Housing starts up, General Electric (GE) posts strong quarter and Costco (COST) to sell directly to Chinese consumers

Bourbon & Bayonets / Friday, October 17th, 2014

Markets were on the rise Friday morning after housing starts and permits to break new ground were up in September. The Commerce Department reported that groundbreaking increased 6.3% to an annual 1.02 million-units. When taking the numbers year-over-year, there was an increase of 17.8% from last year’s rate of 863,000. There was a slight rise in building permits of 1.5% to a 1.018 million rate. This was also up from August’s 1.003 million. Even with the strong September data there was a report released yesterday that showed homebuilder confidence was down in October. The National Association of Home Builders/Wells Fargo said that their Housing Market Index dropped to a 54 level. This was down 5 points from August’s reading. NAHB’s chief economist David Crowe, said, “After the HMI posted a nine-year high in September, it’s not surprising to see the number drop in October. However, historically low mortgage interest rates, steady job gains, and significant pent up demand all point to continued growth of the housing market.”

Shares of General Electric Company (GE) were up over 4% after reporting strong quarterly results. The company said that third-quarter net income was up 10.8% to $3.43 billion, or 35 cents per share. Revenue was up 1% to $36.17 billion. This was slightly below economist’s expectations of $36.79 billion. GE said that there was an increase in orders for jet engines of 22%. There was also a 4% rise in organic revenue at their industrial manufacturing part of the business. This number takes out anything to do with acquisitions. They said that they are still on track to hit the higher end of their projected revenue growth for the year, which is in the 4% to 7% range. Tim Ghriskey, chief investment officer with Solaris Asset Management, said, that if the company hit the high end it “would be quite a pickup.” “They were able to engineer the earnings in industrials. It’s just that the revenues were relatively weak,” he contended to say.

Shares of Costco (COST) were heading higher after the company announced that they have plans to sell directly to Chinese consumers through Alibaba’s (BABA) platform. The company will look to gather local knowledge and cost cutting strategies that will help them in the country. The virtual store front that will be housed online through Alibaba, will enable the company to gather consumer shopping habits without having to have a physical store in China, avoiding pricey costs associated with opening a new store. Anjee Solanki, national director of retail services at Colliers International, said, “This shows Costco has learned from the mistakes made by companies like Wal-Mart and also those who were forced to exit the market like Home Depot.”

That’s all for today,

Warren Gates, Normandy Research

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