LKQ Corporation : A company that mines value from junk cars

LKQ (NASDAQ : LKQ) buys junk cars and sells parts for repairs. These refurbished parts can cost 25% to 50% less than newly manufactured ones. Insurers have increasingly turned to refurbished parts to reduce their repair costs following collisions. LKQ's vast distribution network, built over 16 years through acquisitions and organic growth, gives it key competitive advantages, like faster delivery times and higher in-stock rates than rivals.

U.S. car sales have rebounded to close to prerecession levels, which will boost the number of newer cars on the road, and those are more likely than old cars to be repaired rather than declared total losses after accidents.

LKQ also has excellent opportunities to expand overseas. In Europe, for example, just 7% of parts used after collisions are alternative parts like the ones LKQ sells, versus 38% in the U.S. Last year, LKQ earned $1.06 a share, and Wall Street expects that number to double by 2016. The stock sells for 19 times this year's earnings forecast of $1.37 a share.


The company has good long term prospects and this makes it a good buy. Long term a target of $35 can be given.

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SENSEX

The S&P BSE Sensex gained as much as 157 points to end at its fresh record closing high of 26,560.15 on Wednesday.

Across-the-board gains were also seen on continued foreign funds inflows amid investors churning portfolios ahead of monthly expiry in equity derivatives tomorrow, say brokers. 

A rally in the Asian markets on upbeat US economic data and easing crude oil price also buoyed market sentiment. 

The prospect of further lashings of liquidity in Europe was taken as a positive for emerging markets and MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.4 per cent to its loftiest since January 2008, Reuters reported. 

Foreign institutional investors reduced the pace of funds flow into Asia in August, but India is still among those countries in the region that received the maximum inflows during the month, an HSBC survey says. 

"China remains the most over-owned market in the region, followed by India," the global brokerage firm said. 

Meanwhile, mutual funds have turned more bullish and bought $8.0 billion worth of Asian equities in the past four weeks (ended August 20) compared with net inflows of $1.1 billion in the previous four weeks, according to EPFR Global. 

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Gold: Declines to a Two-Month Low on Fed Rate Outlook

Gold fell to a two-month low in the longest run of declines since June in London on the outlook for higher U.S. interest rates that strengthened the dollar. Platinum headed for the longest run of losses in 27 years.

Many U.S. policy makers raised the possibility they may boost rates sooner than anticipated, minutes of the Fed’s July meeting showed yesterday. The dollar climbed against 10 major currencies after the minutes, and was little changed after reaching a six-month high today. Futures traders are seeing more chance of rising interest rates by the middle of next year.

Fed Chair Janet Yellen will provide her take on the latest data on labor markets in a speech tomorrow at a meeting of central bankers in Jackson Hole, Wyoming. Gold slid 28 percent last year on expectations U.S. stimulus would be reduced as the economy strengthens. Prices rose 6.6 percent this year, partly as unrest in Ukraine and the Middle East increased haven demand.

The market is still highly sensitive to expectations of what the Fed will do and when. The physical market is still extremely quiet.

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BMW: Highest profitability from car making in three years

Bayerische Motoren Werke AG, the world’s biggest manufacturer of luxury autos, reported its highest profitability from car making in three years as the X5 sport-utility vehicle won customers and demand rose in China.

Second-quarter earnings before interest and taxes at the auto unit widened to 11.7 percent of sales from 9.6 percent a year earlier, Munich-based BMW said today in a statement. The margin was the highest since the third quarter of 2011 and beat figures of 9.9 percent at Audi AG, the world’s second-largest maker of premium cars, and 7.9 percent at Daimler AG (DAI)’s Mercedes-Benz Cars unit.

BMW, which reiterated a 2014 forecast today of a significant increase in pretax profit, is introducing 16 new or refreshed models this year to win customers and fend off efforts by Volkswagen AG’s Audi and the Mercedes brand to take the global premium-car sales lead by 2020. First-half sales of the full-size X5 jumped 30 percent, while the up-market 5-Series sedan won 7.6 percent more buyers.

BMW plans to deliver more than 2 million vehicles in 2014, including the Mini small-car and Rolls-Royce ultra-luxury marques, reaching an annual sales target two years ahead of schedule. First-half group deliveries rose 6.9 percent to 1.03 million cars, including a 10 percent jump at the BMW brand. Including the Mini nameplate, the car maker’s Chinese sales surged 23 percent in mainland China in the period.

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EU & US Impose Sanctions on Russia

Russia responded angrily on Saturday to additional sanctions imposed by EU, mentioning that they would hamper cooperation on security issues and undermine the fight against terrorism and organized crime.

EU reached an agreement on Friday to impose economic sanctions for the first time on Russia, over its behavior in Ukraine. Also, it imposed travel bans and asset freezes on the chiefs of Russia's FSB security service and foreign intelligence service and a number of other top Russian officials

Russia Foreign minister mentioned that, the sanctions is a direct evidence that EU countries have set the stage for scaling down cooperation with Russia over the issues of international and regional security. This includes fight against the proliferation of weapon of mass destruction, terrorism, organized crime and other new challenges and dangers

Important to note, US and other western countries accuse the separatists of downing the plane MH17 with a surface-to-air missile supplied by Russia. Although, the separatists deny shooting down the plane and Russia says it has provided no such weapon. US & EU cleverly calibrated and mutually agreed on measures which are certainly pressurizing towards and willing to have a serious talk with Russia 

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RBS First-Half Profit Doubles.

The stock jumped as much as 15 percent, its biggest intraday gain since October 2011.

Royal Bank of Scotland Group Plc (RBS) said pretax profit almost doubled in the first half and forecast that it will meet a target to cut costs by 1 billion pounds ($1.7 billion) in 2014. 

Pretax profit at Britain’s largest state-owned lender may have increased to 2.65 billion pounds from 1.37 billion pounds a year earlier, RBS said in a statement today. Operating profit probably jumped to 2.6 billion pounds from 708 million pounds, according to the results, which were released a week early.

Impairment losses slumped 1.88 billion pounds to 269 million pounds, according to the statement. At its bad bank, RBS reported lower provisions following the sale of assets at more favorable prices. The bank made additional provisions of 150 million pounds for wrongly sold payment-protection insurance and 100 million pounds for interest-rate swaps.

“The results we are posting today show the steady progress we are making as we take the steps to be a much simpler, smaller and fairer bank,” the CEO said in the statement. 

These results show that underneath all the noise and huge restructuring of recent years, RBS is a fundamentally stronger bank that can deliver good results for customers and shareholders.

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India’s Rupee Rises as Monsoon Revival Tempers Inflation

India’s rupee strengthened the most in more than a week as a pickup in seasonal rainfall tempered concern inflation will accelerate. The deficit in the June-September monsoon, which accounts for more than 70 percent of India’s annual rainfall, has narrowed to 27 percent of the 50-year average, the weather department said yesterday. The gap was 43 percent on July 11.

Gains in India’s consumer-price index slowed to 7.31 percent in June, the least since the gauge was introduced in January 2012. The rupee climbed 0.1 percent to 60.1875 per dollar as of

10:30 a.m. on 22nd of July in Mumbai. That’s the biggest gain since July 11. The yield on the 8.83% sovereign notes due November 2023 was little changed at 8.69 percent, according to the Reserve Bank of India’s trading system. That’s the lowest since July 4.

A revival in monsoon rains would be seen as a positive. The rupee is likely to remain range-bound as the RBI seeks to keep the currency stable. The rupee also gained amid increased capital inflows. Global investors have pumped more than $4 billion into the nation’s bonds and stocks this month as Prime Minister Narendra Modi’s government unveiled plans to narrow the budget deficit and allow more foreign investment in industries.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 27 basis points, or 0.27 percentage point, to 5.97 percent in Mumbai. Three-month offshore non-deliverable forwards on the rupee rose 0.1 percent to 60.94 per dollar. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in the greenback.

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Newsletter for 24th of July

EVENTS & FINANCIAL NEWS

CURRENCIES

The U.S. dollar rose to eight–month highs against the euro on Wednesday as worries over tougher sanctions on Russia and their potential impact on fragile euro zone growth weighed on the single currency. The dollar could only post modes gains, however, as attempts to push the euro below a key technical level at $1.3450 failed. The greenback had taken out some technical barriers on Tuesday after U.S. inflation data showed prices increasing, though the increase was more subdued than some had expected. Dollar gains were more subdued on Wednesday with no major economic releases and before the Federal Reserve is due to meet next week. Further escalation of tensions between Russia and Ukraine could weigh further on the euro if more trade sanctions are enforced on Russia. The Australian dollar was the largest mover of the major currencies, gaining 0.69 percent to US$0.9455 after a higher-than-expected reading of a key gauge of underlying inflation in June in Australia dented market speculation of future rate cuts. The U.S. dollar meanwhile gained 0.17 percent against the British pound to US$1.7034, after BOE minutes failed to boost expectations of an interest rate hike by year-end. The dollar index was steady on the day at 80.714.

STOCKS

U.S. stocks ended mostly higher on Wednesday with the S&P 500 closing at a record on Apple's bullish results, though Boeing weighed on the Dow and conflicts in Ukraine and the Gaza Strip kept the broader market's gains in check. Apple Inc gave one of the biggest lifts to the market, rising 2.6 percent to $97.19 as concerns faded about the iPhone maker's margins. Microsoft Corp rose 0.1 percent to $44.87 after the company said it aimed to get its money-losing Nokia phone unit to break even within two years. Facebook Inc posted stronger-than-expected revenue growth and its stock climbed 3.5 percent to $73.80 in extended-hours trading. TripAdvisor Inc shares tumbled 9.4 percent to $97.25. The Dow Jones industrial average fell 26.91 points or 0.16 percent, to end at 17,086.63. The S&P 500 gained 3.48 points or 0.18 percent to close at 1,987.01, surpassing the record set on July 3. The Nasdaq Composite added 17.68 points or 0.4 percent, to 4,473.70. Boeing Co fell 2.3 percent to $126.71. The U.S. aircraft maker reported a 52 percent jump in quarterly profit,but investors were spooked by rising costs in its military tanker program. PepsiCo rose 1.9 percent to $90.82. Puma Biotechnology nearly quadrupled, up 295.4 percent to $233.43 on heavy volume.

METALS

Gold fell for a second day on Wednesday as gains in U.S. equities and dearth of new developments from conflicts in Ukraine and the Middle East prompted investors take profits. Sluggish physical demand in Asia in the seasonally quiet summer period is also weakening support for any price rally, dealers said. Spot gold has traded within its narrowest monthly range in nearly five years so far in July, as strong equity markets divert investment interest from gold. Spot gold was down 0.2 percent at $1,304.55 an ounce. U.S. COMEX gold futures for August delivery settled down $1.60 an ounce at $1,304.70, with trading volume about 30 percent below its 30-day average, preliminary Reuters data showed. Among other precious metals, spot silver was unchanged from Tuesday's close at $20.88 an ounce. Spot platinum slipped 0.2 percent to $1,476.20 an ounce, while spot palladium was down 0.2 percent at $868.43 an ounce. Data released on Tuesday showed palladium shipments from top producer Russia to Switzerland, a major refining and trading hub, dropped in June after rising sharply in the previous two months. Palladium prices hit 13-year highs this month, in part due to concerns that supply of the metal from Russia may be threatened by its stand-off with the West over Ukraine.

ENERGIES

Crude oil futures rose on Wednesday, as oil stockpiles in the United States fell more than expected and geopolitical tensions in Eastern Europe and the Middle East persisted. U.S. crude's gains outpaced Brent's for most of the session, after a government report showing that U.S. crude stocks fell by 4 million barrels last week, but Brent caught up as traders covered short positions ahead of the close. The U.S. EIA also reported crude oil inventories at Cushing, Oklahoma, the delivery point of the U.S. crude contract, fell by 1.45 million barrels. Brent crude for September delivery rose 70 cents to settle at $108.03 and continued to climb in post-settlement trade to stand at $108.19. U.S. crude for September delivery rose 73 cents to $103.12 a barrel. U.S. crude's discount to Brent dropped to $4.51 earlier in the session, near a three-month low, as high domestic refinery utilization rates signaled strong near-term demand for crude oil and low inventories at Cushing. It ended the day at $4.91. Brent has fallen about 7 percent since mid-June as low profit margins have crimped European refiners' demand for crude. Fuel storage tanks that supply Tripoli were hit on Wednesday in clashes between rival Libyan militias, igniting a huge blaze near the international airport. WASHINGTON - U.S. Treasury Secretary Jacob Lew will deliver remarks at the Inaugural Rural Opportunity InvestmentConference hosted by the White House Rural Council. WASHINGTON - Energy Information Administration issues weekly U.S. underground natural gas stocks - 1430 GMT.

DISCLAIMER - The information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified.Century Financial Brokers L.L.C. (CFB) assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable fordamages arising out of any person's reliance upon this information.

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Australia's Economic Outlook, AUD/USD

Australia's CPI gained more than expected, sending the Australian dollar to its highest in two weeks, hence being an obstacle to further monetary policy easing.

The big price increases were focused in health care, especially private health insurance, the purchase costs of new homes and a tax-driven spike in tobacco. 

As a consequence, accelerating inflation poses a dilemma for RBA, as it would prefer a weaker currency due to slowdown in growth and government spending cuts.

The central bank aims for inflation of between 2 percent and 3 percent on average. Most likely, RBA will keep current rates on hold at least through 2014 to ensure the recovery remains on track even though inflation is at the upper end of the target.

RBA is trying to revive the economy away from the mining regions, where investments are fading, and stimulating growth in manufacturing, residential construction and retail.

Locking up inflation is the strength of the local dollar which is suppressing import prices while also forcing domestic businesses to stay competitive. That is one reason wage growth has slowed to just 2.6 percent a year, while unit labor costs have gone flat as productivity improved markedly. 

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Apple signals new products are near with larger iPhone.

Apple Inc. (AAPL) signaled that the long wait for new products is nearing an end.

With bigger-screen handsets in development, Apple said yesterday that shoppers are delaying buying new iPhones, which will weigh on sales in the current quarter ending in September. Yet rather than dissuade buyers from procrastinating, Apple stoked anticipation for new devices on a conference call, with Chief Executive Officer Tim Cook talking about an incredible pipeline that we can’t wait to show you, and finance chief Luca Maestri declaring it would be a very busy fall.

Looking ahead to new gadgets is the main reason investors barely reacted to Apple’s fiscal third-quarter results yesterday. The world’s most valuable company posted a 12 percent rise in net income to $7.75 billion and a 6 percent revenue increase to $37.4 billion, with strong iPhone and Mac sales making up for a drop in iPad demand.

Apple has released new iPhones each September for the past two years.

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Apple Earnings Preview: Will Apple be able to meet Wall Street expectations?

Tuesday afternoon, all traders especially tech traders would have their eyes wide open while Apple posts its Q3 earnings. This quarter is usually quite slow on sales for apple due to the estimated product refresh during the end of the year before the holiday season. Expectations would be quite high from Apple this time around as we saw a massive beat last earnings and the surge in the share price over the past few months.  Below are the results that the company has posted in the past.

Past Results	Q3 2012	Q3 2013	Q2 2014
Revenues ($B)	$35.02	$35.32	$45.65
EPS	$9.32	$7.47	$11.62
EPS – split adjusted	$1.33	$1.07	$1.66
Gross Margin	42.81%	36.87%	39.32%
Operating Margin	33.04%	26.05%	29.78%
Profit Margin	25.19%	19.53%	22.40%

During the last earnings here’s the guidance from Apple for fiscal Q3, 2014:

Guidance	Q3 2014
Revenue ($B)	$36 - $38
Expected EPS – split adjusted	$1.23
Gross Margin	37% - 38%
Operating expenses ($B)	$4.4 – $4.5
Other Income	$200m

Estimating the Q2 diluted share count according to the guidance we came up with the figure of $1.23, thus any EPS number that is projected between $1.08 and $1.23 would be seen as growth year on year for Q3. On the product side we could see a growth on the sales numbers on the iPhone due to addition of carriers like China Mobile and new products like the iPhone 5c added in the phone line- up. The iPad could see a rise in sales numbers as compared to the last years as the sales fell short of estimates last year due to problems in inventories. Reports suggest PC sales to have increased thanks to the strong ecosystem of Apple whereas the iPod could see a strong decline in its product line up due to Apple moving towards wearables in the near future. Will Apple beat its earnings tomorrow? What are your thoughts on the earnings? 

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John Helms for 21st of July 2014

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Alibaba seen presenting IPO discount to escape listing flop.

Alibaba Group Holding Ltd. (BABA) may price its initial public offering about 22 percent below analyst valuations, according to a survey of estimates, a move that could avoid repeating the listing flop of Facebook Inc. (FB)

China’s biggest e-commerce company may set the IPO value at $154 billion, according to the average estimate of five analysts surveyed by Bloomberg. The same analysts see the post-listing valuation as $198 billion. 

Alibaba’s IPO may be the biggest in U.S. history when it lists on the New York Stock Exchange as the company attracts investors keen to tap into the surging Chinese economy and the world’s biggest pool of Internet users. Valuations of the company surged from $62.5 billion about a year ago after earnings nearly tripled, with a listing discount seen as a way to avoid the plunge that greeted Facebook’s debut in 2012.

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The Road Ahead for the British Pound.

The Sterling has been the talk of the town for months now as it has been breaking multi year highs to reach its current price. None the less, the next question is what to do now?

The British pound continues to see mixed conditions against the US dollar gains witnessed earlier in the week as the USD strengthened across the board.  The mixed picture for GBP/USD actually fits in with the viewpoint at Scotiabank that holds a year-end forecast for the pair to end at current levels.

The recent short-term forecast for the pound dollar rate has been mixed with about of weakness taking us up to the Tuesday positive inflation report. However, with such a strong inflationary reading would suggest near-term forecasts are due to be revised higher as short-term resistance levels continue to be breached.

In the longer term, the break of the major resistance at 1.7043 calls for further strength. Resistances can be found at 1.7332 (see the 50% retracement of the 2008 decline) and 1.7447 (11/09/2008 low). A support lies at 1.6923.

Adding to the positive technical picture facing cable is the underlying fundamental picture which suggests interest rate rises will start to happen within months - rising interest rates are a currency-positive. All indications from Governor Carney are that interest rate hikes are likely to begin earlier than the market expects but prove slow and cautious.

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Short-Term View on INR

Rupee ended the session flat on Wednesday as the dollar strength overseas and greenback buying by state run banks were offset by gains in local shares. The rupee also failed to move significantly after data showed exports in June rose 10.22 per cent from a year earlier and overall analysts called the numbers mixed. A major reaction to the trade deficit data was not expected as the numbers were positive on certain fronts and negative on some others. The rupee expected to continue trading in a narrow range until new cues come in. 

The rupee continues to be weighed down by dollar demand from state-run banks for oil and defense related payments and by gains of the US currency overseas following a comment by Federal Reserve head Janet Yellen that US rates could rise sooner if employment numbers continued to improve. The partially convertible rupee ended at 60.12/13 per dollar, unchanged from the Tuesday closing. 

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Equities vs Gold: Your Choice Made Simple

As a general dilemma, it is difficult to forecast the future. A few weeks ago, forecasters predicted that Brazil would win the World Cup, and as a matter of fact they badly lost against Germany. In recent weeks it has been easy to find bullish comments related to gold based on inflation worries, European banking risk, and Iraq. The question now is, should we consider gold over stocks?

Since the past two days (14-15/07/14) gold declined approximately 36.64% and 21.60% correspondingly, accounting record volumes traded. Its biggest decline in almost seven months as Portuguese banking concerns eased, Israel ceased fire, equities advanced and dollar strengthened. The Fed suggested an improving US economy and the fact that they might hike rates in 2015, which is sooner than expected. Meanwhile, The S&P’s 500 jumped up after Citigroup, JP Morgan, Well Fargo and Goldman Sachs reported profit that exceeded analysts' estimates.

As seen in the chart below, investors have favoured stocks relative to gold.

Bearish Outlook for India’s Demand for Gold

India is considered to be one of the biggest consumers of gold, but we believe physical demand will remain short. Important to note, that the country has decided to maintain a 10% import duty on gold and silver, which will further have a dampening effect on future gold demand expectations. Also, with a monsoon season coming up indicates a low average gold demand from India.

Besides, last week’s European driven pullback in stocks, the longer-term outlook for equities is still favourable. Fed is likely to maintain low interest rate to revive inflation. Thus, US equities will continue to rally. The S&P 500 has been hitting records on expectation that the Fed has no incentive to end its ultra-loose policies. In fact, it is more prone to wait until inflation picks up and the housing market recovers sufficiently, the same goes with the labour market

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Wells Fargo & Company: Improving credit conditions

Over the second quarter of 2014, Wells Fargo & Company benefited from a broad-based loan growth, increased deposits, and continued improvement in credit quality. Wells Fargo reported net income of $5.7 billion for the second quarter of 2014, up 4% from $5.5 billion reported in the same quarter last year, as the company grew both net interest and non interest income. Additionally, the San Francisco, CA based bank holding company continued to maintain a strong deposit franchise and a diversified business model. Wells Fargo effectively managed costs and credit quality, which built on the institution’s already strong position. 

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Banco Espirito Santo Jolts the European Market

The equity markets saw a major sell over the past few days due to major concerns over the financial health of a major Portuguese lender. Banco Espirito Santo SA saw major rating agencies such as S&P and Moody’s sharply downgrading the long term debt rating. The principle reason for the downgrade was due to the massive exposure the bank has to the ultimate parent company Espirito Santo Group.  These concerns saw the Portugal’s benchmark index lead the declines of 4.2% followed by exchanges in Spain, Italy, France and Germany to name a few, giving negative closing for the week. This sparked concerns across the Atlantic Ocean with the Dow Jones Industrial Average giving a 1.1% drop during the day.

Banco Espirito Santo SA

The major problem with the bank is that it is poorly capitalized despite raising additional capital after a bad result in the 2011 stress tests and is expected to do badly in the upcoming stress tests in October 2014. Bailing out its own parent company would be likely to mean bailing in its own creditors but possibly not all of its creditors.

PSI 20

The markets seem to have recovered quite well after the announcement by the Central Bank to bring forward a new CEO and a CFO much earlier than they had previously planned. Moody’s Investors Service said on July 11 that “the problems detected at the parent company of Banco Espirito Santo and their likely impact on the wider banking system should not have a significant impact on the sovereign’s credit metrics and the macroeconomic fundamentals of the country.”

DAX

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