As 70% of the QQQQ ETF is comprised of GOOG, MSFT, YHOO and AAPL we think a QQQQ short is decent hedge for now because 4/5 of these technology bellwethers have just released punk EPS.
We still think a bubble persists in the energy markets as we expect global demand to decline in as bloated current account surpluses in India and China melt as their economies have slowed. Our channel checks with global oil shippers indicate that there may be excess oil supply sitting idle in harbors on the Persian gulf, Puerta la cruz and in the Black Sea.
We still like LEH even though there is just 26% upside to our $24 price target. We at sharp Trader are ccontrarians and we like buying companies that have industry leading name brand franchises and trade at very low multiples to 5 year average and peak EPS. LEH is currently trading at just 2.7x peak EPS and 3.8x its five year average EPS.
While LEH has had a hard time in 2008 this company is still a leader in investment banking and we think recovery EPS in the range of $3.50 and $4.50 is realistic.
Moreover we think LEH M&A, trading and investment banking franchise will post solid results once the credit crisis subsides as companies will likely look to merge and raise equity capital to fund growth initiatives.
To get to our $24 target we apply 9x multiple to our 2010 EPS estimate of $4.00 per share and discount our $36 dollar intrinsic value two years using a 20% cost of equity capital.
We also think is LEH's management cannot make a go of it we think its board will seek strategic alternatives and we think LEH shares are worth $24 to $41 in a sale providing LEH's blance sheet does not deteriorate and their no further need to raise equity capital.
