The problem is debt. WNR debt problems have caused the stock to fall almost 80% from its July 2007 highs and it has not reached bottom yet. At $13+ a share, Western Refining still trades at a significant premium to its peers on 2008 and 2009 EV/EBITA and Wall Street expects that a debt covenant will be broken in the coming weeks.

Soleil just initiated coverage of WNR with a sell rating and an $8 target noting WNR’s stock price has suffered a similar fate as some other refiners did in 2002 that financed acquisitions with debt and became highly levered heading into a sector downturn.

Western Refining Numbers
Beta: 1.18
Dividend & Yield: 0.24 (1.79%)
Earnings/Share: $2.01
Forward P/E: 8.90
Market Cap: 909.38 Mil
P/E: 6.70
Return on Equity: 21.05
Total Shares Out: 68.32 Mil

The DWA stock price already has Kung Fu Panda’s box office results built into it , and the next event that will potentially move the stock doesn’t come until November. On November 7th, DWA releases Madagascar 2: Escape 2 Africa and we anticipate that the stock will trade at current levels until then.

DreamWorks Animation Numbers
Beta: 0.68
Dividend & Yield: NA
Earnings/Share: $2.34
Forward P/E: 19.10
Market Cap: #2.85 Bil
P/E: 13.10
Return on Equity: 22.97
Total Shares Out: 92.58 Mil

Thomas Brown of bankstocks.com had an interesting piece last week on which he stated that the subprime mortgage losses is simple: most estimates, particularly of losses on loans originated in 2006 and 2007, are significantly too high . The reason why they’re too high is simple, too. They assume that last year’s credit performance will persist far into the future. Only it won’t.

Michael Darda of MKM Partners thinks that bank stocks have fallen about as much as they did during the 1989-1990 recession and that the federal-funds policy and yield curve are much more favorable now.
Bulls also feel that on a long-time horizon (2 years) that financial stocks will be much higher than they are today, even if they have not quite reached bottom yet.

The Bears point out that not all the bad news is not out yet. Last week the Standard & Poors cut the ratings of Lehman Brothers, Merrill Lynch and Morgan Stanley and basically said that Bank of America and  JP Morgan Chase are next on the list.

Lehman Brothers is rumored to be posting a bigger-than-expected quarterly loss for Q2, and that it might need a capital infusion to stay afloat.

Fund manager Jeff Arricale thinks that regional banks have not raised enough capital to offset mortgage loses and he sees another round of capital-raising after second quarter earnings are released

What do you think? Have financial stocks bottomed or do they have further to fall?

When things get tougher we head to value stores like Wal-Mart, Target and Costco. Overall discounters and wholesalers had a a 4.1% same-store gain in May.

As expected Wal-Mrt was one of the main shopping destinations for sumsumers in May as same-store sales rose 3.9%. Hot sellers were groceries, health and wellness, and entertainment items. Even the home area saw gains, with its first comparable-store rise in over two years.

Warehouse clubs also easily topped views. BJ’s Wholesale for one, saw a 13.4% same-store sales gain while Costco’s rose 9%.

Frugality has led consumers to trade down. Middle- to upper-income households, who typically shop at Target and elsewhere, are looking more at Wal-Mart, dollar stores and food discounters, says Frank Badillo, senior economist at TNS Retail Forward.

Target’s May same-store sales fell 0.7%, below views. The No. 2 U.S. discounter expects June comps to be flat to down 2%. Target is struggling because it’s more geared to discretionary items like clothes and home furnishings, added Ken Perkins, president of Retail Metrics.

“When the economy was in good shape (Target) outperformed Wal-Mart regularly,” he said.It is now losing share to its rival.

Without Wal-Mart, May same-store sales rose 1.6% — well below the 2.6% average gain in 2007. “It certainly doesn’t signal any revival in consumer spending,” Perkins said.

By Niemira’s calculations May’s same-store sales rose 3%.

“It was better than expected,” Niemira said. “But the breadth of the strength was limited to a handful of retailers.”

Earlier, The Wall Street Journal reported that Icahn, a billionaire investor, would seek to remove Jerry Yang as Yahoo chief executive, citing the company’s failure, so far, to reach a merger or partnership deal with Microsoft Corp.

Icahn has proposed an alternate slate of directors for Yahoo’s board, but had not directly targeted Yang over the breakdown in talks early this month for a $47.5 billion deal.

“It’s no longer a mystery to me why Microsoft’s offer isn’t around,” the Journal quoted Icahn as saying. “How can Yahoo keep saying they’re willing to negotiate and sell the company on the one hand, while at the same time they’re completely sabotaging the process without telling anyone?”

Yahoo fired back in a statement: “Yahoo’s board of directors, including Jerry Yang, has been crystal clear that it would consider any proposal by Microsoft that was in the best interests of its shareholders.”

Oh I love that final quote. Yahoo’s board of directors had a proposal from Microsoft that was in the bets interests of its shareholders. They just turned it down! Yahoo needs to face the facts, it cannot survive by itself against a stronger Google and a richer Microsoft. Yahoo will sell to Microsoft. The only questions left are when, how much, and whether the purchase includes all of Yahoo or just its search engine business.

Yahoo Numbers

Beta    0.86
Dividend & Yield    NA
Earnings/Share    0.74
Forward P/E    52.00
Market Cap.    35.98 Bil
fyi  P/E    35.70
Return on Equity    10.96
Total Shares Out.    1.38 Bil

Transportation - Rail 36%
Metal Prds - Distribtr 20%
Household - Appliances 17%
Machinery - Gen Industrial 14%
Elec -Military Systems 13%
Machinery -Cnstr/Mng 13%
Containers 12%
Steel -Producers 11%
Retail/Wholesale - Food 11%
Medical-Hospitals 11%

I was shocked to see Household appliances on the list. With the economic slowdown, people, are not supposed to be buying appliances according to the media!

What surprised you on this list?

Livermore was born in 1877, and started trading at age 15. He was a highly visible stock trader and speculator for almost fifty years. Livermore was famous for making and losing several multimillion dollar fortunes during his professional career.

Investment Style
Jesse Livermore had no formal education or stock trading experience. He was a self-made man who learned from his winners as well as his losers. It was these successes and failures that helped cement trading ideas that can still be found throughout the market today.

Some of the major principles that he used were:

• Money is not made in day trading on price fluctuations. Livermore emphasized the importance of focusing on markets as a whole, rather than on individual stocks. He noted that greater success comes from determining the direction of the overall market than attempting to pick the direction of an individual stock without concern for market direction.
• Adopt a buy-and-hold strategy in a bull market and sell when it loses momentum. Livermore always had an exit strategy in place.
• Study the fundamentals of a company, the market and the economy. Livermore separated successful investors from unsuccessful investors by the level of effort they put into investing.
• Investors who focus on the short term eventually lose their capital.
• Embrace change in adapting investing strategies to evolving market conditions.

Jesse Livermore’s investment strategies and tactics work as well today as they did almost 100 years ago.

The traditional PE ratio is calculated as:

For example, if stock A is trading at $24 and the earnings per share for the most recent 12 month period is $3, then stock A has a P/E ratio of 24/3 or 8.

But today, bulls and bears calculate earnings a little differently. Bulls use what is called operating earnings (operating earnings exclude write-offs) and also use the forward projections of earnings for the next 12 months. Forward or projected earnings are typically higher than trailing earnings.

Bears use what is called reported earnings (which include write-offs) and also use the earnings for the trailing 12 months.

Does it make a difference? Well reported earnings for the S&P 500 for 2007, were just over $66. The operating earnings for 2007 were $84.54. The estimated numbers for 2008 are about $69 for reported earnings and $89.44 for operating earnings.

So bulls can say that the S&P 500 trades at 16 times 2008 earnings of $89.44 and 13 times the 2009 estimate of $110.44. Bears however say that the S&P 500 is trading at 24 times trailing earnings and about 21 times the estimated 2008 reported earnings. That is a huge difference between the two.

So the next time you hear an someone talking to you about how cheap (or expensive) the S&P 500 P/E ration is, ask them whether they are talking about reported or operating earnings.

To paraphrase a car commercial, today’s price-earnings ratio is not your father’s price-earnings ratio.

But he discounted the idea that an advertising deal between Google Inc. and Yahoo Inc.—one the two companies are now exploring—would present any potential antitrust problems.

Page said a successful Microsoft-Yahoo deal would “close a lot of things that are really important … like instant messaging” and also Web-based e-mail communications.

“Now, if you put 90 percent of communications all in one company … that’s really a big risk, especially one (Microsoft) that has a history of doing bad stuff,” he said. “So if you want to have good products you need to have some degree of openness.”

However, ComScore Inc. earlier this year provided data that showed a combined Microsoft-Yahoo company would have about a 70 percent e-mail and instant messaging market share in the United States and a 77 percent market share worldwide. ComScore figures were from December.

If I remember my ComScore numbers, I think that Google has an over 62% market share of the U.S. search market. Google’s adwords page for new advertisers boasts that if you advertise on Google you will reach 76% of all U.S. internet surfers, and 75% worldwide.

Doesn’t Google’s growing search market share threaten openness Larry?

I am not crazy about Google as a stock. What concerns me is that they have only been able to deliver one product, a highly profitable product at that mind you. Any slowdown in the world economy and companies will start to reduce their advertising budgets., If they do, they Google’s revenues will shrink.

Also, while Google will tell you that big advertisers will move their advertising money frm old media (TV, print and radio), the bottom line is that Google could not handle those kinds of budgets. I spoke to a company last year who where looking to increase their paid budget by over $10 million a year. The problem was that they could not find enough traffic to buy.

And that is a common challenge that Google faces. How to get clients with multi million dollar a month budgets enough traffic so that they can spend all that money

• Industrial production fell 0.7% in April as the weak dollar is not helping manufacturing
• S&P reported Q1 earnings of the 500 compnaies were down 25.9% from the same three months last year. This is the 3rd straight quarter of declining profits
• Consumer Confidence of 59.5 hit a 29 year low according to the U of Michigan survey. Funny how $120+ a barrel of oil, $4 gas and skyrocketing food prices can hurt consumer confidence
• Foreclosures are up 65% compared to a year ago and home prices continued their downward spiral. Prices of existing single-family homes fell 7.7% in Q1
• Global food prices are up 43% in the last 12 months

What do you think? Are we in a bear-market rally or are is the bull market back?