11:40pm (EST)

1.  Market Summary

2.  Growth Missing at Electronic Arts   

3.  Juniper Networks Nears 52-week High               

4.  Earnings     

5.  Gold, Dollar, and the Week Ahead

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1. Market Summary

The market went on another wild ride on Friday following September’s huge gains but the bears managed to win the week despite the bulls best efforts to break through resistance levels.  The bulls have ignored negative news over the past month as far as economic data but last week we saw mixed reactions which could suggest the market is becoming more volatile.  The bears are now reacting hard and swift on Debbie Downer news while the bulls are take any and all positive news to push the market higher.

The Dow had screamed to a high of 10,866 on Friday, a gain of nearly 100 points within the first 30 minutes, before falling into negative territory an hour later after the ISM numbers came out.  The Institute for Supply Management said its manufacturing index slipped to 54.4 in September, down from 56.3 in August.  The decline was actually smaller than Wall Street had anticipated, but a notable drop in new orders and backlogs had the bears on attack.

However, the bulls were able to recover and managed to take the Dow back into positive territory as the index finished with a gain of 42 points, to settle at 10,829.  Despite the bullish tone, the index actually finished the week down 31 points, or 0.3% but is up 3.9% YTD.  Resistance remains at 10,950-11,000 for the Dow while 10,600 is near-term support.

The S&P 500 added 5 points and closed at 1,146 after battling the 1,150 level for much of last week.  The index ended the week down 2 points, or 0.2%, but broke through 1,150 on Thursday as it traded to a high of 1,157.  However, the S&P failed to close above this area had actually put in a bearish reversal that day that might be worth watching goinf forward.  For the year, the S&P 500 is up 2.8%.  We mentioned resistance at 1,175-1,200 on a breakout for the bulls but until 1,150 is cleared and held, the bears will be around.  They are trying to push the index back below 1,130-1,125. 

The Nasdaq stumbled to the finish line as it spent most of the session in negative territory but managed to climb 2 points on Friday and finished at 2,370.  Tech fell 10 points, or 0.4%, and kissed the 2,400 level last week which we mentioned would be resistance.  This is still the case but a break below 2,350 will get the bears going.

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2.  Growth Missing at Electronic Arts

Electronic Arts (ERTS, $16.44, down $0.01) is one of the largest video game software companies in the world.  With great game franchises like Medal of Honor, The Sims, Madden Football, NCAA Football, FIFA Soccer, Tiger Woods PGA Golf, NHL and Need for Speed, this company racked up over $4 billion in sales during their recently ended fiscal year.  For 2010, EA earned $0.44 a share and is expected to earn $0.58 for 2011 on sales of $3.8 billion.

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As you can see from the titles, EA has relied heavily on its sports games, most of which have been around for a while. The Madden games have pulled in over $3 billion alone with over 85 million copies sold.  Unfortunately, the series is starting to get long in the tooth for most gamers although it is still one of the most popular games in the company’s war chest.

The popularity of its sports games provide a very stable income, but Electronic Arts is lacking growth and they no longer have the star power of some of the big franchises, like HALO.  This game sold $200 million in just the first 3 days of release which is something you are not going to see FIFA World Cup do anytime soon.

Beyond the sports games, they again have some older hits like Medal of Honor and The Sims which are real consistent sellers, but the stock is not all that exciting from an investment perspective with little opportunity for growth.  Their next major release is Harry Potter and the Deathly Hallows which is due out in 2010, but doesn’t Harry seems so yesterday already.   

This lack of growth can be clearly seen in this company’s slowing, or flat, revenues. In 2007, EA did $3.1 billion in sales, $3.9 billion in 2008, $4.1 billion in 2009, and 2011 is already projected lower from this year’s numbers.

As such, shares have been trading at the low end of their 52-week range of $14.06-$21.05, and well off the all-time high of $71ish.  This is what happens when a growth stock bites the dust.

Most games are available on a wide range of platforms like the Xbox, PSP, and on computers, as well as cell phones.  The company’s strength has always been “shrink wrapped” games that are bought for the console, but as more and more people moved to social gaming, online gaming, and cell phone gaming, EA realized it needed to evolve.

The company recently acquired Playfish Limited to help shore up its social gaming experience.  Playfish primarily operates through Facebook with older games like Pet Society and Who Has the Biggest Brain and has already started to put out “new” titles in conjunction with EA like Madden NFL Superstars and FIFA Superstars.  While Playfish is interesting, it makes up a fraction of the revenue for EA

Takeover chatter in this space runs rampant, as EA itself, has been the subject of a takeover target or an acquirer depending on the latest water cooler talk.  EA has cash so it can make acquisitions but it is an attractive takeover target, especially if 3D gaming catches on.

Although shares look reasonably priced at these levels, we would like to see more growth from this company before looking at it as an investment.  The real growth of gaming going forward will depend on how big mobile and 3D grow and EA will face some challenges.  There is a chance shares could fetch $24 on a buyout offer but the ceiling looks capped at $20 for this stock. 

Electronic Arts will update Wall Street on their earnings on November 8.

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3. Juniper Networks Nears 52-week High

Juniper Networks (JNPR, $30.30, down $0.05) designs and sells internet routing and switching network gear and is in direct competition with Cisco Systems (CSCO, $21.91, up $0.01).  This former Internet darling once traded to an all-time high of $240 in September 2000, and the recent 52-week low is at $22.25 but shares are up nearly 40% in 3 months so we thought we would take a closer look.

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Back in July, the company reported revenue of $978 million for the quarter, up 24% year over year. Earnings per share rose to 30 cents from 19 cents a year earlier, and were a penny higher than estimates.

However the stock did not move much on the news, falling 18 cents that day to $26.51, as analysts didn’t seem to like their guidance.  The company forecast revenue coming in at $1 billion for the third quarter, which was higher than the street expectations of $954 million.  Analysts didn’t like their earnings guidance of 30-32 cents a share either, even though consensus was for 31 cents.  Regardless, smart investors saw an opportunity as shares have found new support above $30.

Juniper is a key player in a growing space, and they are getting their fair share of the business as the wireless companies continue to build out there smart phone infrastructure.  Verizon (VZ, $32.89, up $0.30) has shifted $10 billion in capital expenditures away from FIOS and towards cell infrastructure as they prepare for the tsunami that Apple’s (AAPL, $282.52, down $1.23) products are creating (iPhone & iPad).

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Juniper is expected to have $4 billion in revenue this year and $4.7 billion in 2011.  Their market cap is only $16 billion compared with Cisco’s $122 billion, and they are growing faster.  With an implied growth rate of 17%, and the stock only trading at 21x forward earnings, you can see why this stock has caught our attention.

According to our research, there are 9 Strong Buy recommendations, 9 Buy, 22 Hold, 3 Underperform, and 1 Sell rating on the stock.   Analysts are on the fence recommending you “hold” the stock but shares could explode if Juniper comes in with a super quarter and some of those Holds turn into Buys or Strong Buys.

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4.  Earnings  

MONDAY – Mosaic Company (MOS, $59.62, up $0.86).

TUESDAY – Diamond Foods (DMND, $41.26, up $0.27), Team (TISI, $17.86, up $0.65), Wolverine World Wide (WWW, $29.12, up $0.11) and Yum! Brands (YUM, $46.48, up $0.42).

WEDNESDAY – Acuity Brands (AYI, $44.75, up $0.51), Immucor (BLUD, $19.93, up $0.10), Cellu Tissue Holdings (CLU, $11.92, down $0.01), Helen of Troy Limited (HELE, $25.82, up $0.53), Marriott International (MAR, $36.28, up $0.45), Robbins & Myers (RBN, $26.65, down $0.13), Richardson Electronics (RELL, $11.00, up $0.50), RPM International (RPM, $20.04, up $0.12), Ruby Tuesday (RT, $12.34, up $0.47), Constellation Brands (STZ, $17.77, up $0.08), and Village Super Market (VLGEA, $27.73, down $0.21).

THURSDAY – Alcoa (AA, $12.23, up $0.12), AngioDynamics (ANGO, $15.24, flat), Cantel Medical (CMN, $16.32, up $0.12), International Speedway (ISCA, $24.46, up $0.06) and Pepsico (PEP, $67.00, up $0.56).

FRIDAY – Life Partners Holdings (LPHI, $18.41, down $0.62).

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5.  Gold, Dollar, and the Week Ahead

The U.S. dollar continued to tank, which made oil more attractive to traders holding foreign currencies.  Oil jumped $1.61, or 2%, to finish at $81.58 per barrel – a 7-week high, and was up 6.6% for the week.

Meanwhile, gold continued its blistering pace to fresh highs.  The yellow metal peaked at an all-time high of $1,322 on Friday before settling with a gain of $8, or 0.6%, to $1,318/ ounce.

The volatility has started to pick up and we think Friday’s action is only a sign of things to come.  Earnings season will “officially” kick off on Thursday as Alcoa (AA, $12.23, up $0.12) will announce their quarterly results but the real action won’t start until next week.  We covered earnings for this week and the economic calendar is light but Friday will be a big day as we get the latest unemployment numbers.

We will be back Monday morning at 9am (EST) with our next update!

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