Amazon falls back but valuation still defies sense

At the end of last week, Amazon (AMZN) reported a 68% gain in first-quarter earnings. At one stage during trading on Thursday the company's shares moved over $150 and at their current $143, they still trade at 47 times forward earnings. For the first quarter of 2010, Amazon reported net income of $299 million, or 66 cents a share, compared with net income of $177 million, or 41 cents a share, for the same quarter in 2009 and compared with expectations of 61 cents. Revenue grew 46% to $7.13 billion, ahead of analyst expectations of $6.87 billion. Operating margins were 5.5% compared to 5% for the same period last year.

For the June quarter, Amazon said it expects net sales to come in between $6.1 billion and $6.7 billion. Analysts had been looking for $6.4 billion in sales for the period.

Though Amazon is the undoubted king of e-commerce, it still seems extraordinarily expensive on normal valuation grounds e.g. p/e, book value. Though most analysts remain positive on this stock, any wobble in its sales, earnings trajectory will leave it exposed to a big move down. I love the company, but I don't love this stock price.

Portfolio review of the week April 24th 2010

The U.S. stock market climbed to a 17 month high on Friday after strong new-home sales and good earnings from American Express, marking the Dow's 8th straight week of gains. New home sales posted their largest year-over-year increase in nearly five years. The Dow Jones Industrial average rose 70 points to 11204, its highest close since Sept. 19, 2008. For the week, it climbed 1.7%. The Dow has now had its longest weekly winning streak since a run that ended in January 2004, more than 6 years ago.

The Nasdaq Composite rose 11 to 2530, its highest close since June 2008 led by rises in energy stocks. It rose 2% on the week, like the Dow showing its eighth-straight weekly gain. The S&P 500 climbed 9, to 1,217, its highest close since Sept. 19, 2008.

The FTSE 100 finished up 58, at 5,724 despite the disappointing GDP data as a stabilisation of the Greek debt situation was anticipated. The index was down 0.3% for the week.

GW Pharma (GWP) - No news from GW pharma this week as further information on the Sativex European licence is anticipated in May. It finished flat at 110p. Patience with this one.

Ithaca Energy (IAE) - Ithaca moved up 17p, 10% yesterday to finish the week at 189p on new that it had secured a $140 million funding facility to exploit the Stella North Sea field and acquire other assets in the area. The future looks very bright for this company. The stock moved 17% higher on the week with momentum continuing to look very positive.

Rockhopper (RKH) - Position initiated in the Falkland Islands driller as the stock slipped to 45p this week after last week's spudding of the Sea Lion prospect. 

Greek problems get worse

Greek Prime Minister George Papandreou has asked the European Union and the IMF (International Monetary Fund) to initiate the recently negotiated €40bn emergency aid package. Earlier this month, a deal was agreed under which eurozone nations would provide emergency loans of up to 30bn euros ($40bn; £26bn) in the first year, with a further 10bn euros coming from the International Monetary Fund (IMF). Greece has 300 billion of outstanding debt with 56 billion euros due to be refinanced this year.

Moody's cut to Greece’s sovereign debt rating from A3 to A2 and warned of further possible downgrades added to pressure on the troubled country. The downgrade came after the European statistics office Eurostat increased Greece’s budget deficit in 2009 to 13.6% from 12.7% and warned that too could be revised further. Greece is aiming to cut its public sector deficit to less than 3% in 2012.

Confidence in the Greece economy has continued to fall, pushing its cost of borrowing to record levels in recent days as investors continue to worry that the government's attempts to curb the deficit will fail given the country's history of issues such as lax tax collection. On Friday evening, thousand's of protesters took to the streets of Athens to demonstrate against further austerity measures. The yield, or interest rate, on Greek 10-year bonds, fell to as low as 7.99% after Mr Papandreou spoke, after rising to nearly 9% on Thursday - its highest level for more than 10 years. It then crept back up to 8.66%.

The question is for government debt investors is what country could be next. Portugal, Spain and Italy look like likely candidates for pressure as their sizeable debt comes up for refinancing and if investors have little appetite to take on this debt or if the interest rates demanded are too high for the economies to sustain, we could see Greece being played out again.

But fell eurozone members have their own political problems. The German opposition SPD is demanding a full debate on their portion of the aid package which could delay any German contribution.

As George Soros warned last week, Greece is starting to experience the "Greek death spiral" as interest rates on the open market have climbed to unsustainable levels.

UK growth still sluggish

The UK economy continued to recover from recession in the first three months of 2010 with GDP growing by 0.2% in the 1st quarter according to the the Office for National Statistics (ONS). But this was weaker than the 0.4% growth predicted by many economists. The final quarter of 2009 saw GDP growth of 0.4%, revised up from an initial estimate of 0.1%.

The ONS said the particularly cold weather seen at the beginning of the year may have had an impact on  the economy, particularly in the retail and industrial sectors, although growth came from the financial and business services sector, which saw growth of 0.6% and manufacturing output grew by 0.7% over the quarter.