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Tuesday, September 05, 2006

Barron’s Digest September 4, 2006 Issue


Anheuser-Busch has been doing well. Summer is the big season for beer sales and the company’s Q2 earnings were solid. BUD stock is up 11% over the last year, and now trades near a 52-week high. Analysts expect earnings for the year to grow 5%.

As the back-to-school season is in full swing, “teen” stocks may do well. American Eagle Outfitters stock has risen 74% over the last year, as it takes market share from GAP. Abercrombie & Fitch same-store sales rose 6% in August. Some stores that cater to the younger crowd have not done as well. Hot Topic is down 33% this year, and same-store sales for August dropped 6%. Shares in Pacific Sunwear are down 47%. Same-store sales fell 9.4% in August.

Pegasus Wireless stock has collapsed. It traded at $19 in May and now changes hands at $2.38. However, the company claims that it has created a new video streaming technology. The company has made five acquisitions over the last two years. Pegasus issued a dividend in the form of warrants, but only shareholders with registered shares could get the warrants. Stock held in “street name” brokerage accounts could not. The CEO of Pegasus has been involved in two other companies where the shares shot up and then collapsed.

Ryan Jacob of the Jacob Internet Fund likes some of the cell phone and internet stocks in China. Because many Chinese do not have computers, cell phones act as a proxy. This is good for online mobile-content companies like and, and search engine and game provider NetEase.

Eaton Vance, the mutual fund company, has a stock that is less expensive than most of its competitors and its funds under management rose 14% in the last quarter. The company’s stock has been weak lately, perhaps because it is using cash for a share buyback and because its compensation costs are rising. With companies like Merrill Lynch and Citigroup selling their asset management businesses, Eaton Vance may have some acquisition opportunities. Eaton Vance is still valued below its major competitor, Nuveen. The stock may do well, as it trades at an 8% discount to its peers.

Medifast, which helps obese people lose weight, claims that it is growing at a triple digit rate and has been profitable for 26 consecutive quarters. A study that the company claims demonstrates that diabetics get favorable results from the company’s weight loss program has not been released for over a year. Some Wall St observers think that this is an example of the company being too aggressive with its marketing claims. It also appears that the company’s cost of getting new customers is rising, which could cut margins. Investors are also concerned that insiders continue to sell the company stock and that the board is filled with the CEO’s family and friends.

PetMed sells pet supplies online. Earnings have been growing at over 20% the last few years, but the stock is down 40% since March. But, there have been legal battles between the company’s two founders. Because the company competes with veterinarians, some companies will not sell their products through PetMed. About 12% of the company’s issued shares are now sold short. PetMed is facing increasing competition from vets and other online sellers of pet supplies.

Innovation and customer service are becoming more important than just chip speed and power according to Barron’s. For years, Intel would keep its share compared to AMD by dropping prices and introducing faster chips. According to a study by Walker Information, 34% of chip customers are considered at “high risk” and likely to go to competitors. One of the findings is that price is not always the determining factor when chip customers make decisions. Development tools, technical design and support are also important. One exception to this trend is handset chips, which are about 40% of the cost of a phone. Price is very important when Texas Instruments, Freescale, and Qualcomm sell to huge customers like Nokia or Motorola. Where a buyer is in their product lifecycle can also change loyalty patterns.

Douglas A. McIntyre

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