Business Technology News

Target retirement funds aren’t for everyone, but they’re a good option for many people who don’t want the hassle of rebalancing their portfolio says Money Magazine’s Walter Updegrave.

NEW YORK (CNNMoney.com) — Stocks were mixed Thursday morning, recovering from an early selloff, as investors mulled Cisco’s weaker sales outlook and a string of weak January sales reports after several down days.

The Dow Jones industrial average (INDU) added a few points in the early going, while the broader Standard & Poor’s 500 (SPX) index gained 0.2%.

The Nasdaq composite (COMP) was little changed, after falling into bear market territory as of the close of trade Wednesday, defined as a drop of 20% from the recent highs.

Cisco (CSCO, Fortune 500) reported higher quarterly sales and earnings that met estimates, in a report late Wednesday. But the tech leader also forecast weaker current-quarter sales growth than what analysts are expecting, sending shares lower Thursday.

A variety of tech shares slumped in tandem as worries about technology spending added to fears of a slowdown.

Stocks have had an abysmal start to the year amid worries that the credit crisis and housing market meltdown has sent the economy into a recession.

Consumers in retreat. Adding to such fears Thursday: further evidence that consumer spending is on the decline, following weaker Jan. sales from a number of the nation’s retailers.

Leading the pack, Wal-Mart Stores (WMT, Fortune 500) reported a smaller-than-expected rise in January same-store sales, or sales at stores open a year or more.

In economic news, the Dec. pending home sales index fell 1.5%, after falling 3% in the previous month.

Other markets. Treasury prices slumped, raising the yield on the benchmark 10-year note to 3.6% from 3.64% late Monday. Bond prices and yields move in opposite directions.

In currency trading, the dollar gained versus the yen and the euro.

U.S. light crude oil for March delivery fell 69 cents to $86.45 a barrel on the New York Mercantile Exchange.

COMEX gold for April delivery added 30 cents to $905.30 an ounce. 

Home prices are likely to decline in 2008 for the second straight year, the National Association of Realtors said Thursday, as the trade group released new readings showing addition weakness in the already battered home sale market.

NEW YORK (AP) — Credit ratings and financial research and analytics provider Moody’s Corp. said Thursday its fourth-quarter earnings fell 54% because of declines in revenue from ratings and structured finance.

Net income fell to $127.3 million, or 49 cents per share, from $278.6 million, or 97 cents per share, during the same period the previous year.

Analysts polled by Thomson Financial, on average, forecast earnings of 47 cents per share for the quarter on revenue of $481.7 million.

Revenue totaled $504.9 million during the fourth quarter.

Continued deterioration of the credit markets pushed Moody’s ratings and structured finance revenue lower as fewer companies rated new bonds and other securities during the fourth quarter.

Revenue at Moody’s Investors Service, the ratings agency division of Moody’s, fell 16% to $460.7 million. Ratings revenue fell 23%. U.S. structured finance revenue plunged 53%, while international structured finance revenue tumbled 17%.

Structured finance deals include bonds and securities backed by assets such as mortgages. As delinquencies and defaults among mortgages has risen in recent months, investors have essentially stopped buying bonds backed by the troubled loans. That has led bond issuers to halt their issuance, leading to a decline in ratings-generated revenue for Moody’s.

For the year, Moody’s earnings fell to $701.5 million, or $2.58 per share, from $753.9 million, or $2.58 per share, in 2006. Earnings per share did not decline with net income because there were fewer shares outstanding in 2007.

The company said its 2008 earnings will decline because of continued weakness in the credit markets.

Moody’s (MCO) anticipates it will earn between $2.17 and $2.25 per share for the year.

Analysts polled by Thomson Financial, on average, forecast earnings per share of $2.13 for the year on revenue of $2.04 billion.

In 2007, Moody’s earned $701.5 million, or $2.58 per share, on revenue of $2.26 billion.

Moody’s said revenue at its ratings agency division, Moody’s Investors Service, will fall in the mid-to-high teens percentage range in 2008 as issuance of new debt will remain low during the first half of the year.

U.S. structured finance revenue - the rating of bonds and securities backed by assets such as mortgages - at Moody’s Investors Service is likely to fall around 45% in 2008, Moody’s said in a statement. 

NEW YORK (CNNMoney.com) — Consumers are feeling pinched and big retailers are paying the price. Wal-Mart (WMT, Fortune 500) reported weak sales growth for January this morning. Several other retailers posted sales declines.

But if you are an investor looking to buy stocks for the long haul, today is a great day - many top retail stocks are now on sale.

Wendell Perkins, chief investment officer of Optique Capital Management, an investment firm that runs three value mutual funds, told me last week that even though times are tough for retailers, conditions will improve sooner than some skeptics think.

Perkins believes consumer spending will bounce back later this year thanks to more Fed rate cuts and the tax rebates that people should get as part of the government stimulus package.

With that in mind, Perkins said his firm has been recently buying shares of department store chain Kohl’s (KSS, Fortune 500). The stock has plunged nearly 40% in the past 12 months and now trades at just 12 times earnings estimates for this fiscal year.

How can you identify retail bargains? Brian Hamilton, CEO of Sageworks, a financial information research firm that values public and private companies, did some number-crunching for me and came up with a list of top retailers that are trading at attractive valuations, have ample amounts of cash and are projected to report healthy increases in operating cash flow.

"There is still growth with some retailers and that’s important," Hamilton said.

Hamilton identified The Men’s Wearhouse (MW), AnnTaylor (ANN) and American Eagle Outfitters (AEO) as companies with positive long-term fundamentals despite concerns about consumers being "queasy." They all trade for less than 15 times earnings estimates and have debt to equity ratios below 1. Kohl’s also made the cut.

Matthew Kaufler, portfolio manager with Clover Capital Management, which runs the Touchstone Value Opportunities fund, agreed that there are some prime buying opportunities.

"Make no mistake. Retailers will be announcing atrocious results. But as a value guy, this is exactly the type of situation we like to buy into," Kaufler said.

Kaufler said his firm has been scooping up jewelry retailer Zale (ZLC). He likes the fact that there is a new CEO who Kaufler expects will be looking to close underperforming stores and buy back more stock.

What’s more, activist investor and former SEC chairman Richard Breeden now has a board seat on Zale. Breeden’s firm owns more than 18% of the company.

The firm was in merger discussions with rival Signet two years ago but the deal collapsed. Still, Kaufler said it would not be a surprise if the company eventually got taken over. And with shares trading at slightly less than book value, he sees little downside.

CVS Caremark (CVS, Fortune 500) is also a big holding in Kaufler’s fund. The company is more than just a drug store chain after last year’s acquisition of pharmacy benefits manager Caremark. But nearly 60% of the company’s sales last year came from its retail business.

So yes, even though the headlines are all making it sound as if nobody is going shopping anymore, this is a good time for smart investors to ignore the worrywarts and buy the right retailers.

Update Yesterday, I wrote about how investors were hoping Cisco CEO John Chambers could give the tech sector a boost if he talked confidently about Cisco’s outlook. He failed to do so and the stock is set to tank today as a result.

Fund manager Ted Parrish perfectly called it: I quoted him saying that Cisco would report good numbers but that Chambers would take the "oomph" out of the report with cautious guidance.

And finally, it’s worth noting that the markets turned tail yesterday after Philadelphia Federal Reserve Bank President Charles Plosser talked about inflation "creeping up."

I wrote two columns last week pointing out that the Fed still needed to be worried about inflation and that investors should not expect many more aggressive rate cuts. Plosser’s comments indicate that the Fed may not have wiggle room to cut rates as drastically as some on Wall Street were hoping for.

What do you think? Are you spending less when you go shopping? 

U.S. stocks opened lower Thursday as weak retail sales and a dismal outlook from Cisco Systems weighed on investors.

NEW YORK (Money) — Question: I’m 23 and make $50,000 a year. I put 8% into a 401(k) with a 4% match and $1,800 a year into a Roth IRA, but I would like to start saving to buy a house. I currently have $10,000 in an online savings account that earns 5% interest. Are stocks too risky for money I want to spend in the next couple years? Will bonds make more than 5% a year?

The Mole’s Answer: Conventional wisdom says that a 23-year-old investor should be mostly in equities. As a general rule, I happen to agree but there is something much more important than your age - it’s the fact that you want to spend the money in the next couple of years. I’m going to try to convince you that the stock market is far too risky for you or anyone needing to spend their investment in the next few years.

Now, clearly the stock market in the long-run is far more likely to outpace savings accounts, bond funds and other fixed income instruments. Let’s say the stock market earns an average of 9% annually and your bond funds only get 5%. That means that in two years, the expected value of your $10K would be $11,881 in stocks vs. only $11,025 if you stick to your current online savings account. Thus, it’s admittedly tempting to go with stocks and get that $856 in extra return.

The problem is that the savings account is relatively certain, while investing in stocks is very uncertain in the short-run, and two years easily qualifies as a short-run. Let’s look at some history.

The chart on the right shows the worst performance of the stock market over the past couple hundred years, adjusted for inflation. The worst the stock market has ever done over a thirty-year period is to beat inflation by 2.6% annually. That’s relatively little risk if you can keep costs low and stay in the market. And I’d recommend you put nearly all of your 401(k) savings in low cost, diversified equity funds.

If you need the money in two years, however, note how risky the market can be over such a short period. Over that period of time, the market has lost nearly 32% per year, which translates to your $10K being worth less than half that amount in two years. Considering such a loss could result in you no longer being able to afford to buy that house, the extra return is probably not worth the risk.

Now there are planners who will tell you that they are bullish on energy stocks, emerging markets, precious metals and the like. I would steer clear of these sectors, as all you do here is place an even bigger bet on a small part of the market. These planners apparently don’t know that they don’t know what the next big winner is, and all they seem to consistently do is recommend a sector after it has already gone up. By then, it’s probably too late.

As long as you think you are on track to save enough over two years, I don’t think the extra risk is worth the extra boost in return. At least, don’t take the extra risk if that goal of buying the house in two years is important to you.

For any funds you need in the next five years or so, stay in relatively conservative, fixed-income instruments. You can go with a high-paying money market - you would now do well to get 4% - or a short-term CD or high-quality short or intermediate bond fund paying 5%. Don’t get greedy and chase an extra 1% yield by buying junk bond funds of companies that could default en masse with a major recession.

Keep doing what you’re doing. Put your long-term 401(k) and Roth IRA money in low-cost equity funds, but keep any money you’ll need in the next few years in safety.

Are you on track for an early retirement? Tell us why at millionaire@cnnmoney.com. Include your financial details and your family could be profiled in a future column of our Millionaire in the Making series.  

WASHINGTON (AP) — The number of newly laid off workers filing applications for unemployment benefits dropped last week, but not enough to indicate that strains on the labor market are easing.

The Labor Department reported Thursday that 356,000 claims for jobless benefits were filed last week, a decline of 22,000 from the previous week. The decline only erased a part of the huge jump of 72,000 in claims from the previous week.

The four-week average for jobless claims rose to 335,000, which was the highest level in a month. 

LONDON (AP) — GlaxoSmithKline PLC reported a 10% drop in fourth-quarter profits Thursday and forecast a decline in 2008 earnings because of weaker sales for its diabetes pill.

Glaxo said that net profit fell to £1.06 billion ($2.1 billion) in the three months to Dec. 31, compared with £1.18 billion a year earlier.

Revenue was little changed at £5.97 billion ($11.63 billion), from £5.96 billion .

Glaxo (GSK) said that it expects the impact of lower Avandia sales and increased generic competition to lead to a mid-single digit percentage decline in earnings per share in 2008.

Sales of Avandia have plummeted in the United States since a report last May by the New England Journal of Medicine that linked the drug to an increased risk of heart attacks. Like other major pharmaceutical companies, Avandia is also facing greater competition from generic drugs as patents expire.

Shares in the London-based company dropped more than 7%, to 1,082 pence ($21.07), after releasing fourth-quarter results. 

HARTFORD, Conn. (AP) — Aetna Inc. said Thursday its fourth-quarter profit rose 3% from membership growth and premium and fee rate increases, and the managed care provider benefited from continued cost cuts and stock buybacks.

Net income grew to $448.4 million, or 87 cents per share, from $434.1 million, or 80 cents per share, a year ago. Excluding items, profit totaled 88 cents per share in the latest period.

Revenue rose 12 percent to $7.14 billion from $6.36 billion a year ago.

Aetna (AET, Fortune 500) had forecast fourth-quarter earnings of about 87 cents per share. Analysts polled by Thomson Financial predicted earnings of 88 cents per share on slightly higher $7.17 billion in revenue.

The company’s combined medical-loss ratio, which measures the amount of money spent on services compared with the amount of payments collected, widened to 80.3 percent for the fourth quarter from 78.8 percent in the 2006 period.

Fourth-quarter total medical membership increased organically by 168,000. Including Goodhealth Worldwide’s 58,000 members, total medical membership at Dec. 31 was 16.85 million members compared with 16.61 million at Sept. 30 and 15.43 million a year ago.

Looking ahead, Aetna forecast first-quarter adjusted earnings of 92 cents per share and 2008 profit of $4.

Wall Street is predicting higher quarterly earnings of 94 cents per share and 2008 earnings per share of $4.03.