and bookings for military gear dropped 10 percent.

February Details

• Orders for core capital equipment -- that is, nondefense, nonaircraft capital equipment -- fell 2.6%. Shipments fell 2.1%.
• Orders for transportation goods rose 0.6%, as defense aircraft rose 4.3% but motor vehicles fell 2.7%. Shipments of transportation goods fell 4.1%.
• Orders for electronics rose 2.3%. Shipments fell a record 10.3%.
• Orders for machinery dropped a record 13.3%. Shipments rose 3.1%.
• Orders for electrical equipment rose 1.6%. Shipments fell 1.4%.
• Orders for primary metals increased 1%, while shipments rose 0.4%.
• Orders for fabricated metals fell 1.7%. Shipments dropped 1.3%

Conclusion: All this bad data point to recession and lower stock prices !!!

Source: Bloomberg, MarketWatch

Interesting Stories Of The Day

Taxpayers May Be Liable for Billions From Bear, Mortgage Rescue
Even as the Bush administration insists it won't risk public funds in a bailout, American taxpayers may already be liable for billions of dollars stemming from Federal Reserve and Treasury efforts to quell a financial crisis. History suggests the Fed may not recover some of the almost $30 billion investment in illiquid mortgage securities it received from Bear Stearns Cos.....Read On

Paulson Says New Financial Rules Needed
If big Wall Street investment houses are allowed to run to the Federal Reserve for emergency lending, they must face stepped-up regulation, Treasury Secretary Henry Paulson declared Wednesday.....Read On

Demand for durable goods falls 1.7% in Feb
The unexpected decline in orders for big-ticket items marked the second straight monthly drop, an indication that domestic demand is weakening faster than exports can grow. "This is another report that has a strong recessionary feel about it," wrote John Ryding, chief U.S. economist for Bear Stearns.....More

New Home Sales Drop for a Fourth Month
Sales of new homes fell in February for the fourth straight month, pushing activity down to a 13-year low. While the rate of decline has slowed, the worst slump in more than two decades has not run its course, analysts said.....More

Banks Bleeding Value And Hiding Desperation as US Housing Slump Continues
The decline in fixed asset values continues. Homes. Shopping Centers. Commercial and industrial properties. Land. And the decline is not done. Not by a long shot. According to National Association of Realtors data, average American home prices have declined by ~ 13% from their high in June 2007 to January 2008. Unit sales were down ~ 23% during this seven month period. Although unit sales are expected to increase this spring, property valuations are still under downward pressure.....More

Caterpillar CEO: US Likely Into a Recession
The head of Caterpillar, the world's largest maker of earthmoving equipment, said on Wednesday the U.S. economy is probably in a recession and is unlikely to start recovering until late this year......More

Global Stock Market Forecasts and Outlook for 2008
Given current uncertainty and volatility, it is more difficult than usual to project an outlook for the global stock markets 12 months forward, therefore to be able to generate an outlook there is first a need to arrive at key assumptions that will impact on stock prices going forward before I turn my attention to the technical picture contained within the stock charts......More

Consumer Confidence: Why Do We Care

Why Investors Care About Consumer Confidence:

The pattern in consumer attitudes and spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Consumer confidence did shift down in tandem with the equity market between 2000 and 2002 and then recovered in 2003 and 2004. Consumers became more pessimistic in 2005 when gasoline prices surged.

Consumer spending accounts for more than two-thirds of the economy, so the markets are always dying to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. With this in mind, it's easy to see how this index of consumer attitudes gives insight to the direction of the economy. Just note that changes in consumer confidence and retail sales don't move in tandem month by month.

Current Consumer Confidence Data
The Conference Board Consumer Confidence Index, which had declined sharply in February, fell further in March. The Index now stands at 64.5 (1985=100), down from 76.4 in February. The Expectations Index declined to 47.9 from 58.0. The Present Situation Index decreased to 89.2 from 104.0 in February. The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households.

Says Lynn Franco, Director of The Conference Board Consumer Research Center:

Consumers' confidence in the state of the economy continues to fade and the Index remains at a five-year low (March 2003, 61.4). The decline in the Present Situation Index implies that the pace of growth in recent months has weakened even further. Looking ahead, consumers' outlook for business conditions, the job market and their income prospects is quite pessimistic and suggests further weakening may be on the horizon. The Expectations Index, in fact, is now at a 35-year low (Dec. 1973, 45.2), levels not seen since the Oil Embargo and Watergate.

Consumers' assessment of present-day conditions weakened further in March. Those claiming business conditions are "bad" increased to 25.4 percent from 21.3 percent, while those claiming business conditions are "good" declined to 15.4 percent from 19.1 percent. Consumers' appraisal of the job market was also more pessimistic than last month. Those saying jobs are "hard to get" rose to 25.1 percent from 23.4 percent, while those claiming jobs are "plentiful" decreased to 18.8 percent from 21.5 percent.

Consumers' short-term expectations also deteriorated further in March. Those expecting business conditions to worsen over the next six months increased to 25.4 percent from 21.6 percent, while those anticipating business conditions to improve declined to 8.1 percent from 9.7 percent in February.

The outlook for the labor market was also more pessimistic. Consumers expecting fewer jobs in the months ahead increased to 29.0 percent from 28.0 percent, while those anticipating more jobs declined to 7.7 percent from 8.9 percent. The proportion of consumers expecting their incomes to increase declined to 14.9 percent from 18.0 percent.

Source: The Conference Board & Bloomberg

Weekly Economic Calender

Series of events listed for this week:

• The Standard & Poor's/Case-Shiller national home price index for January will be released Tuesday.
  
• On the housing front, the latest quarter's results from Lennar Corp. (LEN) and KB Home (KBH) are due Thursday and Friday, respectively.
  
• The Conference Board's Consumer Confidence Index for March will be released Tuesday.
• February Durable Goods Orders and New Homes Sales will be out on Wednesday.
  
• Jobless Claims report is due Thursday.
  
• Personal spending and income numbers for that month are out Friday.
  

There is also a plethora of Fedspeak following last week's moves to cut interest rates and allow investment banks to borrow from the Federal Reserve.

• Chicago Fed President Charles L. Evans speaks Wednesday to the National Association for Business Economics in New York,
  
• Dallas Fed President Richard W. Fisher discusses the Fed and the regional economy Wednesday in Waco, Texas;
  
• Cleveland Fed President Sandra Pianalto offers the "Federal Reserve Perspective" on Thursday in Dayton, Ohio;
  
• Minneapolis Fed President Gary H. Stern discusses "Issues in Macroeconomic Policy" on Thursday in London; and
  
• Atlanta Fed President Dennis P. Lockhart offers an economic outlook Thursday in Chattanooga, Tenn.

A Week Of Madness At Wall Street

JPMorgan Chase & Co. quadrupled its offer for Bear Stearns Cos. to $10 a share today and struck a deal to buy 40% of the company without a shareholder vote, making it unlikely opponents can block the takeover. A week ago on Monday, JPMorgan Chase agreed to buy Bear Sterns at a fire sale price of $2 a share which caused a panic in the market.

On Tuesday, Fed cut the lending rate by 75 basis points, less than the 100-basis-point cut economists expected. However, positive earnings from Goldman Sachs (GS) and Lehman Brothers (LEH) bolstered the case for a positive session, and the Dow finished Tuesday with a gain of more than 420 points.

On Wednesday, Dow gave back most of Tuesday's gains falling 300 points. Strong results from investment brokers and a record IPO from Visa did not help the cause. Driving the loss was an implosion by commodities and metals. Gold plunged $59 an ounce, while crude oil futures dropped about $5 per barrel due to strength in the US Dollar. The US Dollar rallied on the fact that after the 75 basis point cut, the Fed will focus on fighting inflation next.

On Thursday, the Dow swung upwards to put 260 points on the heels of a strengthening financials sector. However gold fell even more. By the end of the holiday-shortened week, gold had plunged 8.6%, crude oil was hovering just above $100 per barrel.

Last week, we saw some interesting extremes in terms of the sentiment measures that we follow. Such extremes could be important as we move into the final week of the quarter. First, the CBOE Market Volatility Index (VIX) hit a high of 35.60 (VIX has moved opposite the S&P 500 Index (SPX) 88% of the time), which was just shy of the August and January highs of 37.50. The fact that the VIX failed to make a new high as the SPX carved out new intraday lows is cause for intermediate- and long-term concern.

Finally, the latest poll from the American Association of Individual Investors showed that 54.3% of those surveyed were bearish, while only 25.2% were bullish. What is striking about these numbers is that on Oct 2007, with the SPX trading near an important market top, 54.6% of investors were bullish, while only 25.8% were bearish.

The bottom line is that we are technically in a bear market environment. However, recent price action amid short-term negative sentiment extremes suggests that the market could be in rally mode for the coming weeks. Of course, that's excluding heavy call trading among VIX option players that would suggest that another credit market accident is around the corner. The financial sector is a group short-term traders should consider on the long side, following put accumulations that were added in the face of positive earnings surprises last week.

Agricultural Commodities: Why You Need To Be Bullish

One of the sectors that is making waves in 2008 is the Agricultural Commodities. Emerging markets are booming and so are their consumption. With growth comes a change in lifestyle, diet being an important part of it. The rising middle-class in these emerging markets especially China and India are now calling for both higher quantities and a better quality of food. With industrialization and urban sprawl taking over, Chinese and Indian farmers are continually asked to produce more crops from shrinking amounts of land. They also have fewer farm workers as many have left villages to seek their fortune in more established cities. If you add environmental pressures to the mix, you've got an agricultural situation that's even more challenging.

It's estimated that one out of every three dollars earned in China is spent on food. Why? Because the dietary habits of Chinese are changing. People are switching from starch-based diets (rich in grains and vegetables) to protein-rich diets (which contain more meat). This is a natural shift that many countries experience when moving through the various stages of economic development.

This shift is best illustrated by the rising meat consumption in China. Meat consumption there has tripled over the last two decades and continues to grow at 4%–5% per year. As a result, farmers must produce increasing amounts of grain to feed livestock. In order to grow these grains, farmers can't rely on ground nutrients alone; they need fertilizer.

With 850 million farmers challenged to feed over 1.3 billion people, China consumes more fertilizer than any other country. Making things complicated is the fact that much of western China is unusable for crop production because of barren land that's too remote because of a lack of suitable transportation and infrastructure. As a result, southeastern China is the main home to much of the country's agriculture. Farmers in this region often double- and triple-crop their land in order to produce more rice, fruits and vegetables—all of which depend on fertilizer to grow.

Fertilizer isn't just used to grow food crops—it's also used to grow products for other industries. The push for developing eco-friendly biofuels in China is huge right now. Given that biofuels are mainly made from natural plant-based sources like corn, soybeans and sugarcane, these plants require farmers to buy even more fertilizer.

Increasing demand for food, animal feed and biofuels is providing a very positive outlook for the fertilizer industry. It is expected that China's fertilizer demand will grow by 15% to 20% per year over the next five years. The spike in Chinese fertilizer demand combined with the country's limited land resources will help propel fertilizer companies.

Listed are six quality fertilizer companies that will benefit from this emerging market demand.

1. Syngenta AG (SYT) is an agribusiness that is involved in the discovery, development, manufacture and marketing of a range of products designed to improve crop yields and food quality. Syngenta is also engaged in the development of products for markets, such as Seed Care, Lawn and Garden, Professional Pest Management, Vector Control and Public Health.
2. Agrium Inc. (AGU) is an agricultural retailer and fertilizer producer. The Company operates through three segments: Retail, Wholesale and Advanced Technologies. Through the Retail business segment, the Company operates a network of 436 retail centers in the United States, Argentina and Chile and is an agricultural distributor of seed, agricultural chemicals and fertilizer direct to growers in the United States. Its Wholesale business segment produces and markets seven million product tons of nutrients. The Advanced Technologies business segment is engaged in developing and supplying controlled-release, or coated fertilizer, technologies and products. These products are used in the agriculture industry, as well as for home and garden, turf and golf courses.
3. Potash Corporation of Saskatchewan Inc. (POT) is an integrated fertilizer and related industrial and feed products company. The Company's potash operations represented an estimated 15% of global production, 22% of global potash capacity and 55% of global potash excess capacity.
4. Monsanto Company (MON), is a global provider of agricultural products for farmers. The Company’s seeds, biotechnology trait products, and herbicides provide farmers with solutions that improve productivity, reduce the costs of farming, and produce better foods for consumers and better feed for animals. It has two segments: Seeds and Genomics and Agricultural Productivity. Through its Seeds and Genomics segment, it produces seed brands, including DEKALB, Asgrow, D&PL, Deltapine and Seminis, and it develops biotechnology traits that assist farmers in controlling insects and weeds. It also provides other seed companies with genetic material and biotechnology traits for their seed brands. Through its Agricultural Productivity segment, it manufactures roundup brand herbicides and other herbicides and provides lawn-and-garden herbicide products for the residential market and animal agricultural products focused on improving dairy cow productivity.
5. The Mosaic Company (MOS) is a producer of phosphate and potash combined, as well as nitrogen and animal feed ingredients. The Company operates its business through four business segments: phosphates, potash, offshore and nitrogen. The Phosphates segment produces phosphate fertilizer. The Potash segment mines ad processes potash in Canada and the United States and sells potash in North America and internationally. The Offshore segment produces and markets fertilizer products and provides other ancillary services to wholesalers, cooperatives, independent retailers, and farmers in South America and the Asia-Pacific regions. The Nitrogen segment consists of its equity investment in Saskferco and Mosaic’s nitrogen sales and distribution activities.
6. CF Industries Holdings Inc. (CF) is a manufacturer and distributor of nitrogen and phosphate fertilizer products in North America. The Company’s operations are organized into two business segments: the nitrogen fertilizer business and the phosphate fertilizer business. Its principal products in the nitrogen fertilizer business are ammonia, urea and urea ammonium nitrate solution. Its principal products in the phosphate fertilizer business are diammonium phosphate (DAP) and monoammonium phosphate (MAP). CF Holdings’ core market and distribution facilities are concentrated in the midwestern United States grain-producing states.