Stock Market Predictions

Top shorted U.S. stocks dive but funds fail to cash in

Stock Market Predictions

So funds that specialize in shorting - selling borrowed shares and betting they will drop so they can be bought back at a lower price - must have made a killing, you might think.

Well, not so fast. These bear market funds lost 9.52 percent on average in 2011, according to fund researcher Lipper, a unit of Thomson Global Markets.

What happened? Much of the problem likely comes down to bad timing -- a problem that often bedevils short sellers. Because they can lose many times their initial investment as a stock rises, short-oriented fund managers sometimes just can't afford to stick with their bets if prices rise too far, too fast - even if they remain absolutely convinced the stocks will eventually crash.

And in last year's highly volatile market, driven by sentiment that quickly swung from panic to exuberance and back, some heavily shorted stocks such as movie rental company Netflix Inc and Green Mountain Coffee Roasters Inc soared to new highs before taking a tumble.

"It's true there were some big name blow ups last year," said Greg Swenson, co-manager of the Grizzly Short Fund. "But for a lot of people it may have been more frustrating than anything else. After you've taken a beating for so long, you're usually not in position for as big a win."

Swenson's fund, overseen by Leuthold Weeden Capital Management in Minneapolis, Minnesota, beat the category average, dropping only 1.92 percent in 2011. That is better than other short funds such as the Federated Prudent Bear Fund, which lost 7.61 percent, but still behind the 2.11 percent gain for the S&P 500 including dividends.

Fund manager Whitney Tilson of T2 Partners famously threw in the towel on his short of Netflix in February as the stock soared past $200 a share on its way to $300. Netflix peaked at $304.79 in July before tumbling to $62.37 in November - an almost 80 percent loss -- after a series of bungled price hikes and service changes.

"Even in 2010, there were all kinds of threats to their business model," said Albert Meyer, a money manager at Bastiat Capital in Plano, Texas. "But then they shot up to $300. It's very, very difficult to stay short for that. And short sellers tend to quickly cover."

The same went for other popular shorts such as First Solar, up almost 35 percent in January and February to a peak of $175.45 before crashing to a low of $28.79 in December as the prices of the solar panels it makes fell dramatically.

ACCOUNTING QUESTIONS

One-time investors' darling Green Mountain Coffee almost quadrupled during the first nine months of year, peaking at just under $116 in September and forcing many shorts to abandon their bets. But after noted hedge fund manager David Einhorn blasted the company for its accounting and disclosure practices in an October 17 presentation and the company posted an earnings shortfall a few weeks later, Green Mountain shares cratered. They dropped more than 70 percent from the September high, hitting $34.06 in November.

Last month, Einhorn told Global Markets he was more sure than ever about his bet against Green Mountain.

Short sellers can bet against a stock for many reasons but among the most common are a belief that the company has accounting problems, its product is a fad that will quickly lose luster, regulatory problems loom, or that it has been overvalued by reckless investors.

But even if the shorts' analysis is correct, it can take many months or even years for other investors to concur, and in the meantime the short seller has the carrying costs of the position and losses if the stock rises.

Bastiat's Meyer, who was one of the first to raise questions about accounting problems at scandal-hit Tyco and Enron, now manages only long accounts. Last year was a difficult one for stock picking on either side of the ledger, he says, because of the way investors reacted en masse to government debt problems in the United States and Europe.

Events such as the U.S. debt ceiling showdown in Congress, which was followed by the U.S. losing its triple-A credit rating, and continuing with a series of European bond debacles from Greece to Ireland, stocks traded in unison for long periods, more than they had in decades by some measures. When stock prices move together, there is less room for fund managers to pick winners or losers.

"Stock picking is challenged when there is this very high level of correlation among stock prices," said Dean Curnutt, president of research firm Macro Risk Advisors in New York. Over the past few months, the prices of the largest stocks in the S&P 500 Index have been as much as 90 percent correlated, a higher level even than during the 2008 credit crisis, he said.

SHORT ETFS

Even investors who used short exchange traded funds to try to play the gloom that hit the European and U.S. economies during the year would have had to time their moves well to end up on top.

That is largely because the shorting ETFs are designed only to track market index moves on a daily basis. The funds have to reset their positions in futures contracts each day, so the results do not track the market over longer periods. For example, the ProShares UltraShort S&P 500 ETF lost 18.82 percent last year even as the S&P 500 itself was nearly unchanged.

Still, the uniform movements may create better opportunities for fund managers later this year, as more stocks may be priced above or below their fair values. "From a stock picker's perspective, it's likely led to many situations where the baby has been thrown out with the bathwater," Curnutt said.

Among the most vulnerable industries in 2012, short-selling fund managers said they are focused on retailers, technology vendors, home builders and financials. Tighter budgets among consumers and businesses could hurt retailers and tech vendors, while home builders and financials continue to suffer from the aftershocks of the real estate price bust.

"With such strong online sales, bricks and mortar retail companies will suffer," said Doug Noland, co-manager of the Federated Prudent Bear Fund.

Noland declined to comment on the fund's individual holdings. The fund was short The Gap, Urban Outfitters and Wal-Mart Stores, according to a September 30 disclosure filing.

Online restaurant reservation service OpenTable Inc, video game seller GameStop Corp and home builder KB Home are currently among the 20 most heavily shorted stocks measured by the percent of shares they have outstanding, according to Starmine data.

Newly public Internet companies such as Groupon Inc and LinkedIn Corp appear overvalued, as well. But the stocks are exceptionally difficult to borrow given there are only a small number of shares trading, which raises the chances of a short squeeze, Grizzly Fund's Swenson said.

"A lot of them look really weak with no earnings and expensive valuations," Swenson said. "But we really couldn't short them."

Swenson and other shorting managers said they are hoping that the macro-focused and crisis-driven markets of 2011 won't be such a feature this year. "It would be nice if we could go back to companies trading based on the fundamentals," Swenson said.

(Reporting By Aaron Pressman; Editing by Martin Howell.)

How to Play It: Alcoa leads off earnings season

Stock Market Predictions

Its results follow on the heels of dimming analyst expectations across the stock market. On September 30, analysts projected that fourth-quarter earnings at companies in the Standard & Poor's 500 index would grow 14.1 percent, according to Bespoke Investments. By January 3, the growth estimate had fallen to just 6.2 percent.

Investors will be looking at earnings growth for Alcoa and other companies in the S&P 500 in light of a stagnant U.S. economy, a likely recession in Europe and signs that emerging market economies are slowing. Alcoa's ability to meet much-lowered estimates may not be enough to spark a rally that carries over the three weeks of earnings season.

Will companies be rewarded for jumping over a lowered bar? No matter what the results, earnings season tends to usher in volatile trading days. Here's a look at how to play the first earnings season of 2012:

READING ALCOA'S TEA LEAVES

Alcoa isn't getting much love on Wall Street lately.

Alcoa's share price sank 50 percent from the 52-week high it reached last April when the global economy seemed to be picking up speed. It fell another 2.1 percent Friday to close at $9.16.

More than half of the analysts following the company have a hold recommendation or lower. The company announced on Thursday that it will close plants in Tennessee and cut production in Texas as part of cost-cutting moves that will lead to up to $165 million in after-tax charges, or 16 cents per share.

Because of aluminum's role in cyclical industries like automobile production, aerospace and packaging, Alcoa's earnings are often viewed as a measure of broader economic growth. But that bellwether role may be diminished. While Alcoa is the world's second-largest aluminum company behind Rusal, according to company and industry data, increased competition from Chinese producers is leading the company to restructure its business in ways that give investors little insight into future worldwide growth, analysts said.

"There's just no way that what happens in China won't continue to impact the market for Alcoa," said Charles Bradford, an analyst at Bradford Research in New York.

But China could also come to the company's aid. "Economy activity worldwide should get a boost as more stimulus comes from central banks, particularly in China," said Lloyd O'Carroll, an analyst at Davenport & Company. "As this becomes evident, investors' sentiment for (aluminum) should turn from negative early in the year to a positive."

That would make Alcoa a value play for the patient. The company's shares are down 6 percent over the last month, and are currently trading at close to a 52-week price to earnings low of 9.9. It pays a dividend of 1.3 percent.

The SPDR S&P Metals and Mining ETF (XME) is a broader metals option which could gain if global economic activity picks up. Its largest holdings are Steel Dynamics, Reliance Steel and Aluminum and United States Steel.

EUROPE AND EMERGING MARKETS

The days when the S&P 500 was only a reflection of the U.S. economy are over. Europe and emerging market countries like China and Brazil now account for over 40 percent of revenues for companies in the index, according to research from Bank of America Merrill Lynch.

The Brazilian economy - the largest in South America - was stagnant in the third quarter, the first time since 2009 that the economy's growth rate did not accelerate over a three-month time. The rate of expansion in China looks to be dampening as well.

That will likely mean that industrials and materials companies will fall short of even reduced earnings estimates, said Barry Knapp, head of U.S. equity strategy at Barclay's.

"These big, multi-line industrial companies have benefited

from strong margins and strong growth in emerging markets for a number of years, but that is a world that has clearly slowed a lot," he said.

Knapp said that technology companies could outperform over the next quarter because of continued business spending and the strength of upper-income consumers.

"This is far and away the cheapest cyclical sector," given the likelihood of dividend increases, he said. The technology sector of the S&P index trades at a P/E of 14.4, compared with an 16.7 P/E for consumer discretionary stocks and 15.1 for industrials.

The Technology Select Sector SPDR (XLK) is one ETF option. The fund tracks the technology sector of the S&P 500 and has a more balanced orientation than other growth-focused technology ETFs like the PowerShares QQQ. While Apple accounts for around 15 percent of assets in both funds, the XLK rounds out its top holdings with International Business Machines and Hewlett-Packard. The QQQ, meanwhile, has a higher weighting in Amazon.com and eBay.

Bill Stone, chief investment strategist at PNC, is tilting his portfolio toward dividend-paying stocks until Europe's lingering debt crisis stabilizes. "Once it's clear that things aren't going to fall apart, then stocks will do fairly well," he said. He's pulling back from utilities, however, because recent share gains make them look expensive.

Vanguard's Dividend Appreciation Fund (VIG) is one ETF option. Its top holdings include McDonald's, IBM and Coca-Cola Co.

LONG-TERM VALUE

One smart way to play earnings season for investors who have a longer horizon may be simply buying the broad S&P 500 index. That's because stocks remain historically cheap on a price to earnings basis.

Bob Doll, chief equity strategist at BlackRock, expects corporate earnings to rise 6 percent over 2012. That, in turn, will lead to double-digit returns for the S&P 500 as price to earnings multiples rise modestly for the first time since the Great Recession. Investors will be willing to pay more for corporate earnings because of continued job growth, low interest rates and increased business confidence, he said.

What investors pay for earnings is one of the main factors of long-term returns. Investors who bought the S&P 500 at its current P/E of 14 saw subsequent annualized 10-year returns of 15 percent, according to research from Bank of America. Investors who bought P/Es of 20, meanwhile, saw their returns narrow to only 7 percent.

(Adds Alcoa closing share price in sixth paragraph)

(Reporting by David Randall; Editing by Walden Siew)

Alcoa stock down after announcing metal output cut

Stock Market Predictions

In early trading on the New York Stock Exchange, Alcoa shares were down 2.4 percent at $9.14.

On Thursday, the company said it was closing down its Tennessee smelter and two potlines at a smelter in Rockdale, Texas, as part of a plan to cut 531,000 tonnes in annual output.

Analyst Tony Rizzuto, of Dahlman Rose & Co said although the action might be seen negatively in the short-term, he believes it is good for Alcoa and the industry.

"The move is in line with the company's efforts to improve its position on the primary aluminum cost curve," he said.

"These actions, while likely to be viewed by some observers as negative, are a positive for Alcoa and the industry as it could lead to a more balanced supply/demand environment and provide some stability to aluminum pricing."

Alcoa, battling higher raw material costs and slumping metal prices, is expected by many Wall Street analysts to post a fourth-quarter loss next Monday.

(Reporting By Steve James; Editing by Gerald E. McCormick)

Best Buy impresses with market share, profit view

Stock Market Predictions

The news that Best Buy had only a modest same-store sales decline in a season where demand for TVs and games was generally weak, helped lift its shares 3.3 percent on Friday, while its decision to stick with its outlook allayed concerns that all of its holiday sales were driven by profit-sapping discounts.

The world's largest consumer electronics chain said on Friday that sales at stores open at least 14 months fell 0.4 percent at its U.S. unit, while they slipped 4.3 percent internationally on weakness in Canada and Europe.

"Given competitor comments and supplier input, these are relatively impressive results," Credit Suisse analyst Gary Balter said, adding that "the reconfirmation of ... guidance by management should put to bed the worries of massive margin deterioration to drive those sales."

While the international same-store sales number missed most analyst expectations, many such as David Strasser at Janney Capital Markets and Anthony Chukumba at BB&T Capital Markets said they were happy with Best Buy's domestic performance, especially since they believe the chain gained market share in the United States during the key selling season.

"It does appear that Best Buy, at least from a brick-and-mortar perspective, picked up market share in December," Chukumba said, pointing to weak performance in the consumer electronics sector by Costco Wholesale Corp (COST.O) and Target Corp (TGT.N). Best Buy shares closed up 78 cents at $24.22 on Friday on the New York Stock Exchange.

"It is good enough from my perspective," Chukumba said. "I am just happy they are going to make (profit numbers for) the quarter."

Unlike the 2010 holiday season when Best Buy held the line on discounts and promoted only pricey goods, this time around it offered deep discounts on items ranging from flat-screen TVs to digital cameras.

It even promised to match any lower prices its brick-and-mortar rivals advertised during the season's peak and offered free shipping.

In its third holiday season after the bankruptcy of archrival Circuit City, Best Buy faced cut-throat competition - often on price - from chains such as Wal-Mart Stores Inc (WMT.N) and Internet retailers such as Amazon.com Inc (AMZN.O).

In order to win online shoppers and those who comparison-shop using cellphones, Best Buy dramatically increased its spending on mobile and digital advertising, as well as carrying more products online.

Strasser said Best Buy's appliance business gained share from retailers such as Sears Holdings Corp (SHLD.O), which had a dismal holiday season.

Demand was strong for tablets, mobile phones and e-readers, while gaming products and televisions had fewer takers.

The news came less than a month after Best Buy's third-quarter profit missed Wall Street estimates as bigger discounts at the start of the holiday selling season ate into profit.

On Friday, Best Buy was still standing by its outlook for the current financial year, calling for earnings of $3.35-$3.65 a share, including share repurchases, but excluding items.

(Reporting By Dhanya Skariachan; editing by Gerald E. McCormick and Andre Grenon)

Analysis: Elektra share surge spooks Mexico investors

Stock Market Predictions

Grupo Elektra's stock almost tripled in a year when Mexico's share index fell, making the company the country's third biggest by market value - thanks largely to a financial trick that had nothing to do with its discount retail or banking businesses.

The gains recorded by the company, owned by billionaire television magnate Ricardo Salinas, were the biggest of any firm in Brazil, Mexico or Argentina in 2011. Without changes to stock index rules, analysts fear it could further distort Mexico's IPC index or the widely used MSCI Latin America and MSCI Mexico indices.

Shares in Elektra, which offers Mexico's poor loans for washing machines and other consumer items, surged 165 percent to 1385.72 pesos from 522.85 pesos a year earlier - despite the fact that sales were up only a quarter of that.

"It does not help Mexico at all to have this sort of behavior in the index," said Stacy Steimel, managing director and head of Latin America equities at PineBridge Investments. "This does not enhance our appetite for Mexico."

Mexico's equity market has lagged its rival Brazil in new public offerings and has struggled to attract investment. The stock market capitalization is about 30 percent of Mexican gross domestic product, next to some 50 percent for Brazil.

Elektra's price rise was powered by two things: methodology changes that increased its importance in Mexico's benchmark IPC index, and a derivative instrument known as an equity swap that allows the company to monetize its share-price gains.

The increased IPC weighting triggered a stock squeeze by forcing funds that track the index - like Mexican pension funds - to buy up scarce Elektra shares, which are to a great extent tied up by the Salinas family, or by UBS, the bank that manages the swap.

Many Mexican funds face the prospect of no bonus for 2011, because they did not - or could not - buy Elektra shares and their fund lagged the index, which they are expected to match.

"Nobody could outperform the index unless of course you held Elektra, but in point of fact it would be almost impossible to hold Elektra because it doesn't really have the free float that it looks like it has," Steimel said.

Elektra executives declined to comment on its shares.

Click here for a graphic on Elektra: link.reuters.com/qyk85s

DISTORTION

Salinas has been climbing the Forbes billionaires' list in tandem with Elektra's rising shares.

He withdrew Elektra and two other companies from their New York listings in 2005, after he became a target in a U.S. Securities and Exchange Commission fraud investigation.

Since 2006, when he paid a $7.5 million fine to settle that probe without admitting or denying any wrongdoing, he and his family have jumped to 112 on the Forbes list with a $8.2 billion fortune, making him Mexico's fourth richest man.

Salinas is not the only beneficiary of Elektra's meteoric rise: excluding Elektra, Mexico's IPC index would have fallen close to 7 percent in 2011 as opposed to 3.8 percent.

Several investors that spoke to Global Markets and who missed out on holding Elektra say the methodology behind Mexican indices which assign Elektra a high weighting needs to better reflect the scarcity of the shares.

"We've reached a stage now where Elektra is damaging the brand of capital markets in Mexico," said a Mexico equities analyst, who declined to be identified.

It was time regulators investigated Elektra, he added.

Both Mexico's Bolsa Mexicana de Valores, which designs the IPC index, and MSCI declined to comment. A spokesman for the country's banking regulator also declined all comment.

Those that have exposure to the company appear less worried.

Heiner Skaliks' Strategic Latin America Fund has a small amount of Elektra shares through its holding of an exchange-traded fund (ETF) that mirrors the MSCI Mexico index.

"When we invest in ETFs it's a way to gain access...to securities we would otherwise not invest in directly because they're not listed or because they're very scarce," he said.

Lawrence White, an economics professor at New York University, said Elektra showed Mexico needed to encourage more companies to go public and make its equity market more robust.

SWAPPING PROFIT

Some 70 percent of Elektra's 242 million shares outstanding are held by Salinas and his family. Just 72.5 million shares, or about 30 percent, are registered as freely floated, according to the Bolsa Mexicana de Valores.

Elektra's equity swap with UBS further reduces the number of its shares that are freely available. The swap is for the equivalent of 55.974 million shares, or about 23 percent of the total outstanding, according to Elektra's 2010 annual report.

"Other Mexican companies also use these swaps. It's a strategy to benefit from what they believe is a low market valuation of their shares. But in Elektra's case the problem is the swap is so big, it is absorbing most of the free float," said a Mexico City-based analyst, who declined to be named.

A spokesman for UBS declined to comment.

Factoring in the shares held by UBS to hedge the swap, the actual float of shares available is just 6 percent, Citigroup analysts calculated in a research report on Wednesday.

Further complicating the matter, in the first half of 2011, Elektra's buyback program accounted for between 19 percent and 41 percent of the monthly trading volume in the shares, the Citigroup report said.

That added liquidity to the shares - helping to boost its weighting according to index methodologies.

The market capitalization of Elektra reached 335.5 billion pesos ($24 billion) at the end of 2011, up from 127 billion pesos at the start of the year. Its market value is now greater than banking rival Banorte (GFNORTEO.MX) and supermarkets Soriana (SORIANAB.MX) and Chedraui (CHDRAUIB.MX) combined.

Elektra's net profit, including gains from the swap, rose to 18.9 billion pesos in the first nine months of 2011 from a loss in the year-earlier period. Core profit rose 13 percent.

Two local analysts, among the few who cover the company, have a 'Sell' and 'Underperform' rating on the stock.

The same two noted in October reports that Elektra received - just in the third quarter - a paper profit from the swap of 18.9 billion pesos. That figure was more than 12 times Elektra's third-quarter operating profit.

(Editing by Dave Graham)

Investors brace for European hit on earnings

Stock Market Predictions

The fourth-quarter reporting period kicks off next week, and all eyes will be on erosion in sales in Europe, where the debt crisis has propelled the region toward a recession. This could dent positive sentiment just as investors start to focus on strong U.S. growth.

Analysts believe that low U.S. stock market valuations already factor in weakness from Europe for the fourth quarter, but there are concerns that earnings forecasts for 2012 have yet to account for deeper fallout.

"There's some unhealthy optimism that thinks somehow the U.S. can decouple from the rest of the world," said Shawn Hackett, president at Hackett Financial Advisors in Boynton Beach, Florida. "That is highly unlikely."

Companies including tech heavyweights Texas Instruments and Hewlett Packard and others like insurer MetLife have already cited fallout from Europe for reduced expectations. Analyst forecasts for fourth- and even first-quarter earnings have tumbled since the summer despite steady improvement in U.S. economic demand.

While all 10 S&P 500 sectors have seen profit estimates cut,

materials and financials have been the hardest hit. Other sectors that could get dragged down by Europe's problems include the industrial, consumer and technology sectors.

The overall S&P 500 forecast for fourth-quarter earnings growth has already been slashed, down to growth of 7.9 percent from 17.6 percent previously.

EUROPE'S STRUGGLE

Some 14 percent of all Standard & Poor's 500 company sales come from Europe, which would have a sure impact on results, said Standard & Poor's earnings analyst Howard Silverblatt.

"In earnings, when you're talking about pennies beating it or not, 14 percent of the number makes a difference."

The euro zone debt crisis has engulfed much of the continent as major institutions have found themselves exposed to debts in struggling nations such as Greece, Portugal, Italy and Spain. The latter two are the third- and fourth-largest economies in the euro zone and are struggling to reduce debt through severe spending cuts and higher taxes.

These problems are affecting economic growth. Italy grew just 0.2 percent in the third quarter from the previous year. Economists in a December Global Markets poll forecast the euro zone will contract by 0.3 percent in the fourth quarter, followed by a further 0.2 percent contraction in January-March, before a meager recovery in subsequent quarters.

Global companies with more than 50 percent of their sales in Europe and with a market cap greater than $5 billion underperformed other major averages in 2011, according to Thomson Global Markets data.

An index of 161 names meeting that criteria lost 13 percent in 2011, compared with a 5 percent drop for the MSCI World Index. Cisco Systems, which gets 56 percent of sales from Europe, is the largest U.S. name in this group.

Many other U.S. companies have less exposure to Europe than Cisco, but still generate a substantial portion of their sales - 20 to 30 percent - there. In these cases, it would take a more severe recession to hurt their revenues.

In a report on Thursday examining a number of industrial equipment companies, Morgan Stanley analysts pointed out that many executives were "cautiously optimistic" with expectations for a mild recession in Europe. Companies in that industry are expecting 4 to 6 percent revenue growth in 2012, but Morgan Stanley said "short-term trends" suggest estimates could fall short of that if world growth slows.

Companies including Dover Corp and Illinois Tool Works would be hurt, they wrote. Dow component 3M would also be hit in a "deep recession" in Europe.

"If we're dealing with organic revenue growth, you're going to be seeing earnings declines," said Hackett.

"In some cases, in the more cyclical businesses, it could be very severe, and I do not believe the stock market has priced in what the likely reality is."

Google's stock on Thursday was downgraded by brokerage Benchmark Co, whose analysts expect Google to suffer a decline in European advertising revenue.

PROFITS EYED FOR REBOUND

A drumbeat of negative preannouncements is also raising some concerns.

The ratio of negative to positive preannouncements over the last four weeks is at 3.3, and it hit a 10-year high late in December. The long-term average is 2.3, according to Thomson Global Markets data.

"The number of companies issuing negative guidance during the fourth quarter has increased, and this perhaps has flown a little under the radar screen over the last few weeks in our judgment," Morgan Stanley analysts wrote in a 2012 outlook. The firm expects the S&P 500 to end 2012 at 1,167, which would be an 8.8 percent decline from the current level.

The euro zone's weakness has another detrimental effect. Strength in the dollar against the euro will increase headwinds for earnings, because it makes U.S. goods more expensive in Europe.

"Each 1 percent appreciation in the U.S. dollar corresponds to an expected 0.97 percent decline in aggregate earnings," Morgan Stanley wrote.

Still, many stock strategists are hoping healthy sales from the United States, where the economy is slowly improving, will more than offset the negative impact of Europe.

"Europe is clearly the caboose on the train...(but) I don't think the caboose is as bad as most people think it is," said Ken Fisher, a billionaire investor whose money management firm oversees $40 billion in assets.

"At a time when people have been fearful of a weak Europe, the economy in America has been consistently stronger than people have though it would be," he added.

Several blue-chip companies with heavy exposure to Europe performed well in 2011. McDonald's, for instance, derives 42 percent of its sales from Europe, and it was the Dow's best performer last year, rising 31 percent.

Kraft Foods generates 32 percent of sales in Europe, and its stock rose 19 percent in 2011. And Apple gets 26 percent, according to Thomson Global Markets data, and its stock was up 25.6 percent.

Those gains would be in danger if Europe's fundamentals worsen.

Big-cap multinationals have "become a bit of a darling here in the last couple of months...they're probably more vulnerable to disappointments," said James Dailey, portfolio manager of TEAM Asset Strategy Fund in Harrisburg, Pennsylvania.

(Reporting By Caroline Valetkevitch; Editing by Leslie Adler)

Focus Media denies fresh Muddy Waters allegations

Stock Market Predictions

The Carson Block-led firm said Focus Media's purchase of Hunchun Shengtai Ginseng Plantation Co Ltd was "not kosher" and questioned the purpose of the acquisition.

The ginseng plantation in Jilin Province in northeast China "seems to have no operations," Muddy Waters wrote in a note.

Focus Media said there were no improprieties involved in the transaction, which was aimed at gaining some tax benefits.

The company will release additional information about the deal on January 9.

In November, Muddy Waters began coverage of Focus Media with a "strong sell" rating, saying the Shanghai-based firm had inflated the number of its LCD advertising display screens.

The company had denied the allegations saying the short seller was misrepresenting information.

Short-sellers -- who borrow stocks and then sell them in the hope they can later buy them back for less -- have targeted Chinese companies listed in North America, alleging fraud and mismanagement, and wiping out billions of dollars of shareholder value.

U.S.-listed shares of Focus Media closed down 5 percent at $18.63 on Friday afternoon on the Nasdaq. The stock has fallen 27 percent since Muddy Waters' first leveled allegations against the company.

(Reporting by Soham Chatterjee in Bangalore; Editing by Joyjeet Das)

UniCredit 3-day share plunge reaches 37 percent

Stock Market Predictions

The shares closed down 11.1 percent at 3.98 euros on Friday, the last trading day before the new share offer takes effect on Monday, extending losses over the past three days to 37 percent.

Since it priced the rights issue on Wednesday, UniCredit's market capitalization has fallen from 12.2 billion euros to 7.68 billion, a shade above the total amount of the new share offer.

UniCredit's rights issue is a litmus test of investor appetite for banking stocks at a time when many European lenders are under pressure to shore up their capital buffers to withstand a spreading debt crisis.

To meet the new requirements, UniCredit must plug an 8 billion-euro capital shortfall -- the biggest shortfall for a single bank after Spain's Santander (SAN.MC).

The Milan-based lender, the first big European bank to launch a share offer since the tougher capital requirements were introduced, priced its two-for-one rights issue at 1.943 euros per share.

That represents a 43 percent discount to the theoretical ex-rights price, a much higher discount than that offered by peers in recent rights issues.

The shares are trading at their lowest since UniCredit was created in 1998 through the merger of several Italian lenders.

"Everyone's selling part of their shares now to buy back through the rights at 1.943 euros," a Milan trader said.

Prime Minister Mario Monti defended Italy's banking system, which he said was among the most stable in Europe and said the turbulence encountered by UniCredit was the result of temporary problems linked to its capital increase.

"The Italian banking system is among the most solid," he told France 24 in an interview on Friday, noting that Italian banks had little exposure to the complex financial instruments that have undermined banks in some other countries.

"I think the difficulties of UniCredit were above all linked to the capital raising exercise, which in this market situation, encountered some temporary difficulties, but the Italian banking system is fundamentally solid," he said.

The three-day drop highlights the struggle European lenders face to raise funds and may deter them from tapping the market as the debt crisis continues.

"After the collapse in the UniCredit share price, many banks will now be looking at other ways to raise capital," said Neil Dwane, chief investment officer in Europe for RCM, a unit of Allianz Global Investors.

The Italian stock exchange said after the close that UniCredit's share price, adjusted for the rights issue, will begin trading on January 9 at 2.622 euros.

The new share offer ends on January 27 and is guaranteed by a pool of 27 lenders, meaning they will take up any portion of the offer that might go unsubscribed.

($1 = 0.7865 euros)

(Additional reporting by Stephen Jewkes and Michel Rose; Editing by David Hulmes and Steve Orlofsky)

Pratt wins $194 million for early work on F-35 engines

Stock Market Predictions

The contract, which runs through September 2012, includes fixed-price line items for long lead components, parts, and materials required for engines to be built for 31 F-35s for the United States, four for Italy and two for Australia, the Defense Department said in a daily digest of major weapons contracts.

The Pentagon negotiates separate contracts with Lockheed Martin Corp (LMT.N), which is developing three variants of the F-35 Joint Strike Fighter for the U.S. military and eight partner countries; and engine maker Pratt & Whitney.

The contract includes engines for 18 conventional take-off and landing (CTOL) variants for the U.S. Air Force; 6 short take-off and vertical landing variants for the Marine Corps; 7 carrier variant for the Navy; four CTOL versions for Italy, and two CTOLs for Australia.

This contract covers only certain materials and parts that the company needs to start buying early. The actual contract for the engines will likely be negotiated later this year.

That means the number of jets and engines included in the advanced procurement deal may yet change, especially since the Pentagon is gearing up to restructure the program and defer work on over 120 jets as part of its fiscal 2013 budget proposal.

The Pentagon is now negotiating contracts for a fifth batch of fighter jets and engines with Lockheed Martin and Pratt, although both companies have received contracts that allow them to start billing the government for certain costs associated with those planes.

(Reporting By Andrea Shalal-Esa, editing by Carol Bishopric)

Motorola Mobility warns of Q4 revenue shortfall

Stock Market Predictions

The company, which has agreed to be bought by Google Inc, forecast fourth-quarter sales of $3.4 billion, below analyst expectations for revenue of $3.88 billion, according to Thomson Global Markets I/B/E/S.

Motorola Mobility said it expects to report "modest profitability" on a non-GAAP basis in the quarter. It shipped about 10.5 million mobile devices in the quarter, including about 5.3 million smartphones, which run on Google software.

Charter Equity Research analyst Ed Snyder noted that part of Motorola's weak performance may come from employee distraction due to the upcoming Google deal.

But Snyder said the results were "really bad" and could also be a bad omen for demand in the broader cellphone market especially after wireless chip maker RF Micro Devices inc posted weak quarterly revenue.

Motorola Mobility said it is still working with Google on gaining approval for their proposed deal, which they still expect to close early this year.

It said its revenue forecast includes $900 million in sales for the home business, which makes television set-top boxes.

The company said that the results were hurt by higher legal costs associated with ongoing intellectual property litigation.

Motorola shares fell slightly to $38.30 in after hours trading, after closing at $38.46 on the New York Stock Exchange. Investors have focused less on its operations than on the Google deal since it was announced on August.

(Reporting by Sinead Carew; Editing by Gary Hill and Carol Bishopric)