Stock Market Predictions

Education stocks rally after key rule softened

Stock Market Predictions

The changes to the 'gainful employment' rule drastically lower the threshold for repayment of federal student aid -- the main source of profit for colleges -- and give the companies more time to comply.

Education stocks were the top gainers on U.S. exchanges on Thursday. Shares of Corinthian Colleges, up almost 40 percent, were the most heavily traded on Nasdaq.

Market leader Apollo Group rose 15 percent, while stocks of Strayer Education, ITT Educational and Education Management rose more than 20 percent.

An education index was up 15 percent.

Analysts said the new rule benefited all companies in the sector. Companies like Apollo and Capella Education, which were in the restricted zone to access federal aid based on the repayment rate metric, can now grow their student base unrestricted.

The education department surprised with the number of changes that benefited the colleges, given its tough stance on the issue in the last two years.

"Some investors had expected no changes, some had expected marginal moves and few, if any, expected a combination of quantitative and qualitative changes," William Blair analyst Brandon Dobell said in a note.

The colleges had made changes to their admissions policies as they braced for a more stringent set of rules, leading to sharp declines in enrollment numbers. They had also cut jobs and scaled back on expansion plans.

A key change in the rule is that colleges have now till 2015 before a program can be denied tuition loans over too many defaults by ex-students.

"We no longer expect gainful employment to limit growth at the majority of for-profit institutions," Jarrel Price at Heights Analytics said.

The rule is part of the Obama administration's crackdown on for-profit schools, accused of overcharging students, burdening them with debt and not preparing them adequately for jobs.

The department finalized a set of 13 rules last year but delayed the 'gainful employment' rule after much opposition.

Education stocks were highly volatile last year and some were trading at near-bankruptcy levels, according to analysts.

"They are up dramatically but they were (also) depressed dramatically," said Jeffrey Leeds of Leeds Equity Partners, which holds Education Management shares.

"And it was the impact the proposed regulations as opposed to fundamentals."

Morgan Stanley analyst Suzanne Stein said the sector has become "more investable" given the clarity on the rule, but slowing enrollment will continue to be a overhang.

Corinthian and Washington Post's Kaplan education unit could face some issues because of low repayment rates.

Corinthian's spokesman Kent Jenkins said the company continued to have "serious reservations about the integrity of the education department's regulatory process and its legal authority" to set the rules.

He said the company will not make any operational changes till it completely reviews the rule.

(Reporting by A. Ananthalakshmi and Megha Mandavia in Bangalore; Editing by Roshni Menon, Unnikrishnan Nair)

DragonWave cuts revenue view on shipment delays

Stock Market Predictions

The company, hit hard as its key customer Clearwire has been struggling to raise cash to complete a high-speed wireless network in the United States, had last month forecast revenue of $15 million.

DragonWave, however, did not name the North American customer in its statement on Friday.

The company, which makes radio transmitters used in cellular networks, said the customer deferred a significant shipment of equipment.

DragonWave said regulatory delays also affected revenue from a customer in the Middle East.

Shares of Ottawa-based DragonWave were down 7 percent at C$5.63 on the Toronto Stock Exchange in morning trade. Its Nasdaq-listed shares were down 8 percent at $5.76.

(Reporting by Amruta Sabnis in Bangalore; Editing by Saumyadeb Chakrabarty and Gopakumar Warrier)

Goldman Sachs subpoenaed for financial crisis role

Stock Market Predictions

Goldman Sachs Group Inc now faces probes by several government authorities into derivatives trades it executed in late 2006 and 2007. On Thursday, sources close to the matter said Goldman received a subpoena from the Manhattan district attorney, who joins the Justice Department and the Securities and Exchange Commission in examining Goldman's actions.

Separately, New York Attorney General Eric Schneiderman is investigating Goldman as part of a broader probe into the mortgage operations and securitization practices of seven banks. A source familiar with the situation said Schneiderman's office met Goldman executives and attorneys in the past two weeks.

The probes follow a scathing report by U.S. lawmakers that cast Goldman as a central villain of the financial crisis and accused it of misleading clients about mortgage-linked securities.

The report by a Senate subcommittee, headed by Democrat Carl Levin, said Goldman offloaded much of its subprime mortgage exposure to unsuspecting clients as the market for such securities was starting to tank. In some cases, the bank dragged its heels when clients wanted to get out of their losing positions, according to the report.

The investigations do not imply the bank or its top executives will face criminal or civil charges, but they display a growing interest by prosecutors to build a case against Goldman, legal experts said.

"They have subpoena power to get certain records, correspondence, emails and they're trying to find out every last detail that could prove fraud," said Peter Berlin, an attorney who represents defendants in white-collar cases.

The U.S. Department of Justice is also likely to subpoena the bank, The Wall Street Journal reported recently.

The Manhattan district attorney, Cyrus Vance, is not seeking new documents, according to one source, but wants to ask further questions about the information contained in the Levin report.

Vance, the son of former U.S. secretary of state Cyrus R. Vance, said earlier this year he wanted to use a far-reaching 1921 law called the Martin Act to toughen penalties for securities fraud.

The state attorney general's probe is largely being conducted under that statute, according to the source familiar with that case. The state can seek civil or criminal charges, while the Manhattan D.A. can only pursue criminal charges, potentially making its burden of proof more difficult.

Still, the Manhattan D.A.'s office has used the Martin Law to crack down on white-collar crime in the past. High-profile cases the office prosecuted using the Martin Act include brokerage firm A.R. Baron & Co and ex-Tyco chief Dennis Kozlowski.

In a statement, Goldman said: "We don't comment on specific regulatory or legal issues, but subpoenas are a normal part of the information request process and, of course, when we receive them we cooperate fully."

Both Levin's and Vance's offices declined comment on Thursday.

SCATHING REPORT

The probes into the behavior of Goldman and some of its peers signal increasing determination by U.S. government agencies to investigate the actions of banks in the years leading up to the financial crisis and to determine whether misdeeds by executives made the meltdown worse.

One of the first big cases was the Securities and Exchange Commission's civil fraud suit against Goldman last year over the bank's failure to disclose information linked to a complex mortgage security. Goldman settled those charges in July without admitting or denying guilt, but it did express regret for failing to disclose information.

Goldman's shares fell as much as 3.4 percent as news of the subpoena emerged on Thursday, but then took back much of their losses and closed 1.3 percent down at $134.38. The stock has been declining since January, but its sell-off has accelerated since the release of the Levin report and it is now approaching its 52-week low of $129.50.

Even if there is a low likelihood of successful civil or criminal action against Goldman Sachs, continued pressure from politicians and the public could still hurt the firm, Sanford Bernstein analyst Brad Hintz wrote in a note on Wednesday.

"We believe that Goldman's clients will begin to rethink their relationship with the firm and the franchise will ultimately suffer," Hintz wrote, adding the bank would be wise to make amends with the public soon.

But other veteran analysts said recently that concerns about the Goldman investigations are overblown and little will likely come from them.

JPMorgan analyst Kian Abouhossein raised his rating on the bank to "overweight" from "neutral" earlier this week and said possible negative news is already reflected in the bank's share price.

However, some investors take a more negative view.

"When the government has you in its cross-hairs, it takes forever to get out of it," said Matt McCormick, portfolio manager at Cincinnati-based Bahl & Gaynor Investment Counsel.

"Shareholders need to understand, this is going to be an ongoing risk for years."

(Reporting by Lauren Tara LaCapra; additional reporting by David Gaffen, Maria Aspan; editing by Dan Wilchins, John Wallace, Matthew Lewis and Andre Grenon)

Coca-Cola says it considers listing in Shanghai

Stock Market Predictions

Coke has said it will commit $2 billion in investment into China and last October opened three new plants in Inner Mongolia, Henan and Guangdong.

"We are interested in exploring the opportunity of listing our stock on the Shanghai Stock Exchange," Geoff Walsh, public affairs and communications director for Asia Pacific of Coca-Cola, said in an email reply to Global Markets.

"Obviously, we need to better understand the regulatory framework and listing requirements," Walsh said. "We continue to have positive discussions with Chinese government officials as we look at this opportunity."

Walsh's comments follow a report in the Hong Kong Economic Journal, saying Coca-Cola was studying a possible listing on the proposed international board on the Shanghai Stock Exchange.

HSBC (HSBA.L), Unilever (ULVR.L) and Standard Chartered Plc (STAN.L) have said they want to list on the international board, which was originally slated to be launched in 2010.

The New York Stock Exchange is working with China to launch the country's international board that will allow foreign firms to list on the mainland, in a move seen as a crucial step in developing its capital markets.

(Reporting by Xavier Ng and Donny Kwok; Editing by Jacqueline Wong and Ken Wills)

(This story was corrected in the second paragraph to show Coca-Cola opened new plants in Inner Mongolia, Henan and Guangdong last October (not three plants in Inner Mongolia))

Quicksilver shares jump as domestic sales rise

Stock Market Predictions

The Huntington Beach, California-based company was the third-biggest gainer on the New York Stock Exchange on Friday, even as the bigger S&P Retail Index .RLX was down 2 percent in morning trade.

Quiksilver, which makes clothes inspired by surfing and other action sports, had seen sales weaken in the U.S. and Europe, its two key markets. But a turnaround has made analysts positive about its prospects.

"Perhaps the most encouraging data point was an accelerating 23 percent U.S. comparable sales growth against tougher sequential comparisons," Jefferies analyst TaposhBari wrote in a note.

The analyst, who holds a "buy" rating on the stock, said sales at the company is likely at an inflection point, which could trigger an upgrade cycle on the stock.

"Going forward, we are modeling gross margins to be down in the second half of the year, but see an improving European business, favorable FX currents and continued retail outperformance providing an upward bias to gross margins," analyst Bari said.

Quiksilver shares were trading at $4.94 around midday on the New York Stock Exchange.

(Reporting by Nivedita Bhattacharjee in Bangalore; Editing by Joyjeet Das)

High gas prices weigh on retailers' May sales

Stock Market Predictions

More than 60 percent of the 24 retailers tracked by Thomson Global Markets missed analysts' estimates, including Victoria's Secret owner Limited Brands Inc (LTD.N), Target Corp (TGT.N), Gap Inc (GPS.N) and J.C. Penney Co Inc (JCP.N), TJX Cos Inc (TJX.N) and Kohl's Corp (KSS.N).

"Our guests continue to shop cautiously in light of higher energy costs and inflationary pressures on their household budgets," said Target Chief Executive Gregg Steinhafel.

For May, the discount chain posted 2.8 percent rise in same-store sales, a key gauge of a retailer's health.

That was below analysts' average estimate for a 3.5 percent gain and at the low end of company expectations. Steinhafel cited a slowdown in traffic in the back half of the month, which included the U.S. Memorial Day holiday that unofficially starts summer.

Overall, sales at stores open at least a year rose 4.9 percent in May, below the 5.4 percent increase that Wall Street expected.

TJX, which runs the off-price TJ Maxx and Marshalls chains, posted a weaker-than-expected 2 percent gain, citing unseasonably cold and wet weather.

For a graphic on May same-store sales, see here

Gap shares were down 1.9 percent at $18.54 in midday trading on Thursday, while J.C. Penney fell 2.8 percent to $33.03 and Limited was down 3.7 percent at $37.27.

The Standard & Poor's Retail Index .RLX was down 1 percent, slightly underperforming the wider S&P 500 index .SPX, which was down 0.5 percent.

BRIGHT SPOTS AMID UNCERTAINTY

Retailers that beat estimates in May were generally those with a large array of products, what consumers saw as good prices, or those that cater to higher-income consumers.

Costco Wholesale Corp (COST.O) and BJ's Wholesale Club Inc (BJ.N) joined Macy's Inc (M.N) on Thursday in reporting higher-than-expected same-store sales. Others that topped estimates include Ross Stores Inc (ROST.O) and luxury department stores Saks Inc (SKS.N) and Nordstrom Inc (JWN.N).

Also on Thursday, data showed new U.S. claims for unemployment benefits fell last week, but not enough to assuage fears the labor market recovery has taken a step back.

"I do not think all is well in Consumerland," Wall Street Strategies analyst Brian Sozzi said, noting results are likely to worsen in the second half of the year as manufacturers of food, clothes and other consumer products push through price increases meant to offset rising commodity costs. The International Council of Shopping Centers is expecting same-store sales to rise 4 percent to 5 percent in June, or 3 percent to 4 percent excluding the impact of gas.

Michael Niemira, the group's chief economist, said trends moving into the second half of the year were "far more negative" and consumer spending could be hurt further in 2012 when this year's payroll tax reduction disappears and if interest rates rise.

"We have seen a little slowing in the economy. That is sort of rippling through various numbers," Niemira said. "I worry that, as you look beyond the end of this year into early next year, the factors will increasingly become more difficult for the consumer."

For investors, that translates to uncertainty about the direction of both consumer spending and retailers' profit margins, given rising sourcing costs and consumers' preference for discounts, said Walter Stackow, an analyst at Manning & Napier Advisors, which invests in the retail sector.

"Selectivity is going to be even more key than before because you don't have that backdrop of broadly increasing spending," Stackow said. "But there are select opportunities where the scope for market share gains is significant and to translate that market share gain to profitability."

Nordstrom, Chico's FAS Inc (CHS.N) and Dick's Sporting Goods Inc (DKS.N) are among the retailers that stick out, Stackow said.

(Additional reporting by Phil Wahba, Helen Chernikoff and Dhanya Skariachan in New York; editing by Andre Grenon, Brad Dorfman and Lisa Von Ahn)

Fosters' shares jump 5 percent on bid speculation

Stock Market Predictions

The shares were up A$0.22 at A$4.50. Foster's separated its beer group from wine earlier this month.

(Reporting by Victoria Thieberger)

Sino-Forest clobbered by short-seller's report

Stock Market Predictions

Sino-Forest, which operates forest plantations in China, told investors to exercise "extreme caution" in assessing the report, issued by research firm Muddy Waters.

"Muddy Waters has a short position in the company's shares and therefore stands to realize significant gains from a share price decline that it precipitated," Sino-Forest said in a statement on Friday. Its shares fell 24 percent on Thursday.

Stock in Sino-Forest, whose top shareholder at the end of April was billionaire hedge-fund manager John Paulson, fell a further 65 percent on Friday, hitting a new low of C$4.81 before closing at C$5.23.

A record 42 million shares changed hands, making the company Toronto's most active stock by far.

CHARGES OF FRAUD, THEFT AND PONZI SCHEME

In a detailed, 37-page report, Muddy Waters said its researchers found that Sino-Forest had exaggerated its assets and falsified its investments.

"Like Madoff, (Sino-Forest) is one of the rare frauds that is committed by an established institution," it said, referring to convicted fraudster Bernie Madoff. Its "capital raising is a multibillion dollar Ponzi scheme, and accompanied by substantial theft."

Muddy Waters holds short positions on companies it reports on, and makes money when shares fall. It first won attention with a scathing report on Orient Paper Inc (ONP.A) in 2010.

Sino-Forest, which says it employed 3,900 people and managed 790,000 hectares of plantation trees in China at the end of last year, has reported steady earnings growth since its stock was first listed in Toronto in 1995.

But it has also had its share of controversy. It restated earnings in 2004, the same year that it proposed an executive compensation plan that investors saw as overly generous.

The company actively buys and sells forests, according to a report from Poyry's. The industry consultant said the company had a "dynamic" forestry estate.

"Unlike most forest owners and managers, Sino-Forest actively trades in forests. Each year the company both sells and buys forests, and accordingly the composition of the forest estate changes much more than for a business that is simply managing and harvesting a more static resource," Poyry's wrote in its 2010 annual report on the company's assets.

Thomson Global Markets Starmine shows 10 analysts follow the company, with four listing Sino-Forest as "strong buy," five as "buy" and one as "hold."

Dundee Capital Markets analyst Richard Kelertas put Sino-Forest "under review" pending more information, but said he did not believe the Muddy Water charges.

"To the best of our knowledge we believe that the allegations cited in the short-seller's 'research report' are false and without merit," he said, noting his conclusions were based on several years of conversations with management.

BMO Capital Markets cut its rating on Sino-Forest to "market perform" from "outperform" on Friday, and put its price target on the shares under review, "pending a better understanding of the company's timber holding."

PROBING THE ALLEGATIONS

Sino-Forest said its board had appointed a committee of three of its independent directors to investigate the allegations and complained the Muddy Waters report had a substantial impact on its reputation and securities prices.

"Sino-Forest wish to state clearly that there is no material change in its business or inaccuracy contained in its corporate reports and filings that needs to be brought to the attention of the market," the company said.

Paulson owned 14.13 percent of the shares as of the end of April 29, according to Thomson Global Markets data. An investor familiar with the situation said Paulson & Co had informed investors that Paulson is looking at the situation closely.

Sino-Forest shares represent about 2 percent of his Advantage Strategy and are not owned in any other Paulson strategies. A Paulson spokesman declined to comment.

The Ontario Securities Commission declined to comment on the allegations about Sino-Forest, which has an office in Mississauga, Ontario, outside Toronto.

BOND SELLOFF

The Muddy Waters report also prompted a sell-off in Sino-Forest bonds and dragged down the China high-yield offshore sector.

Thomson Global Markets data shows Sino-Forest has some $2.3 billion in debt financing outstanding, with credit ratings in the low grade, speculative range or junk status.

Its longest dated issue, maturing in October 2017, is currently yielding almost 17 percent, Thomson Global Markets data shows.

Credit default swaps, which protect fixed income investors against default or restructuring, are trading with an immediate upfront cost to investors of $493,000 plus an additional $500,000 annually for the five-year life of the contract, according to data provider MarkIt.

Muddy Waters has also published damning notes on RINO International Corp (RINO.PK) and China MediaExpress Holdings (CCME.PK), both of which have been delisted from the Nasdaq.

Following the report, RINO said its auditors had found accounting flaws. The chief financial officer at China MediaExpress later resigned, along with its auditors.

But some companies are fighting back.

Drew Bernstein, the chairman of Orient Paper's audit committee, said the Muddy Waters report on Orient was filled with untrue allegations. He said Orient Paper was perhaps the most vetted Chinese company following the report.

Its shares still trade on NYSE Amex.

(Additional reporting by Jennifer Ablan, Daniel Bases and Julie Gordon; writing by Janet Guttsman; editing by Frank McGurty)

Slim's America Movil slumps on regulation worries

Stock Market Predictions

Shares in America Movil lost 4.01 percent to 28.67 pesos, their biggest one-day drop in 17 months.

Bloomberg News reported that Mony de Swaan, head of telecommunications regulator Cofetel, said America Movil could face "a mix of different measures having to do with fees, information and quality."

Bloomberg said regulations could affect America Movil's fixed-line unit Telmex but it did not provide any comment from de Swaan to substantiate the assertion.

Telmex shares fell 1.59 percent to 9.93 pesos.

Representatives of America Movil and Cofetel declined any immediate comment.

"America Movil is falling because the whole market is down and Mony de Swaan came out to say there could be new regulations," said Martin Lara, an analyst at brokerage Actinver in Mexico City.

Weak U.S. employment data weighed on the broader Mexican market. America Movil is the most liquid stock in Mexico and investors use it as a proxy for the market as a whole, Lara said.

Investors knocked down America Movil's share price in a double-digit rout since April after the Federal Competition Commission fined the company $1 billion for abusing its market position. Investors were concerned of further action by regulators.

The stock had recently found support just below 29 pesos.

Lara said the drop in its share price had exaggerated the potential impact of further regulations on America Movil's business.

"We like the stock at current levels and we do not think additional regulations will have a significant impact in the stock price," Lara said.

(Reporting by Michael O'Boyle, additional reporting by Tomas Sarmiento; Editing by Kenneth Barry)