Debt, Asbestos and Saying Grace -- W.R. Grace and Co. (GRA)
by Houghton and Atkeson 10/21/08
W.R. Grace and Co. (GRA) is a specialty chemicals and materials company that has fought asbestos claims and, most recently, interest demands from its lenders.
While battling in the courts, it has consistently posted better-than-expected earnings and revenues over the last several earnings periods.
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Since Sept. 5, the stock has dropped from about $26 to a low of about $8. The company is expected to report earnings on Oct. 23 after the market close.
After buying puts in early October and capturing the down move almost perfectly, options investors are now betting on an up move in the stock. Today, we saw buyers of the GRA Jan 10 Calls (GRAAB) for up to $2.40 in unusual size.
Just as GRA has had some success in the courts, it may begin to have success in the market gaining back some of the 60% loss suffered year-to-date.
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Looking into June, the market should begin refocusing on upcoming earnings reports for evidence the economy is gaining momentum.
Watching the Treasury's Actions
In the short-term, the government's bond auction is likely to be a key driver of stocks.
Treasury Auction Boosts Market
The Treasury's auction of two-year notes brought an upside surprise which should alleviate fears of a lack of demand for U.S. paper.
Credit Markets Point to Upturn
The credit market, a reliable indicator of equity direction, suggests we will break out of the SPX's trading range to the upside.
The market seems to be saying that a 30% move up from the lows is ahead of the real economy and the market needs to allow the economy to catch up.
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