Here are highlights from Friday's Analyst Blog:

JC Penney Beats on Low Earnings

JC Penney Company Inc. (NYSE: JCP), a leading retailer of apparel and footwear, accessories, fashion jewelry, beauty products and home furnishings, recently reported third-quarter 2009 results.

The quarterly earnings of 11 cents a share tumbled 80% from 55 cents posted in the prior-year quarter, weighed down by qualified pension plan expense. Earnings missed the Zacks Consensus Estimate by a penny.

The retailer, however, mentioned that earnings outshined the company's initial guidance range of a loss of 5 cents to profit of 5 cents a share on the heels of effective inventory management and lowered unprofitable discounting. Consequently, gross profit rose 1.9% year-on-year to $1,696 million.

On stronger-than-expected results, JC Penney raised its fiscal year 2009 earnings outlook. Management now expects earnings in the range of 93 cents to $1.08 per share, as against 75 cents to 90 cents previously anticipated. For the fourth-quarter 2009, earnings are expected between 70 cents and 85 cents a share.

Imports Surge in September

So what was driving the increase in the deficit? Part of it was that we imported more cars from the Toyotas (NYSE: TM) and Hondas (NYSE: HMC) of the world as dealers restocked after inventories were depleted due to Cash for Clunkers. However, for the month, the biggest increase in our imports was Industrial Supplies and Materials -- a category that includes oil. Oil is a big part of the reason why our trade deficit has been so intractable, and the decline in the price of oil from a year ago is a big part of the reason that we have seen an improvement in the deficit over the last year.

We started making progress on reducing our non-oil deficit towards the end of 2005, and until the last few months, have continued to make steady progress. However, as the price of oil rose, that progress was offset by an ever increasing oil bill.

The net result was that from mid-2005 through the summer of 2008, our trade deficit remained stable at a horrendous level of roughly $60 billion a month. As a percentage of GDP, it exceeded 5.0% in every quarter from the second quarter of 2004 through the second quarter of 2008, and was extremely close to that level through the third quarter of 2008. It was not until oil prices collapsed in the fall of 2008 (along with everything else) that we saw a dramatic improvement in the trade deficit. Now with oil prices on the rebound, the deficit is deteriorating rapidly again.

There are really only two solutions to solving the chronic deficit problem. The first is that the dollar falls, thus making imports more expensive to U.S. consumers and businesses, and our exports much cheaper to foreign consumers and businesses. Yes, a weak dollar would not be fun next time you decide to vacation in Paris. It also would have the potential to be inflationary. However, right now, there are big deflationary pressures elsewhere in the economy (for example, housing prices and rents), so a little bit of inflation pressure coming from higher import prices is not a huge worry.

Creating export-led jobs is much more important right now. That would help increase Investment's share of the economy, and decrease the Consumer's share. Over time it is vitally important that we do this.

One big problem, though, as far as the weak dollar is concerned in curing this cancer -- it is not weak against every other currency. Most importantly, it has been absolutely stable against the Yuan, and our deficit with China was $22.1 billion in September, up from $20.1 billion in August.

As a percentage of the total, then, it was 60.5% in September -- down from 65.6% in August, but still a huge part of the problem. It is also an issue that a weak dollar does not address (unless China stops pegging to the dollar and moves to say pegging it to a basket of major currencies, I doubt they will go to a full free-float of the Yuan).

The second solution is that we get serious about creating domestic sources of energy to offset the need for us to import so much oil. Since we have already extracted most of our original endowment of oil, "drill baby drill" is looking less and less like the right answer.

However, we have lots and lots of natural gas (NG), thanks to the new Shale plays. Our ability to switch from oil to gas immediately is limited. Butiven the cost differential on a BTU basis right now, there is every incentive in the world already for businesses to make the switch if they can. Strictly on the basis of the amount of energy in them, a barrel of oil should be worth 6x as much as an MCF of natural gas.

Right now, oil is going for $75.86 a barrel while NG is going for $4.42, so if a business has the ability, they could be buying the equivalent of a barrel of oil for just $26.52. That is a big incentive to switch. Over the medium-to-long term, it is easier to make that change. Only relatively minor modifications are needed to switch, say, vehicles to natural gas -- it's not like it is some sort of cutting-edge technology.

However, it is not free, and we do not have the nationwide refilling infrastructure to do so. If this differential persists, I would expect more and more fleet-type vehicles (i.e. city buses and delivery trucks) to switch over. This would obviously be a good thing for the big producers of natural gas like EnCana (NYSE: ECA) and Chesapeake (NYSE: CHK).

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And HSBC adjusted its view of the solar sector this morning at the expense of Yingli Green Energy (YGE). The firm downgraded shares of Yingli from Overweight to Underweight as better investment opportunities exist elsewhere in the sector. With the downgrade, HSBC lowered its price target from $16 per share down to $12.

Despite the downgrade, shares of Yingli Green Energy were trading higher Monday morning, up almost four percent on the day.

The preceeding is a transcript of the MarketNewsVideo.com video published at: http://www.marketnewsvideo.com/?id=200911Downgrades111609&mv=1.

http://www.marketnewsvideo.com/

J.C. Penney expects Q4 EPS of $0.70-0.85 (vs. consensus estimates of $0.82), with sales down 3-5%, and same-store sales down 4-6%.

Meanwhile, the company expects gross margin to increase 210 basis points to 40.6%.

Write to Chip Brian at cbrian@tradethetrend.com

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SmarTrend analyzes over 5,000 securities simultaneously throughout the trading day and provides its subscribers with trend change alerts in real time. To get a free trial of our trading calls and maximize your trading results, please visit http://www.TradeTheTrend.com.

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SmarTrend is bearish on shares of JCP and our subscribers received a Downtrend alert on November 04, 2009 at $32.59, which has returned 4.2% to date.

Write to Chip Brian at cbrian@tradethetrend.com

---------------------------------------------------------------------------------------------

SmarTrend analyzes over 5,000 securities simultaneously throughout the trading day and provides its subscribers with trend change alerts in real time. To get a free trial of our trading calls and maximize your trading results, please visit http://www.TradeTheTrend.com.

Get exclusive, actionable insight into how the market is expected to trend prior to market open with our free morning newsletter. Sign up at: http://www.TradeTheTrend.com/signup.html