Monday, April 23, 2007

Morning Market Comment - Is 1550 The Target?

1550 would a record high for the S&P 500 which is now perched at the 1484 level. I can't help but to wonder about 1550 when AstraZeneca (AZN) feels it fit to take out Medimmune (MEDI) at more than 70x forward earnings with its $15.6 bln transaction. Rich valuation is one of the reasons I jettisoned the MEDI May 50 calls late Friday thinking the stock was already richly valued and that low options implied volatility wasn't pricing in much more of a rise. Well, my expectations were too low and I wonder if my expectations for the overall market, even in light of the extreme negatives that lurk out there, are too low. Could the bulls really put the peddle to the metal and surge the S&P to a record in the weeks ahead? Heck, if you're going to game the market why not make Dow 13k the appetizer and go for the whole enchilada? Is MEDI a unique situation or are other deals previously thought impossible due to valuation suddenly more than possible?

Side note: A reader asked how I happened to stumble upon Medimmune in the first place. My Options Screener actually signaled attention to the stock last week. I will be paying more attention to my Options Screener, especially when other services out there pick up on similar activity; there are, after all, only so many options for us all to screen.

Stock futures this morning are less than a point lower and deals could help the market overcome any post Friday expiration reversal. There are over $100 BILLION in deals today. In additional to MEDI, Barclays is coughing up a cool $91 bln for ABN to create the world's largest institutional asset manager and one of the world's top-five banks. High OEX open interest was a key factor in Friday's rally - it was as simple as that, yet few understood it in the mainstream media. These deals are a big positive to overcome potential headwinds from any expiration related activity, especially after such a big up day on Friday.

Bank of America to buy LaSalle Bank for $21B
One small deal: Motorola to buy video-processing services company

Among the negatives out there: Pru downgraded Pfizer (PFE) to Neutral and cut the price target one whole dollar to $29 citing concerns PFE doesn't have enough drugs in its pipeline and will be stung by generic competition. Whoa? Really Pru??? Pfizer faces this problem???? Oh, woe is me - I had no idea. Thank you 7-figure Pru analyst for telling us this breaking news. LOL. Of course, you can turn lemons into lemonade by reasoning that if AZN is going to pay big time for Medimmune, then Pfizer will likely pay for some other drug/biotech to fatten its pipeline as well. Pfizer really has no choice but to buy something and to spend BILLIONS for it.

Valuation does get the attention of some on Wall Street. Deutsche Bank downgraded ExxonMobil (due to report later this week) to Hold from Buy based on its price of about $80.

Apple (AAPL) will post earnings later this week. I've been sifting through analyst comments for any that really stand out either for being overly bearish or bullish. The general theme I pick up is that most are feeling Apple will exceed but only modestly to consensus estimates and that guidance for its Q3 will be especially conservative. Piper's comments this morning are typical where they see slight upside to street rev estimate of $5.2 bln and maintain and Outperform. SJ Mercury News also reports that a criminal case against Steve Jobs is UNlikely.

Goldman today downgraded CBOT Holding (BOT) to Neutral from Buy on valuation.
Goldman upgraded the refiners, seeing tight capacity: VLO, MRO, TSO, FTO and SUN.

Ahead of earnings this week, Amazon (AMZN) was downgraded on valuation by Piper.

AG Edwards upgraded Micron to Hold, amazingly enough.

Pete Stolcer's has a full list of movers this morning.

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