AMD, Intel, EMC lower as techs falter; Newmont slips with gold; Amgen declines with stock

By Kenneth Lim

Boston, Aug. 17 - Convertibles were mostly lower outright on Monday following a poor day in the equity markets, but hedged players benefited in certain names.

Advanced Micro Devices Inc., Intel Corp. and EMC Corp. all slipped with their common stocks on new concerns about economy.

Newmont Mining Corp. also slipped outright as gold prices fell, while Amgen Inc. also eased slightly.

The market in general had a quiet session, with the summer doldrums thinning out volumes.

"It's very, very quiet," a sellside convertible trader said. "Typical Monday in the summer."

Investors are also rethinking the past months' rally, and that uncertainty is keeping players on the sidelines, the trader added.

"Guys are trying to figure out whether we're really out of the recession and heading back to growth," the trader said. "When there's a little bit better clarity in the market, people will start trading again. The good news is credit markets aren't doing as badly as they were a few months ago, so that's been good for converts. But ultimately we'll still need the underlying stock to do well."

But the softer equity markets have benefited convertible holders in some names, the trader said.

"I would say we're actually slightly better dollar neutral overall," the trader said. "In general converts are holding up better than the stocks. That's good for both outrights and hedge guys."

Tech sector slips

The tech sector in general had a negative session outright on Monday, with major names like AMD, Intel and EMC all declining.

AMD's 6% convertible due 2015 eased about a point to trade at 60 against a stock price of $3.60. Shares of Sunnyvale, Calif.-based AMD, a computer chip maker, lost 3.79% or $0.14 to close at $3.55.

Intel's new 3.25% convertibles due 2039 also slipped to 97.5 against a common stock price of $18.50. Intel common stock closed at $18.46, lower by 1.65% or $0.31. The Santa Clara, Calif.-based company is also a computer chip maker.

EMC's 1.75% convertible due 2011 and 1.75% convertible due 2013 traded at 112.25, both against a common stock price of $14.85.

EMC, a Hopkinton, Mass.-based IT infrastructure service provider, saw its common stock lose 2.57% or $0.39 to close at $14.78 on Monday.

"Today was pretty brutal for tech names in general," a sellside convertible analyst said. "I don't think there was a single name that was up on the day."

Putting pressure on the sector was renewed concern about the outlook for the global economy, the analyst said.

"The common wisdom is that for some reason, the market today felt that consumer spending isn't recovering like they expected," the analyst said. "People will point to Lowe's [Cos., Inc.] and say, look, their results aren't as good as we thought they were going to be, the company's saying that consumers aren't spending."

But the analyst said a large part of the Monday drop was probably a correction after sharp gains for most of the past month.

"I think investors were looking for an excuse to take profit," the analyst said. "The stock market's been running up for practically all of July, it's got to take a break, right? Frankly, I don't think it should be a surprise to anyone who's been listening to the news that the economy is still doing poorly and it's not going to recover overnight. There's really nothing fundamentally new that came out today."

The tech sector may make a bolder step in either direction after Tuesday when Hewlett-Packard Co. announces third-quarter results, the analyst said.

"HP's reporting after the close tomorrow, people will definitely look to that for some direction," the analyst said. "You could see some bargain hunting tomorrow if people think HP's results are going to be good."

Newmont falls with gold

Newmont's 3% convertibles due 2012 slipped about 2 points outright as the stock slipped on lower gold priced Monday.

The convertible traded at 114 against a stock price of $39, while the common stock closed at $38.77, lower by 4.58% or $1.86.

Newmont's 1.25% convertible due 2014 also lost about 3 points outright to change hands at 111 versus a $39 stock price.

Newmont is a Denver-based gold producer.

"A lot of the oil and gas names, mining, resources were all down today," a convertible trader said. "A number of these are way in the money, they're just tracking the stocks, which are trading commodity prices, and today a lot of the commodity prices were down."

Amgen declines with stock

Amgen, one of the convertible market's most actively traded names, also lost slightly on Monday as its stock slipped with the broader market.

Amgen's 0.125% convertible due 2011 traded at 98.75 against a stock price of $60.85, down by about a quarter point.

The Thousand Oaks, Calif.-based drugmaker saw its common stock close at $59.84, lower by 1.66% or $1.01.

"Amgen was down slightly, but volume was much lighter than usual," a trader said.

The trader said Amgen remains one of the safer names in the convertible space.

"These aren't going to move very far from where they are now, unless Amgen credit collapses or their stock shoots way up," the trader said. "The credit's good and it's fairly stable, and it matures less than two years out. It's not really a yield play yet, but you can be fairly certain that bond floor's going to hold."

Mentioned in this article

Advanced Micro Devices Inc. NYSE: AMD

Amgen Inc. Nasdaq: AMGN

EMC Corp. NYSE: EMC

Intel Corp. Nasdaq: INTC

Newmont Mining Corp. NYSE: NEM

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