Summer Doldrums Continue As Stocks Forfeit Early Gains (DEO, FRED, GES, PDCO, ARST)

A morning rally lost steam and stocks sank again. We still expect many of the companies that are sitting on piles of cash to put it to work on the M&A front, hopefully starting in the fall. Until then, we look for the late summer doldrums to stick with us. This latest slump will ultimately result in some compelling values, but investors sorely need some positive news to change the bearish tone of this market.

The IT Security Stocks Index was the top performing tickerspy Index on the day, led by ArcSight (ARST) with a 30% gain.

Stocks closed lower on the day. The Nasdaq paced the decline, losing -1.1%, or -23 points, to close at 2,119. The Dow gave up -74 points, or -0.7%, to end the day at 9,986. The S&P 500 ended at 1,047, down -8 points, or -0.8%. Oil added 84 cents a barrel to close at $73.66. Gold lost -$4.10 to end at $1,235.40 per ounce.

On the economic front, the Labor Department said initial jobless claims fell to 473,000 last week after breaking 500,000 for the first time since late last year a week prior. Economists were expecting a smaller drop to 490,000. The report snapped a three-week run of increased first time unemployment benefit claims.

In earnings news, alcoholic beverage maker Diageo (DEO) slipped by -1.7% after posting its full-year results. For the year ended June 30, the firm recorded a net profit of 1.63 billion pounds, or $2.54 billion, compared to 1.61 billion pounds last year. Annual revenue rose 2% to 9.78 billion pounds. Net sales in Latin America, Africa and the Middle East spiked by 13% year-over-year compared to declines of -3% and -2% in North America and Europe respectively. 40 Pros held Diageo shares among their top-15 U.S.-listed equity positions at the end of the second quarter.

Discount retailer Fred’s (FRED) was down by -0.2% after reporting earnings for the second quarter ended July 31. The company earned $5 million, or 13 cents per share, compared to $4.2 million, or 11 cents per share, a year ago. Excluding certain items, adjusted EPS came to 14 cents per share, in line with the analyst consensus. Revenues were up by 3.5% to $449.5 million. The company expects revenues to rise between 4% and 5% during the current fiscal third quarter, and it expects revenue at stores open at least a year to rise by between 2% and 4%. Fred’s offered Q3 net income guidance of between 16 and 19 cents per share. Analysts are looking for 18 cents in EPS in the current quarter.

Apparel company Guess (GES) plunged by nearly -11% after the firm’s 2010 guidance failed to impress investors. The firm maintained its full-year EPS guidance of between $2.80 and $2.85 per share, which is below analysts’ $2.92 consensus. In its fiscal second quarter ended July 31, the company earned $66.8 million, or 72 cents per share, compared to $59.6 million, or 64 cents per share, in the same period last year. Revenue was up 10.5% to $577.1 million. Analysts were looking for 68 cents in EPS on $576.4 million in sales. Guess forecast third-quarter EPS in the range of 55 to 58 cents on revenue of between $565 million and $580 million. Analysts are expecting 57 cents in Q3 EPS. Heading into the second half, ten Pros counted Guess among their top-15 equity bets.

Dental and veterinary products supplier Patterson (PDCO) fell by -4.9% despite posting a 20% spike in fiscal first-quarter profit. The company recorded $53.9 million, or 45 cents per share, in the three months ended July 31, compared to $45.1 million, or 38 cents per share, in the same period last year. Revenue rose by 8% to $849.8 million. Analysts expected the firm to report 44 cents in EPS on $855.1 million in sales. Patterson reiterated its 2011 earnings guidance of between $1.89 and $1.99 per share. Analysts are looking for $1.94 in full-year EPS.

Tags: ARST, DEO, FRED, GES, PDCO