Thursday, February 25, 2010

Americas Equity Morning [morgan stanley] .02.25.10

Strategy/Economics/Portfolio Changes

We like buying put spreads in the Materials and Energy sectors, given rich out-of-the-money puts

and high sensitivity to slowing global demand, China tightening, etc. We suggest names that

could serve as hedges against macro-driven weakness.Visa’s upcoming analyst day could serve

as a positive catalyst and we think options are relatively cheap. We like overwriting AET ($29.56),

EXPE ($22.63), and PFG ($23.20),where we think the near-term upside story is largely priced in

at current levels.We continue to like call spreads on ORCL ($24.77) and BAC ($16.33),

overwriting DOW ($29.00) and BG ($60.05), and put spreads on NVDA ($16.55). Following

HRB’s ($17.32) decline and our analyst’s upgrade, we no longer like buying puts.

Economics Calendar

02/24: New Home Sales (January), forecast: 340,000

02/25: Durable Goods Orders (January), forecast: 0.0%

02/26: Real GDP (Q4 revision), forecast: +5.9%

02/26: Existing Home Sales (January), forecast: 5.50 million units

Consumer Price Index (January)

The headline was reasonably close to expectations but the outright decline in the core represented a significant surprise. The key driver was an unusually large drop in the shelter category (-0.5%), which has a weighting of slightly more than 40% in the core CPI. The drop in shelter reflected ongoing softness in owners equivalent rent (OER) and a steep decline in January hotel rates.

Consumer Confidence (February)

Very weak report. The overall Conference Board index plunged 10.5 points to 46.0, low since April. Much of the weakening was

in the expectations gauge, which dropped sharply to a seven-month low after having reached a more than two-year high in January. link

Trading Info

Americas Equity Morning

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