By Tom Heysek

Monday telegraphed a trifecta of relief to investors. Specifically,

• The price of oil steadied just below the $123 per barrel level, and remained there for the week.
• CEO Jamie Dimon, of JPMorganChase (JPM: $47.02), announced at a press conference that the credit crisis was 75% over, and,
• Research in Motion (RIMM: $140.99) unveiled a new BlackBerry, signaling that its proprietary technology continues to innovate.

Even though Mr. Dimon added that it was likely the country was already in recession, the markets rewarded reality–recognition…lifting the Dow above 13000 and the S&P 500 above 1400…important technical benchmarks. Tech–laden NASDAQ also improved, and as the week wore on, rose above 2500. This is significant—NASDAQ hasn’t closed above 2500 since January!…

Graphing the three stock market indexes shows a 200–day moving average that signals a technical event…the markets appear headed up, having rebounded from lower levels.

Markets like this abound in investing opportunities, though if uncertainty remains, this might be the time to check out options. Options Zone (www.optionszone.com) is a rich vein to mine. To get started, here is a How–to link, courtesy of Ken Trester.

Favorable investor sentiment was reinforced as the week progressed – the Federal Reserve reported that the inflation rate for April was 0.2%, down from 0.3% the month before. This may sound meager, but on an annual basis, it’s the difference between a 2.4% inflation rate vs. 3.6%.

The Labor Department reported an increase in jobless claims of 6,000 to 371,000. This was one–fourth the increase in April, and the number of people continuing to collect unemployment insurance stayed steady at about 3,000,000. This gave investors confidence that while in a recession, it does not seem to be getting worse.

Confirming that Wall Street is positioned to take bad news in stride, when the Federal Reserve announced that industrial production fell 0.7% on Thursday, twice consensus expectations, and one minute before the market opening, all stock market averages hardly flinched, increasing 0.5% to 1.0% on the day.

About this time of year, people begin talking about a summer rally. We’ve all heard it. It sounds compelling. It even makes sense. Who isn’t upbeat and confident in summer?...  

Let’s look at the facts. Since 1998, framing the "summer" as Memorial Day to Labor Day, it is only a 50/50 proposition that there is any such animal as a summer rally. The table below illustrates the data, using the S&P 500, which represents about 75% of the market value of all public companies: 

Moveover, when these percentage changes are tallied, summer declines have been almost twice as large as summer advances, on average. In other words, when the summer months are down, they are down big, and that’s the investment risk. It’s also another reason to consider using put and call options to supplement investors’ investment strategy.  

In announcing industrial production, one of the stronger components within that statistic was exports. Indeed, exports are now growing twice as fast as imports. This is good news, except for the fact that there is now up to a 6–week wait to secure space on containers to deliver these exports overseas.

Dry bulk shipping accounts for 40% of ocean–freight. Fertilizers and other commodities have garnered most of the financial media’s attention, however, these are considered minor bulk dry goods, and represent less than one–third of dry bulk shipments.

Larger export volumes are what’s described as the Major Bulk shipments, comprosed of iron ore, coal and grain….mostly headed for China, out of the twin ports of Los Angeles and Long Beach. Bryan Perry has a detailed article about this phenomenon, and some investment ideas to accommodate. Here’s the link. 

General Electric (GE: $32.37) as everyone knows, reported a disappointing first quarter ($0.44 vs. $0.48 in last year’s first quarter). Jamie Dlugosch and Richard Young think it is time to take a serious investment look at GE. Here’s the link to that article.

Certainly as China grows, GE’s infrastructure business is a natural to participate. In addition, as Jamie points out, China’s intention to build its own aircraft manu–facturing capability puts it on a favorable convergence course with GE, a leading aircraft engine manufacturer.

Nevertheless, we’re not so sure. First, GE’s Commercial Finance and Money business units, together, are as big as GE’s infrastructure business unit…and all the bas news in financial services may not be out. More critically, however, is that consensus EPS estimates are still glued to the $2.20 to $2.30 EPS range that GE’s management has guided.

In order to achieve EPS of this magnitude ($1.75 in EPS in the next 3 quarters), absolutely everything must go perfectly for GE for the rest of the year – and we just don’t think we are in a global environment where that is likely…so BEWARE. The news, on Thursday, that GE was selling its 120–year old appliance business may have more ominous undertones.

Construction may be in the dog house in the USA, but the hounds are out of the house and barking in the BRIC countries (Brazil, Russia, India and China). Industrial construction projects are on a tear. Louis Navellier presents several companies in this space. Here’s the link.

One company in Louis’ sites – an international construction and engineering firm – reported a tripling in fourth quarter earnings. Its projects include refineries (which are obviously in short supply), hospitals and power plants.  Another is Russia’s largest manufacturer of specialty steel products. A third, based in Switzerland, is a strategic ally of Bayer Crop–Science…and the world's largest agrochemical company. It produces crop protection products like insecticides herbicides and fungicides. Given the challenges to meeting demand for foodstuffs worldwide, this is especially timely.

These three companies lend confirmation to the point of view that an investment strategy without an international component is an incomplete investment strategy.

Apple (AAPL: $189.73) surpassed the market value of Citigroup in the first quarter of this year. It appears there is no stopping this trend…which is likely to get even wider. Here is a free report, about the outlook for Apple through 2009.

CBS ($24.23) offered $11.45 a share to purchase internet media company, CNET ( $11.41). This move by CBS comes after a major change in the way in which the network stations are selling advertising. May Sweeps usually feature the major networks in selling over $9 billion in advertising for the fall television season. May Sweeps didn't happen this year, underscoring the adjustments in how advertisers plan to use their advertising budgets. 

CBS is to be applauded for embracing this change, and buying a company in the space it needs to be. Based on the fundamentals, CNET looks like a sleeper, screaming to be bought. It generates almost $200 million in earnings ($1.18 per share) on revenues of $408 million. A 50% profit margin is simply excellent.

Yahoo! (YHOO: $27.75) cannot stay out of the limelight. Corporate Raider Carl Icahn has weighed in to launch a hostile offer for Yahoo, intended to compel the company to accept Microsoft's (MSFT: $30.45) tender offer of $33 per share by proposing a replacement Board of Directors for Yahoo. 

This may be nothing more than a grand stand play, with no assurance that Microsoft will dust off its expired offer. It would make more long term, strategic sense for Microsoft to take a 5% to 10% equity stake in each of the leading Chinese internet companies…and still have change left over from what would have been the cost of a Yahoo acquisition.

Snippets

Barclays (BCS: $33.23) is now in the NBA fraternity. Big time. The British bank purchased naming rights to the future New Jersey Nets stadium for $400 million. This event is intended to increase the bank's brand exposure.  Barclays already has a presence in America: (i) an investment banking division in NYC; (ii) an asset management company in San Francisco, and (iii) a credit card company in Delaware. The New York State Pension Fund paid Barclays Global Investors about $23 million in managerial fees in fiscal year 2006, about four times more than the fund paid any other asset manager, according to the New York State and Local Retirement Systems’ 2006 annual financial report. With 25 million clients and retail banks around the world, Barclays has yet to open a retail bank in America.

Citigroup (C: $23.73) chose major league baseball to increase its NYC exposure. It is bankrolling the New York Mets stadium. The projected cost of the new stadium and other infrastructure improvements is $610 million, with the Mets picking up $420 million of that amount. The agreement includes a 40–year lease that will keep the Mets in New York until 2049.