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Insightful analysis and commentary for the US and global equity investor
Contributors: Douglas McIntyre Jon C. Ogg

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Wednesday, May 31, 2006

Cramer's "Mad Money" Evening Picks for May 31, 2006

Cramer started the show by providing background on the emerging markets and made the theory that "BRIC" [Brazil, Russia, India, China] economies are still growing another bullish trend for emerging markets. He said they aren't typical emerging markets and they are cheap. Also in the "Feature Round," Cramer evaluated emerging market plays: Cramer: I like - America Movil (AMX), and BancoColumbia (CIB), Tele Norte (TNE), Homex (HXM), Tata Motors (TTM). They are risky stocks but on sale as strong companies that have pulled back considerably and are good investments. In the "Lightning Round," Cramer was POSITIVE on Banc of America (BAC), Citigroup (C), Checkfree (CKFR), BP plc (BP), Conocophilips (COP), Energy Partners (EPL), JP Morgan (JPM), Mastecard (MA), Schering-Plough (SGP), and Pioneer Drilling (PDC); and he was NEGATIVE on Intercontinental Exchange (ICE), Wrigley (WWY), Urban Outfitters (URBN).

The more and more I follow the Cramerization and the more we see the weak markets, the more and more I think Cramer's "Mad Money" should be segregated and isolated to one or two shows per week. This has been my opinion for a long time now, but maybe it will happen. Covering too many stocks and sectors in pure generalist terms on the fly just doesn't seem right and may even be just outright dangerous. He can impact more of the stock names he covers if it was less and less hype and more and more in-depth of reactionary detail combined with some proactive thought. Well, that's my two cents.

Jon C. Ogg
May 31, 2006

More Realistic IPO Pricing on CTC Media

Maybe they looked at the prior post I hinted at as sleazy? I doubt it. But who cares in the end if the right thing happens.

Russian-based broadcaster CTC Media (CTCM-NASDAQ/ADR) sold its 24.7 million share offering for $14.00 per share, compared with a lowered forecast range of $13.50 to $15.50; and this is lower than the original forecast of 29.4 million shares at a range of $16.00 to $18.00 per share.

Read our previous article here

Sell in May and Go Away? Shoulda, Coulda, Woulda

It seems as though every year we get the "Sell in May and go away" as the prelude to the Summer Doldrums, and even if it doesn't really occur it is on many traders' minds. The trade is not 100% and summers have shown to hold some nice rallies in certain years. But when the trade lives up to the name you typically get the whole street saying "Shoulda, coulda, woulda!"
Today and even last week, this is exactly what the street was thinking. What you have to ask yourself is if this is just the beginning of a long drawn out summer for the stock markets, or is it the chance to buy shares on a substantial discount to their highs.

The DJIA closed the month at 11,168.31, down from the April 28 Close of 11,367.14 and down from the intra-month closing on May 10 of 11,642.65. The S&P 500 closed the month at 1,270.09, down from the April 28 close of 1,310.61 and down from the intra-month closing high on May 5 of 1,325.76. The NASDAQ closed out the month at 2,178.88, down from the April 28 close of 2,322.57 and down from the intra-month closing high on May 8 of 2,344.99.

Perhaps one of the few things that can be said is that the CBOE Volatility Index (the VIX), also known as the complacency index, has finally crept back up. The VIX closed out the month at 16.44, and that is UP from the April 28 close of 11.59 and down 2.22 from yesterday's close of 18.66. When volatility is low, it shows that the investment community expects low volatility (thus is complacent) and when the number is higher they expect more volatility (or more worrying on their part).

Semiconductors posted a dismal month with the Semiconductor HOLDRs (SMH-NYSE) losing almost 10% from its May 5 closing high of $38.06. This is probably of little surprise with Intel (INTC-NASDAQ) being in the soup and its chief rival Advanced Micro Devices (AMD-NYSE) still under pressure on Intel's price cuts affecting forward sales and margins. Despite the upcoming ASCO conference that has propelled so many biotech stocks in the past, the AMEX Biotech Index (BTK) continued its mudslide to close the month at 657.73 comparted to ts April 28 close of 682.45, and that was down significantly from the March 1 close of 745.93.

As you can get the reference we are in a stock market that has no leaders. The very recent safe-haven commodity and gold stocks have come far off their highs, and the bounces have not been indicative of any key reversals. The streetTRACKS Gold Shares (GLD-NYSE) closed down nearly 10% from the closing highs of $71.12 on May 12. Even the Oil Service HOLDRs (OIH-NASDAQ) closed down over 10% from the May 10 closing high of $167.45. If it was an emerging market leader just 3 weeks ago then guess how poorly they performed. The India Fund (IF-NYSE) has come off nearly 33% from its peak close of $12.77 on May 10 and the Templeton Russia Fund (TRF-NYSE) fell over 20% from its high close of $95.95 on May 2. Even the iShares MSCI Emerging Markets (EEM-NYSE) closed down about 16% from its May 9 closing high of 111.10.

The Dow Jones U.S. Home Construction Index Fund (ITB-NYSE) is relatively new, but it closed almost 15% down from its May 5 closing price of $50.10.

We got rid of Treasury Secretary Snow in what was the longest and most telegraphed replacement cycle of the Treasury's chief position in memory. The head of Goldman Sachs Hank Paulson set to take the reins, but despite that Wall Street approves appointment the DJIA fell 184 points on the day this was announced.

Right now the street is trying to determine exactly when the FOMC will feel comfortable putting on the brakes on their tightening cycle, and the new fed Chief Bernanke is still trying to establish himself with Wall Street and Main Street alike. Today the minutes of the last FOMC meeting showed mixed signals as to when or at what level the rate hikes would end.

If this last market meltdown just ends up being another fire sale, then there is going to be a pretty penny made by the street. If the typical mantra of May continues, then we have some more pain to endure. Unfortunately, whenever the trend reverses Joe Q. Public may miss the boat again and end up buying after the institutions and hedge funds have made their bets.

Our crystal ball is in the shop this week, so we'll have to wait to see too.

Jon C. Ogg
May 31, 2006

Google's Investor and Analyst Conference Call

This is entirely in notation format, so please understand any lower casings that should be upper case and vice versa may not be formatted properly because of it being notation. Also please forgive any minor typos ahead of time.

At 2:00 PM EST Google (GOOG-NASDAQ) initiated its investor and analyst call.

It was all Q&A, but they said up front that they would not answer quarterly performance and that they will not offer financial guidance. I put in the firm name when applicable but some where hard to hear because of static.

on the AOL partnership......AOL deal signed a little over a month ago and took place today...they provide search services to AOL. so far everyone is pleased with the deal. Will add a mechanism where the Instant Messengers could add Google Talk. Said Nokia and RIMM ramping to include Google Talk too.

on CAPEX....they get advantage by building their own infrastructures (supercomputers in data centers). numbers are large but they look for additional performance out of what they build as opposed to renting their capital equipment (said renting is not an option)

on product development.....asked if they would single out the winner and loser.....biggest success was the keyhole of ads to mapping and satellite integration as well as building out the local ad information other than just yellow page equivalent......they said their off-line print has been nascent and they think the format and content working has been a laggard compared to their hopes.

on clickthru rates......ranking algorithims use keyword purchasing and targeting.....display ads being tested to see if people are really responding or not so they can make the current model even better......did say their high quality shopping is not really a takeoff of an Amazon or eBay system on payments as it is more advertiser-targeted

UBS asked about the Dell deal.......goog says they are ecstatic but there are not any barter deals for hardware.....they wont go into financial or contract details of the DELL deal b/c of confidentiality.....also asked if they will be hiring more than last year and they said they are looking to hire the best and brightest in each field and lower job postings shouldnt be read into.....

CSFB asked more on CAPEX about real estate......at the rate of headcount growth they have to keep pace and try to get more real estate that is in the same geographic area.....bought some properties to redevelop in Mountain View and Bay areas........when asked on municipal wi-fi in Mountain View and other impacts it can have on the business......they know that users that switch up to broadband are much wider users of Google....said it isnt a requirement taht Google does all of this nationwide and globally but it is important that Everyone do it......large urban development wifi initiatives are going to require more partners than just Google because of the vast demands in each local effort.....said partners are bearing much of the physical equipment costs so it is good for Google

on Google potentially building a Browser........said they have active partnership with Firefox, said Safari is good in Mac space and that the consumer has enough browser choices because of these and opera and others......the implication is that there is not a need for GOOG to build their own browser

on Best Buy and other searches...........Best Buy efforts just getting started as they expand local and w/ click to call....on Base and Yellow Pages they are working with may providers and lauched local AD WORD STARTER EDITION to get their campaigns started.....local is becoming significant component of their business.....

ThinkEquity.....asked about valuing content strategy......right now they don't offer broad ramming products that they see demand for and they want to but havent figured out how to build it yet, working on it for the next year w/ hopes of finding more.....they added demographic site collections similar to what movie studios have done prior to DVD and movie launches.

Piper Jaffray......asked about Google Base on traction and listings, but harder to see if it is living up to user adaption: Google said they use Google Base to blend search results into Google search experience.....they dont see it as a large separate site but more as another point within Google like Froogle was 2 years ago.....wants to offer more integration and that it will lead to higher traffic overall......they are going with more "refinement boxes" on things like recipe searches and will integrate these in other searches around Base and maybe others......also PJ asked about difficulty in gaining ground on search in China.....Google said they havent seen the need to segregate the Chinese user from the rest of the world users as they seem similar internet users and they want to give their local team in China more time to build out and adapt over a multi-month or longer period

Jefferies....asked about clicks on video formats and if Google will offer this on search plans...........right now strictly on AdSense networks and they want to do it on user choosing to initiate the ad rather than the many annoying video ads out there right now....still on a CPM model just like on image campaigns.....

Merrill Lynch......asked about financial goals in general as far as objectives of the company........Google said they monitor financials daily but want to run it for long-term by making best decisions they can.....

Susquehanna.....asked on testing with DELL was it new users or just higher use from existing; also asked if google will the build their own in other areas or would they do M&A for traffic acquisition strategies.......on Dell they saw both new users and increase use from existing; on M&A they said they wouldnt rule out M&A to just buy customers, but they said it traditionally hasnt worked for companies to go out and just buy customer traffic and they prefer to do the partnership model.......they also asked how the street should interpret the financial models....Google said they want to think of it as a model that increases traffic and increases top-line.......as far as when they go cashflow positive, Google said they look for up-front pay or thru revenue sharing and that they should be considered multi-year deals that may not be positive cashflow fiirst year but definitely over the life of the deal.......

Goldman Sachs....asked on Korean market and increasing share there.....Google said Korean market is somewhat unique and they will expand their own engineering and local partnerships....said Korean and Chinese markets are somewhat similar in the local competition.

more on DELL, Google didnt want to comment on rumors of the pricing and noted the confidentiality agreement......said they would like to do more deals like this bundling deal....

Oppenheimer.......on efforts of improving quality of advertising.......Google wants to do better and more highly targeted ads when it is appropriate rather than just a basic ad rather than competitors doing general distracting ads.....they think behavioural model may be better than just local search ad model.....

William Blair & Co....asked about investing in competing ads out there versus what competitors are doing......they arent seeing much change in structure of partnerships but seeing some traffic go up in the partnership deals.....stability of ad network seems to be strong......saying entrance of new competitors in new areas that are not yet tapped increases overall ad and overall traffic, so it will ultimately benefit them too.....

Prudential (last one)..........asked about if the company will be at disavantage because of new Internet Explorer with search and if Dell's deal will alleviate the pressure......said that MSFT default in IE7 is set to Microsoft search but that that use of the power in Windows is done in the appropriate legal and competitive way......

Sirius's Dead Cat Bounce

Stocks: (SIRI)(XMSR)(GOOG)(CBS)(AAPL)

After a sharp drop from its December 12, 2005 high of nearly $8, the shares of Sirius, the big satellite radio provider and home of Howard Stern, dropped to $3.68 on May 24. The company then ran through a week of great news. First, Sirius reaffirmed that it would end the year with 6.2 million subscribers, up 87%, while its rival, XM, cut its forecast for their end of the year subscriber base. Then, several banks, including Bear Stearns and Oppenheimer, made positive comments. Sirius then settled its long-running dispute with CBS over Stern's departure. For the paltry sum of $2 million. Then, news came that Sirius's CEO was buying stock. And, to top it off, XM suspended shipping some of its radios because of concerns at the FCC.

Naturally, the Sirius share price rose and hit $4.51. With all the good news, investors might have expected a bit more.

What happened? The story behind the story at Sirius is still not good. Morningstar has a "fair value" estimate on the stock of $2.00, and does not recommend buying shares unless they drop to $1. Wow. The thesis supporting this low valuation is that XM has a significant edge in terms of the chips it uses, and that the number of competitors that are vying for the consumer's entertainment time is growing at lightning speed.

There is some merit to both arguments, but they do not go far enough. It is true that the chipset that Sirius uses does not allow it to easily created smaller, more flexible portable devices. It is also true that everything from the Apple iPod to old-time over-the-air radio competes for listening time.

But, Sirius has more serious problems. Despite its troubles, XM still has a considerable lead over Sirius. The larger company expects to have 8.5 million subscribers at the end of this year, a lead of almost 40%.

Another issue is the valuation of the Sirius stock. The company has a market cap of $6.3 billion to $3.7 billion for the larger XM. According to Yahoo!Finance, Sirius also trades at about 19 times sales. Google can only manage 16x.

Sirius is also not helped by the fact that in the last quarter, ending March 31, the loss from operations was $446.2 million on revenue of $126.7 million. Cash and cash-equivalents have fallen to $630.8 million and long-term debt is $1.084 billion. Between this debt and contracts for items like satellite time, the company has obligations of over $2.6 billion.

With all of this headwind, the Sirius 10-K may state the market's concerns more eloquently than outsiders can: "Our business might never become profitable".

Sirius's 200-day simple moving average is about $6.00, and, given the skepticism that has built up around the stock, even with recent good news, it may not be back there again for a long, long time.


Douglas A. McIntyre

Brunswick-Bargain Basement Boating?

By Rick Konrad of Value Discipline

Brunswick Corp (BC) is the leading global manufacturer of boats including everything from inflatables, deck and pontoon boats, to sportfishing convertibles and motoryachts. As well, the company manufactures sterndrives, outboard and inboard

engines and trolling motors, GPS navigation and marine electronics and even marina management systems. In other recreational product areas, the company manufactures fitness equipment, bowling products, billiard tables, and foosball and Air Hockey tables. Finally, it does operate Brunswick bowling centers as well as retail billiard stores.

The company is explicit in its strategy. Growth, operating margin improvement, and creation of shareholder value are company mantras.

Growth will be achieved by innovation, by deployment of leading edge technologies, by brand building, by internationalization, and by improving and leveraging the core competencies of its supply chain.

Operating margin improvement will be achieved by technological investment and effective cost management.

Finally, the objective of shareholder value enhancement will be achieved by getting returns on investment that exceed cost of capital...I just love seeing this explicitly proclaimed!

The Boat segment represents some $2.8 billion in sales. Brands include Albemarle, Hatteras, Sea Ray, Bayliner, Maxum, and Meridian as well as Boston Whaler, Baja, Crestliner, Lowe, Princecraft and many more. In short, if you are a boat dealer, to satisfy your customers' needs, you almost certainly need to carry some aspect of the Brunswick line. About 2300 dealers carry at least one of the boat brands.

Marine Engines has the largest dollar sales volume of recreational marine engines in the world and had sales of $2.7 billion last year. Brands include Mercury, MerCruiser, Mercury Marine, and Mercury Jet Drive. Engines and propulsion systems are sold through over 7000 dealers and distributors.

Fitness is focused on commercial fitness and includes the Life Fitness and Hammer Strength lines, again representing the largest dollar sales volume of commercial fitness equipment in the world. Sales here are about $550 million.

Bowling and Billiards is a $465 million segment. As well as manufacturing and distributing products, this segment operates 113 bowling centers in the US, Canada, and Europe. The company has manufactured billiards tables since 1845!

Finally, the company has a 49% interest in a joint venture finance company, Brunswick Acceptance that is co-owned with GE Commercial Finance. This segment provides floor-plan financing to boat and engine dealers.

International sales represent about 35% of total sales with boat segment sales constituting 29% of international sales and marine engines 52%.

This is a cyclical growth business that Brunswick continues to dominate. The valuation of the business is extremely cheap in my opinion at EV/EBIT of 8.3 times. EV/EBITDA is only 6.1 times. These valuations are based on trailing twelve month numbers.

In a recent TWST interview, Elizabeth Osur, an analyst with Citigroup indicated :

"While 2006 could be a tough year for boating sales, the stock is attractively priced, likely limiting the downside and providing some potential forsizable upside. If they can execute a couple of acquisitions in Europe, the company may see some accretion."
The margins in Europe tend to be somewhat better than North American
margins, and the company has been highly successful in building its
brands through acquisition.

Cash flow from operations have always exceeded net income over the last five years and have totalled about $2 billion over that time. Contrast that with reported net income of $950 million. Capex over that time was also substantial representing almost $800 million. Free cash flow for the period totalled about $1.2 billion. Only about $60 million in stock has been repurchased in that time (all of that in 2005) and dividends totalled about $250 million.

Return on invested capital tend toward 5% in the cyclical low years and upwards of about 12% in the cyclical peak years though in 2000, ROIC hit 15.6%. The company generates about $2.19 in sales for every dollar of capital employed. Receivables and inventory tunover numbers have steadily improved over the last five years.

Long term debt to capital has tended down from what generally has been about 33% debt to its current 27%. Cash per share is over $5.00.

The stock is down about 25% from its peak valuation.

"The average boat buyer is 49 years old, very near the "sweet spot" pf the baby boomer population" according to Mark Keller of A G Edwards in an interview with TWST. The trade-up boater is becoming a more important part of the boating population and Brunswick is gearing its product line to satisfy that demand.

Though fuel prices and the economic outlook have made investors near-term skittish about ongoing demand, in my view the long term competitive advantages that Brunswick possesses should make this an attractive investment from these levels.

http://valuediscipline.blogspot.com/

Sleeping with an Elephant- Emerging Markets-How Diversified are You?

By Rick Konrad of Value Discipline

In a terrific U.S. Equity Strategy piece from Citigroup's Tobias Levkovich, dated May 25th, he reminds us of some interesting connections that he sees among emerging markets, energy, and commodities.

The important observation that Tobias makes is that bets on many emerging economies have a sinister side...they are merely leveraged trades on the U.S. consumer. China and India may well develop their own consumer base over time, but for the next few years, success relies on exports to the U.S.

Pierre Trudeau, the late former prime minister of Canad observed that Canada's relations with the U.S. were like sleeping with an elephant..."no matter how friendly and even-tempered the beast, one is affected by every twitch and grunt."

Weakness in the U.S. consumer will be a twitch and grunt that will be amplified through these emerging economies and markets.

Weakness in the U.S. dollar won't do others any good either.

As Tobias observes, money flows into emerging markets has been astonishing...in fact, money flows into emerging markets funds as a percentage of total money flows, is four standard deviations above the average. If regression to the mean is something you believe in, and I do, the outflow will not be pretty, especially if the US consumer economy softens.

If commodities and basic materials markets are a derivative on global growth in the developing world, there may be negative impact felt here.

Think about the sectors that got killed this month...basic commodities, energy, and emerging markets. It may not be a coincidence. There appears to be considerable convergence and consequent correlation in the economic drivers for each of these sectors.

You may be less diversified than you think. Simply owning different names across different economies does not provide risk reduction. If your holdings correlate in the market, they may have common economic drivers.

Now that the term BRIC (Brazil, Russia, India and China) has entered the investment lexicon, think of the derived demand picture. Back in 2000-2002, media and Internet convergence killed many investors. Diversification by names alone provided false comfort. Most companies were rooting for exactly the same thing and there was a common driver to the stocks.


Don't let it happen to you again.

http://valuediscipline.blogspot.com/

InfoSpace Buyback: Who Cares?

Stocks: (INSP)(GOOG)(YHOO)(NWS)

InfoSpace (INSP) announced a $100 million share buyback today. The stock did not react.

InfoSpace revenue in Q1 was $90.3 million up from $87 million in the prior year. The company had a gain of $77 million from a lawsuit in 2005, and adjusted EBITDA that backs this out was $12.7, down from $21.9 million in 2005. The company guided that Q2 would be an uninspiring $90 to $90 million with adjusted EBITDA of $5 to $6 million.

InfoSpace's online revenue was down and mobile revenue was up. The company provides online and mobile content such as yellow and white page data.

Stanford Group Company's Clayton Moran summed up what much of Wall Street thinks of InfoSpace recently at forbes.com: "The opposite is true for InfoSpace, which Moran rates as a "sell." Its mobile unit acts as a middleman between content providers and phone companies, a relationship Moran says is unnecessary and will eventually end. The Internet ad firm bucked an industry-wide trend last year and lost market share."

Over the last four quarters, the company has seen an erosion of its operating income. In the quarter ending June 30, 2005, this figure was $13.4 million. It dropped to $1.6 million in the quarter ending March 31, 2006.

InfoSpace's stock has dropped from a 52-week high of $36.81 to a low of $21.26. Even with the buyback, the stock only trades at $22.72.

InfoSpace's business is being targeted by companies like Google, Yahoo! and online community giant MySpace, owned by News Corp., so perhaps very few people are surprised that a decision to buy in shares was not greeted with any enthusiasm. A very large amount of InfoSpace's customers make up the bulk of its revenue, as the company's Q states: "Our top five customers represented approximately 84% and 80% of our revenues in the first quarter of 2006". One of the large search companies only has to pick off one of two of these to significantly hurt Infospace's revenue.

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at douglasamcintyre@gmail.com.

IPO Preview: Russia's CTC Media (CTCM) Set to Price Tonight

Tonight we are set to get a pricing of the CTC Media (CTCM-NASDAQ/ADR) IPO, a Russian television network operator. The company broadcasts directly over the airwaves and directly by satellite and has also expanded its reach nationally by launching its own CTC network rated #4 in Russia according to reports.

Lead underwriters are Morgan Stanley and Deutsche Bank, with J.P.Morgan as the Co-Manager. The current plans are for 29.4 million shares at a proposed range of $16.00 to $18.00 per share, giving CTC Media a potential market value of $2.75 billion depending on price.

CTC Media owns and operates Russia’s CTC Television Network, which now apparently serves 1,100 cities across the country. It has a 10% audience and its signal is carried by more than 300 television stations and cable operators. It does not look as though it owns its programming, but licenses a limited number of runs for each program. Advertising currently accounts for 19% of its total broadcast time and 25% of its primetime broadcast time, which is actually at some risk due to advertising time change laws in Russia (see below). CTC Media also recently launched its Domashny Network in 2005, which is the only domestic broadcaster to exclusively target women. CTC Media has supposedly been able to monitor expenses because of agreements with independent affiliates instead of having to spend as heavily on its infrastructure.

This ad model does not come without risks as hinted above. As of July 2006, new Russian law will supposedly limit ads to only 15% of total broadcasting time and a total of 20% of broadcasting time per given hour. That percentage may also be declining to 15% per hour beginning in 2008. CTCM has reportedly signed agreements with most of its affiliates to raise its ad allocation and it looks to have price hikes of 15%, but there will not be any way to confirm this data on any exact basis. As Russia is often considered the Wild West of lawmaking and governing for near-Western capitalism, we'll have to see how the changes are implemented and how the new rules change the company.

On the IPO it looks like insiders are selling 24.5 million shares, 4.4 million of which will be acquired by exercising options concurrent with the IPO at only $1.33/share. This has impacted how investors have wanted to gobble up shares in an unfavorable stock market. It almost even has the feel of back-dating because of the fact that the options grant is concurrent with the IPO at such a low price, but Russia is Russia and the shot of making an instant 10-times the money may be the norm for corporate insiders there in a world that doesn't seem to care about these practices. These figures have been implied in the prospectus and there are descrepancies from source to source on these numbers, so this needs to be confirmed independently before hanging your hat on any firm numbers.

Current market conditions have made IPO's that aren't a lay-up somewhat challenging. The deal has also not been able to attract the massive interest initially hoped for, and it looks like it is a combination of the Russian-market volatility and the insider share sales on the IPO that have weighed on the offering. If it comes to market tomorrow, we'll get to see how the market treats it versus what the buzz has been before the deal.

Pre-Market Notes

Main Stock Tickers: ADCT, AH, ANDW, ALTR, CATT, CFC, COST, HNAB, HWAY, INSP, LEXG, NRG, MVL, ONXX, PORK, PWEI, REGN, SVVS, TIF, VG

S&P FAIR VALUE +$1.94.

(AA) Alcoa customers are reportedly worrying about a strike potential according to the WSJ.
(ADCT) ADC Telecom $0.29/R$365.6M vs $0.29/$348M(e); sees 2006 EPS $1.00-1.15 vs $1.09e; stock down 6% after acquiring Andrew.
(AH) Armor Holdings gets an $87M add-on order.
(AHOM) American HomePatient's $3.40 buyout offer from Highland Capital has reportedly been withdrawn.
(ALOY) Alloy registered 958,000 shares for sale.
(ANDW) Andrew up 20% after getting $12.76 equivalent buyout from ADC Telecom.
(ALTR) Altera reaffirmed Q2 sales will be in line with previous guidance for 7%-10% growth, but sees additional SG&A expenses from its announced review of stock option granting practices and related accounting.
(ASYT) Asyst Tech said its CFO has left to join another company.
(BNE) Bowne added $45M to its existing share buyback plan.
(BIIB) Biogen Idec is acquiring privately held Fumapharm AG for undisclosed terms.
(CATT) Catapult Communication lowered guidance.
(CBST) Cubist filed to sell $275M in convertible subordinated notes.
(CFC) Countrywide reaffirmed $3.90 to $4.80 EPS guidance for 2006; consensus estimate is $4.45.
(COST) CostCo $0.49 EPS vs $0.50e; stock down 2%.
(GMTN) Gander Mountain -$0.97/R$155.6M vs -$0.75/$157.75M(e).
(HNAB) Hana Bio says Zensana oral spray statistically bioequivalent to Zofran tablet and remains on track for FDA submission and 2007 launch.
(HSII) Heidrich & Struggles announced new $50M allotted for share buybacks.
(HWAY) Healthways is acquiring private LifeMasters for $307M cash to add 600,000 lives to its customer base.
(INSP) Infospace added $100M to its existing share buyback plan.
(LAYN) Layne Christensen $0.30 EPS vs $0.30e.
(LEXG) Lexicon Genetics gets 2-year Bristol-Myers pact extension for its target discovery alliance.
(MCDT) McData $0.04 PES & R$168.3M vs $0.04/$170.25M(e).
(MCRI) Monarch Casino's CFO resigned.
(MVL) Marvel Entertainment announced the head of its Studios has resigned as part of an agreement to head a new studio and will continue to have working relationship for coming slate of films.
(NPSP) NPS Pharmaceuticals has a 6.8% stake taken by George Soros according to filings.
(NRG) NRG gets a 33% premium buyout offer of $57.16 from Mirant in an $11.5 Billion deal; NRG has reportedly rejected the offer.
(ONXX) Onyx Pharmaceuticals filed to sell $300M mixed securities shelf.
(PORK) Premium Standard Farms $0.24 EPS vs $0.19e.
(PWEI) P.W.Eagle confirmed its board has formed a committee to evaluate strategic alternatives.
(REGN) Regeneron gets FDA fast track designation for IL-1 Trap in CIAS1
(RMBS) Rambus said its audit committee is evaluating its stock option grant practices.
(SAFC) Safeco named Ross Kari as CFO as of June 21.
(SMTC) Semtech $0.16 EPS vs $0.14e; adds $50M to its share buyback plan.
(SNE) Sony has ended most film distribution deals with MGM Studios.
(SVVS) Savvis Communications' Jack Finlayson, President & COO, has resigned to pursue other opportunities.
(TIF) Tiffany's $0.30 EPS vs $0.28e; s-s-s -1%.
(WRE) Washington REIT filed to sell 2.6M shares.

ANALYST CALLS:
ACR cut to Hold at Stifel Nicklaus.
AMD lowered estimates by JMP.
ASD cut to Hold at Deutsche Bank.
BHE started as Equal Weight at MSDW.
BNT raised to Mkt Perform at Raymond James.
BOT raised to Mkt Perform at KBW.
BVN cut to Underperform at Goldman Sachs.
CE raised to Outperform at Goldman Sachs.
CNXT started as Buy at AGEdwards.
CPX started as Buy at UBS.
DVW reitr Buy at Needham.
DWA started as Equal Weight at Lehman.
EAS raised to Buy at Jefferies.
FFIV raised to Buy at Citigroup.
GFI raised to In-Line at Goldman Sachs.
GGG raised to Outperform at FBR.
GME started as Buy at Lazard.
GM maintained as In-Line at Goldman Sachs.
HCA raised to Outperform at Wachovia.
HOKU cut to Underperform at Thomas Weisel.
HXL raised to Buy at Deutsche Bank.
IDEV started as Strong Buy at JMP.
IR cut to Hold at Deutsche Bank.
IVAN raised to Buy at Jefferies.
KSS & TOO started as Buy at Stifel Nicklaus.
LLL cut to Sector Perform at CIBC.
LNC started as Equal Weight at MSDW.
NCTY raised to Buy at Citigroup.
NFG cut to Hold at AGEdwards.
NOOF started as Positive at Susquehanna.
NWRE started as overweight at Lehman.
NWS tgt raised from $21 to $22 at Citigroup.
NRG reitr Overweight at Prudential.
OMRI started as Neutral at Oppenheimer.
OS raised to Buy at UBS.
PLA started as Neutral at Susquehanna.
RBAK started as Buy at UBS.
RHAT reitr Buy at Robinson Humphreys.
RIMM raised to Overweight at JPMorgan.
SIGM started as Buy at Needham.
SMTC raised to Neutral at Merrill Lynch.
SNMX started as Outperform at Bear Stearns.
TIN reitr Overweight at MSDW.
TX started as Overweight at JPMorgan.
VG raised to Hold at Soleil; stock up 1%.
WIND maintained Buy at ThinkEquity.
ZZ started as Overweight at JPMorgan.

On Wells Fargo & Company

By Geoff Gannon from Gannon On Investing

Wells Fargo & Company (WFC) is a huge Western and Midwestern bank that provides a diverse array of financial services to its more than 23 million customers. The company employs more than 150,000 people at its over 6,000 locations nationwide. Wells Fargo has about $500 billion in assets.

While the company continues to derive more than half its revenues from interest income (about $26 billion), its activities are not limited to collecting deposits and lending money. Wells Fargo engages in other businesses such as brokerage services, asset management, and investment banking. The company also makes venture capital investments.

Over the last ten years, Wells Fargo has averaged a 1.57% return on assets and an 18.19% return on equity.


Location

Wells Fargo is closely associated with California in the minds of most investors. The company now operates in 23 different states. However, the concentration in California remains.

Mortgage lending in California accounts for approximately 14% of Wells Fargo’s total loan portfolio. Commercial real estate loans in California account for another 5% of the company’s total loans. No other single state accounts for a similarly sized portion of total loans. In fact, neither mortgage lending nor commercial real estate lending in any other state accounts for more than 2% of Wells Fargo’s total loans.


Cross-Selling

Wells Fargo’s focus on cross-selling is well known. The company has a stated goal of doubling the number of products the average consumer and business customer has with Wells Fargo to eight products per customer (from the current four products per customer).

Cross-selling increases customer stickiness. It also helps increase profitability by decreasing expenses relative to revenues. The need for a large physical footprint is reduced – as is the need for a large number of bankers. Instead, the existing infrastructure is able to provide additional revenue from the same customers.

Wells Fargo’s Chairman & CEO, Richard Kovacevich, explains the importance of the company’s cross-selling in the “Vision & Values” section of the corporate website:

Cross-selling — or what we call “needs-based” selling — is our most important strategy. Why? Because it is an “increasing returns” business model. It’s like the “network effect” of e-commerce. It multiplies opportunities geometrically. The more you sell customers the more you know about them. The more you know about them the easier it is to sell them more products. The more products customers have with you the better value they receive and the more loyal they are. The longer they stay with you the more opportunities you have to meet even more of their financial needs. The more you sell them the higher the profit because the added cost of selling another product to an existing customer is often only about ten percent of the cost of selling that same product to a new customer. This gives us—as an aggregator — a significant cost advantage over one product or one channel companies. Cross-selling re-invents how financial services are aggregated and sold to customers — just like other aggregators such as Wal-Mart (general merchandise), Home Depot (home improvement products) and Staples (office supplies).
(Vision and Values)


Mr. Kovacevich’s enthusiasm for the cross-selling model is well justified. It is difficult to quantify the importance of meeting all the varied needs of your customers, because you can not measure the opportunities you missed. However, it is obvious that reducing each customer’s interest in considering a competitor’s services will greatly increase long-term profitability for any company engaged in any line of business – not just for a bank.

Later, in the same website section, Mr. Kovacevich addresses the importance of customer stickiness:

(Cross-selling) is our most important customer-related sales metric. We want to earn 100 percent of our customers’ business. The more products customers have with Wells Fargo the better deal they get, the more loyal they are, and the longer they stay with the company, improving retention. Eighty percent of our revenue growth comes from selling more products to existing customers.
(Vision and Values)


This focus on retention is an important part of a long-term plan to maintain Wells Fargo’s above-average returns on assets and equity. Extraordinary profitability comes from differentiating your product or service from those of your competitors. Increasing customer stickiness and reducing “comparison shopping” is a key part of maintaining extraordinary profitability.

Some businesses are blessed with enviable economics because of their product’s natural prominence in the minds of their customers. Most businesses are obsessed with market share. But, how many really think about “mind share”? Obviously, a product like Coke (KO), Hershey (HSY), or Snickers is going to have a positive association in the minds of consumers.

For many people, these products will also have a prominent place in each customer’s mind (relative to other products and services on which money can be spent). A few other businesses have a healthy mind share without the positive association; GEICO is the most obvious example. The company’s brand conjures up nothing but the words “auto insurance”. Of course, that’s all the GEICO brand has to do.

So, what does all this have to do with Wells Fargo? Mind share isn’t just the result of exposure to advertising. In fact, in most cases, exposure to advertising can not duplicate the kind of results that a direct, differentiated experience creates. Entertainment properties are by far the leaders in mind share. People who saw and loved Star Wars remember the film. In fact, they don’t just remember the film, they actually file it away (or, more precisely, cross reference it) in countless ways within their mind.

The evidence for this particular example is abundant. There are countless references to Star Wars in other media. The name, the music, the opening text and countless other elements are immediately recognizable. Even the films Star Wars fans hated made more money than almost any other movies in the history of cinema – and this was decades after the original came out. So, obviously Star Wars has the kind of lasting mind share any business should aspire to if it hopes to continuously earn extraordinary profits.

Unfortunately, most businesses, however well run, can not attain this kind of mind share. The products and services they provide can never be as differentiated and memorable as a motion picture. Just as importantly, the positive associations will not be present, simply because the product or service is not inherently exciting, entertaining, or pleasant. This is clearly the case in financial services.

So, what can a financial services company do to improve its mind share? The most obvious tactic is simply to “wow” its customers. In fact, Wells Fargo’s CEO discusses this particular option in the “Vision and Values” section of the company’s website:

We have to “wow!” them. We know what that feels like because we’re all customers. We go to the cleaners, the grocery store, a restaurant or whatever, and we find a situation where we’re “wowed!” We walk out and we say, those people really listened to me and helped me get what I need. All of us hear stories about customers, say, who pick a certain line at the supermarket because they know the person who bags the groceries connects with customers — smiles, greets regular customers by name, asks how their families are doing. When a personal banker helps a customer in one of our stores, or when a customer gets help from one of our phone bankers or does transactions on wellsfargo.com we want them to say, “That was great. I can’t wait to tell someone.”
(Vision & Values)


Another option worth pursuing is widening the associations present in the customer’s mind. Financial services is a business where associations tend to be more conscious, categorized, and hierarchical than the associations formed in more heavily branded businesses. Put simply, the (potential) customer usually thinks of a “set” before thinking of an “element” within that set. Like many mental associations, the information can be returned in either direction. For example, the customer may normally think “banks” and then think “Wells Fargo”, but will also be able to return the word “bank” if prompted by the name “Wells Fargo”. This categorization is important, because it provides (limited) permission for Wells Fargo to expand its mind share horizontally (across service categories).

In other words, providing a diverse range of financial services doesn’t just make sense from the provider’s perspective, it also makes sense from the user’s perspective, because the user of financial services has already grouped deposits, borrowing, credit cards, insurance, brokerage services, asset management, etc. together in a very loose way within his mind. As a result of this mental network, one positive experience with Wells Fargo will greatly affect a customer’s desire to pay for an additional service, even if the two services are not really all that similar.

The three key elements here are: a broader definition of what Wells Fargo is (a place that does “money things”, not just a bank), a positive experience, and some sense of trust that the quality of service will be consistent. The last requirement is the easiest to meet, because it’s natural for a customer to assume that the positive experience was not a fluke, much the way a diner assumes the good meal he had at a particular restaurant was not caused by his picking the best offering from the menu. The diner usually assumes the overall quality of the restaurant’s various entrees is superior. Likewise, a good experience with one of Wells Fargo’s products or services will likely rub off on its other offerings.


Valuation

Shares of Wells Fargo currently yield just over 3%. The stock trades at a price-to-book ratio of just under 2.75 and a price-to-earnings ratio of less than 15.


Conclusion

Over the last 5, 10, 15, and 20 years shareholders of Wells Fargo & Company have fared better than the S&P 500. As of the end of last year, WFC’s total return over the last ten years was 17% vs. 9% for the S&P. Over the last 20 years, WFC outpaced the S&P 500 by an even wider margin: 21% vs. 12%.

Wells Fargo has a stellar reputation with investors. The company is the only U.S. bank to earn Moody’s highest credit rating. Wells Fargo also boasts a well-known major shareholder. The largest owner of the company’s common stock is Berkshire Hathaway. Warren Buffett’s holding company has a roughly 5.5% stake in Wells Fargo. Berkshire’s last reported purchase occurred during the first quarter of this year.

Wells Fargo has a stated goal of achieving double-digit growth in earnings and revenue while managing a return on assets over 1.75% and a return on equity over 20%. Those are both very ambitious goals. The company has achieved some of the highest returns on assets and equity of any major U.S. bank. However, Wells Fargo will probably need to increase the percentage of revenue it derives from fee businesses if it is to achieve these goals.

In the years ahead, the company may well become more of a diversified financial services business. In fact, that’s what I expect will happen. The company’s commitment to cross-selling is not some fad. Eventually, this commitment will change the way investors think about Wells Fargo. Soon, it may be considered much more than a bank.

Wells Fargo’s CEO makes the case that his company’s P/E is simply too low. Wells Fargo has a solid history of strong growth and profitability. So, why should it be valued similarly to most other banks? Shouldn’t it be awarded a multiple more in line with a growth company?

There’s actually some merit to this argument. Wells Fargo is unusually well positioned for a bank. Often, those banks that seem certain to earn very high returns on assets and equity for many years to come are poorly positioned for future growth. These banks are often smaller than their competitors and focused on a specific geographic niche. Any acquisitions would dilute the exceptional profitability of the bank’s niche.

Of course, there are also many consolidators in the banking industry. Unfortunately, many of these banks do not have a history of earning the kind of returns on assets and equity that Wells Fargo has achieved. Even more importantly, there is little differentiation between these titans of the banking industry and their national competitors. Therefore, their moats are highly suspect.

Wells Fargo is a different kind of bank. It has a history of extraordinary growth and profitability. There are two obvious opportunities for future growth: geographic expansion and cross-selling. Of these two opportunities, it's clear I’m more enamored with the latter. An eastward push is not necessary, and certainly not via an ill-advised acquisition.

There is a lot of value in the Wells Fargo franchise and there is plenty of room within that franchise for future growth. That’s one of the great advantages of the financial services industry. With the right model, limits to growth are almost non-existent. In other highly-profitable industries, there is often nowhere to reinvest new capital at a similar rate of return.

If Wells Fargo is a growth stock, it is a peculiar sort of growth stock. Maybe that is what attracted Buffett to the company in the first place. Here is a business with a strong franchise that can grow for many years to come. Perhaps most importantly, it is a growth business that frequently trades in the market at value like multiples, simply because it’s a bank.

At the current market price, Wells Fargo is the sort of investment you make once and forget. The valuation is not so cheap as to promise a good return if the business falters. But, the business is not so suspect as to require the margin of safety be provided by a low P/E ratio. Sometimes, near certain growth is the margin of safety.

On a separate topic, I’d like to encourage anyone with an interest in competitive advantages to read the entire "Vision and Values" section of the Wells Fargo site.

Superficially, it looks like any other online presentation to investors. In truth, it is nothing like those hollow, sugary slide shows. It's actually an engaging exploration of competitive advantages within an industry that seems totally unlike the sort of branded, consumer-oriented businesses one normally associates with strong franchises. Even if you aren’t interested in the banking industry in particular, I recommend reading this section for its insights into customer psychology and behavior.

http://www.gannononinvesting.com/

DivX and Vonage

Stocks: (VG)(MSFT)(RNWK)(AAPL)(SUNW)(GE)(SNE)(FTE)(T)

Does the IPO of Vonage tell investors anything about the DivX offering? Certainly since both are in the tech space and are fundamentally software-based enterprises, there are some potential parallels in valuation. Vonage describes its product as "VoIP technology which enables voice communications over the Internet through the conversion and compression of voice signals into data packets". DivX says it has created "a technological platform and galvanized the community necessary to enable a digital media ecosystem". The factor that is very different is that Vonage can claim, at least for the time being, that it is the market leader in VoIP in the U.S. DivX cannot make this claim in its media player markets, especially with the presence of Windows Media and RealPlayer.

Accounting for the drop in stock price since its IPO, Vonage's stock is down 27% from the $17 initial offering . Vonage was priced at roughly ten times 2005 revenue. If DivX was priced on the same basis, it would now be worth about $241 million. The company said it plans to raise up to $135 million. Will they sell 56% of the company in an IPO? Not likely.

The other issue is that the DivX core intellectual property comes from the patent pool MPEG and is licensed through their IP authority MPEGLA. The MPEG patent pool includes intellectual property from companies including Samsung, Sharp, Sony, France Telecom, and GE Technology Development. Some of the IP in this pool is being challenged by AT&T, so it is unclear whether companies like DivX have clear title to it or what will happen if the AT&T claims go to court.

With this kind of IP risk, and DivX holding a market position well behind Microsoft and Real in media player usage, it is extremely hard to see how the company could command even the discounted multiple that Vonage did. In other words, there is little in the way of precedent to justify the company being worth even $200 million.


In the current market environment, deals like this often get shelved, so it would not be shocking if the DivX IPO gets pulled or at least has the terms lowered.

Douglas A. McIntyre

Joe's Quick Takes: SBUX

From The Average Joe Investor


I'm sure everyone has a pretty good idea as to the business behind Starbucks (ticker: SBUX) and most of you have probably enjoyed some of their beverages. If you haven't, you're likely not sufficiently caffeinated and I'd ask that you up your caffeine level before reading any more of this blog. To restate the obvious: Starbucks, through their retail locations, makes and sells beverages including hot and cold coffee and espresso beverages and teas. 'Bucks also sells ground and bean coffee (both at retail locations and through other channels), food (mostly cake in various forms that is not kind to my waistline), coffee making equipment and music.

Currently the breakdown in sales at 'Bucks goes like this (as of end of fiscal year end '05): 85% in-store, 10% licensing and 5% foodservice; 77% beverage, 15% food, 4% whole bean coffee and 4% coffee making equipment and other; 84% US and 16% non-US. The company owns around 6,000 stores and opened over 700 new stores in '05 (simple math says that's roughly two stores per day!). Revenue has grown at around a 25% CAGR from 2001 to 2005 and diluted EPS has grown about 28% per year in the same period. Operating margins have gone up 2% over that span and comparable store sales, though down in '05 versus '04, are up versus 2001 and 2002.

Great.

And with a significant amount of growth expected to come from China and other overseas markets, not to mention continued growth in the US (SBUX's long-term goal is to have 30,000 total stores - 15,000 in the US and 15,000 abroad), the 20%+ annual growth isn't expected to end any time soon. Heck, I like the story here - anecdotally, I have trouble turning the heat on at home during the winter but readily shell out $3 on a daily basis for a double tall latte. And guess what - I'm not the only one in there...

The problem with the stock, though, lies in their risk factor #2 in their 10-K (for those not familiar with the "risk factors" in SEC filings, they're basically a section of the document where the company gives every conceivable risk to their business and stock price, basically so that if something does go wrong they can point to the document and say "see, we told you that could happen!"):

"Market expectations for Starbucks financial performance are high.
Management believes the price of Starbucks stock reflects high market expectations for its future operating results. In particular, any failure to meet the market’s high expectations for Starbucks comparable store sales growth rates, earnings per share and new store openings could cause the market price of Starbucks stock to drop rapidly and sharply."

A nice way for management to say that the stock is perhaps a bit overvalued.

SBUX trades at 46x the current EPS estimates for 2006 - that's a nice 2.3x a 20% five year growth rate. And this is after shedding 12% since the first part of May. I think there's a great company behind the SBUX ticker, but you're not going to get me to pay that kind of a price for it. My take is that people may be a little too worked up about music and movies (which 'Bucks is using to enhance customer experience to sell more coffee not necessarily to be a big new source of growth) and letting the fundamentals fly out the window.

I think SBUX has a good amount of room to fall to become interesting in the least, and a heck of a lot of room to fall before it becomes a buying opportunity.

Bottom Line: HOLD

http://theaveragejoeinvestor.blogspot.com/

Claires Stores Inc.

From ValueDiscipline

I know the stock market is rough. I know consumer confidence is dwindling. But when Mr. Market is having one of his downers, it's time to pull out the calculator and have a look at some decent businesses that may be getting cut unmercifully.

I believe that Claires Stores (CLE) is one of those kinds of businesses. Down about 26% from its peak of April (most of that fall occurred in May,) the company continues to demonstrate significant profitability, predictability, and at this point, decent valuation characteristics.

Enterprise value is about $2.2 billion reflecting zero debt and just under $400 million in cash. CFFO for last year was $243 million with capex of $82.5 million for free cash flow of $160.4 million. Hence, a FCF yield of 7.3%.

Not a random occurrence...free cash flow was generated in each of the last five years totalling $602 million. Dividends of $120.3 million were paid over that period. Share buybacks are non-existent but share issuance has been miniscule amounting to less than $20 million. Dividend growth rate for five years is 52% i.e. they have treated shareholders as partners.

Valuation has just dropped below 9 times EV/EBIT. Less than 7.5 times EV/EBITDA.

ROIC on a TTM basis is 19.8%. Average ROIC in the last five years has been 16.6%.

Long term growth estimates range from 12 to 18%. Let's use 9%. Operating margins have been running near 18% recently. Lowest operating margins in the last five years were 7%, median was 14%. Let's use 14%. I come up with a DCF of over $30 using these very conservative inputs versus its current price of $26.12.

As of January 28, 2006, Claires operated a total of 2,878 stores in all 50 states of the United States, Puerto Rico, Canada, the Virgin Islands, the United Kingdom, Switzerland, Austria, Germany, France, Ireland, Spain, Holland and Belgium. The Company has two store concepts: Claire's Accessories and Icing by Claire's. About 29% of sales are outside the U.S.


Seems to me that even in the worst of economic environments, young girls will still want to be buying low priced accessories. As Ms Schaefer describes it, "we appeal to people 2 to 92 because when it comes to fun items that are well priced and impulse driven, we are the place to go."

Seems to me that even in the ugliest of stock market environments, investors will still want to own low priced stocks.

http://valuediscipline.blogspot.com

Europe Market Report 5/31/2006

Stocks: (BCS)(BAB)(BT)(HBC)(RTRSY)(UN)(UL)(VOD)(AZ)(BAY)(DCX)(SI)(ALA)(AXA)(FTE)(TMS)(V)

European markets were recovering at 5.30 AM New York Time.

The FTSE 100 was up almost .7% to 5,690. Barclays was up 2.8% to 606. British Airways was up 1.4% to 337. BT Group was off nearly .7% to 229. HSBC was up 1% to 923. Reuters was up 1% to 377. Unilever was off .3% to 1,184. Vodafone was up nearly 1.3% to 121.

The Daxx was up almost .2% to 5,632. Allianz was up 1.2% to 120. Bayer was off .6% to 35. DaimlerChrysler was up over .6% to 40.6. SAP was off 1% to 162.7. And, Siemens was off almost .6% at 66.

The CAC 40 was up very slightly to 4,901. Alcatel was up .5% to 10.27. AXA was up .7% to 26.94. France Telecom was up 2.6% to 17.19. L'Oreal was up .7% to 69.25. Thomson was up 1.1% to 14.9. And, Vivendi was flat at 27.97.

Douglas A. McIntyre

Nasdaq Short Interest, May 2006

Stocks: (SIRI)(LVLT)(YHOO)(JDSU)(CHTR)(INTC)(SUNW)(MSFT)(CIEN)(EBAY)(CNXT)(AMTD)(HAWK)(ORCL)

The largest short interest in Nasdaq stocks in May was:

Nasdaq 100 Trust 122.248 million
Sirius 119.144 million
Level 3 100.041 million
Yahoo! 78.282 million
JDS Uniphase 69.511 million
Charter Comm 69.412 million
Intel 55.962 million
Sun 51.681 million
Microsoft 50.844 million
Ciena 46.914 million
eBay 46.301 million


The largest changes up in short interest were:

JDS Uniphase up 17.9 million to 69.5 million
Level 3 up 15.7 million to 100 million
Conexant up 9.7 million to 31.6 million
TD Ameritrade up 6.2 million to 12.2 million
Petrohawk Energy up 5.9 million to 9.7 million
eBay up 5.6 million to 46.3 million

The largest changes down in short interest were:

Nasdaq 100 Trust down 25.3 million to 122.2 million
Sun down 9.3 million to 51.7 million
Intel down 6.3 million to 55.9 million
Microsoft down 6.2 million to 50.8 million
Oracle down 6.2 million to 37.3 million
Charter Comm down 5.1 million to 69.4 million


The largest short interest ratios were:

SCO Group 188 days
Navarre 55 days
Introgen 54 days
Convera 52 days
Mair Holdings 52 days
Integrated Alarm 47 days

Other notable short ratios:

Valence 23 days
Costar 21 days
eCollege 21 days
DTS 20 days
NeoPharm 20 days

Douglas A. McIntyre

Media Digest 5/31/2006

Stocks: (GM)(VOD)(TWX)(CMCSA)(VG)(XMSR)(FRE)(CA)(NRG)(MIR)

Reuters reports that Lenovo Group, the world's third largest PC company, would have profits in 2006 that would not be below 2005.

Reuters also reports that a small cable programming company, The American Channel has sued TimeWarner and Comcast accusing them of "big-rigging" in their purchase of Adelphia. The suit says that this would keep unaffilated networks off the cable system.

Reuters writes that Vonage will pay back the bankers in its IPO if Vonage customer who bought stock do not pay for their shares. The price dropped sharply after the offering and is now down almost 27%.

Reuters also writes that XM Satellite Radio will stop selling two of its radio products "after a U.S. regulator said the devices exceeded limits for wireless signal strength".

The Wall Street Journal reports that Freddie Mac (FRE) reported a 27% drop in net income in 2005 to $2.13 billion.

The WSJ also reports that Vodafone will shift its focus to broadband internet access and away from international acquisitions of cell phone operations. The company is the world's largest cell phone operator.

The Journal also writes that Computer Associates will delay its annual report "because of additional work on sales commissions and income taxes".

The WSJ also reports that NRG Energy has rejected an offer of nearly $7.9 million from Mirant, another power generation company.

In the New York Times, GM has named the head of its Asia division to run its troubled North American operations.

The NYT also reports that Vodafone had an annual loss of $41 billion which "would qualify as the largest in recent European corporate history".

Douglas A. McIntyre

Asia Markets 5/31/2006

Stocks: (CAJ)(FUJIY)(HMC)(NIPNY)(NTT)(DCM)(TM)

Asian markets dropped sharply on concerns about the U.S.economy and interest rates.

The Nikkei dropped almost 2.5% to 15,467. Shares in Bridgestone were off over 4% to 2,290. Canon was down over 4% to 7,760. Daiwa Securites was off 3.4% to 1,378. Fuji Photo was off 3.2% to 3,670. Honda Motors was down 2.5% to 7,320. Japan Airlines was down .7% to 298. Mitsubishi Corp was down 1.7% to 2,365. NEC was off over 4% to 668. NTT was off nearly 2% to 549,000. DoCoMo was down 1.6% to 181,000. Sharp was down 3.2% to 1,860. Softbank feel sharply, 5.4% to 2,720. And, Toyoto fell 3.4% to 5,930.

Markets in Hong Kong and Korea were closed for holidays.

The Straits Times Index was off 2.4% to 2,384. Singapore Airlines was down 1.6% to 12.4. Singapore Telecom was down 1.6% to 2.5.

Douglas A. McIntyre

Tuesday, May 30, 2006

After-Hours Notes from May 30, 2006

Main Stock Tickers: ALTR, ASYT, CATT, CBST, INSP, MCDT, NPSP, NRG, ONXX, RMBS, SMTC

(ALTR) Altera reaffirmed Q2 sales will be in line with previous guidance for 7%-10% growth, but sees additional SG&A expenses from its announced review of stock option granting practices and related accounting.
(ASYT) Asyst Tech said its CFO has left to join another company.
(BNE) Bowne added $45M to its existing share buyback plan.
(CATT) Catapult Communication lowered guidance.
(CBST) Cubist filed to sell $275M in convertible subordinated notes.
(HWAY) Healthways is acquiring private LifeMasters for $307M cash to add 600,000 lives to its customer base.
(INSP) Infospace added $100M to its existing share buyback plan.
(MCDT) McData $0.04 PES & R$168.3M vs $0.04/$170.25M(e).
(MCRI) Monarch Casino's CFO resigned.
(NPSP) NPS Pharmaceuticals has a 6.8% stake taken by George Soros according to filings.
(NRG) NRG gets a 33% premium buyout offer of $57.16 from Mirant in an $11.5 Billion deal.
(ONXX) Onyx Pharmaceuticals filed to sell $300M mixed securities shelf; NRG has reportedly rejected the offer.
(PWEI) P.W.Eagle confirmed its board has formed a committee to evaluate strategic alternatives.
(RMBS) Rambus said its audit committee is evaluating its stock option grant practices.
(SAFC) Safeco named Ross Kari as CFO as of June 21.
(SMTC) Semtech $0.16 EPS vs $0.14e; adds $50M to its share buyback plan.
(WRE) Washington REIT filed to sell 2.6M shares.

Cramer's "Mad Money" Recap of May 30, 2006

Main Stock Tickers: ENB, NTGR, TMY, BUD, BAC, C, KRY, CMCSA, COP, HAL, URS, SIRI, NKTR, PEP, PAY, EBAY, STKL, VG, XMSR

Cramer evaluated today's +180-point self-off in the DJIA and said we are in a leaderless market where it is very hard for the market to advance. The market is cycling between commodity and recession (food and drug) stocks, and said that these groups do not go up at the same time. When trying to identify the next leader he said he didn't know which stock and group would lead nor when it will emerge as the leader. That being said, investors need to be positioned between the recession stocks and the growth & commodity plays for diversification to wait for market developments.

Cramer first evaluated Enbridge (ENB), that may be the next Kinder Morgan (KMI), as it transports and distributes crude oil and gas but is Canadian with solid production. Cramer said with KMI about to be taken private, ENB is a cheap stock likely to go to $40.00 that is a Buy.

Cramer also evaluated NetGear (NTGR) as a best-of-breed stock taking market share, has a VoIP phone for Internet-based phone calls without having to be near a computer, and is also rolling-out next generation routers. Cramer says NTGR is a Buy.

Cramer lastly evaluated Transmeridian (TMY) and spoke with its CEO. Cramer called it a speculative oil stock appropriate for the most speculative accounts only, not for those seeking a blue-chip investment.

In the "Lightning Round", Cramer was POSITIVE on Anheuser-Busch (BUD), Bank of America (BAC), Citigroup (C), Crystallex (KRY), Comcast (CMCSA), ConocoPhilips (COP), Halliburton (HAL), URS (URS), Sirius (SIRI) (buy on a pull back to $4), Nektar (NKTR), Pepsi (PEP), and Verifone (PAY); and NEGATIVE on eBay (EBAY), SunOpta (STKL), Vonage (VG), XM Satellite (XMSR).

Jon C. Ogg
May 30, 2006

Rex’s Earnings Vanish; Assets Remain

(RX)(PGN)

By Geoff Gannon

Shares of Rex Stores (RSC) are down nearly 8% in today’s trading. This decline extends Friday’s fall-off following Rex’s disappointing earnings release.

Net income for the quarter came in at $1.5 million or $0.13 per diluted share vs. $6.1 million or $0.48 per diluted share during the year ago period. Net sales dropped to $86.1 million from $87.9 million during the year-ago period, despite a 0.5% increase in same-store sales.

The decline in net sales was primarily the result of store closings. Rex has continually closed stores over the past few years. The decline in net income was primarily the result of a drop in Rex’s synthetic fuel investment income. Income from limited partnership investments was $2.1 million in the first quarter vs. $6 million in the year ago period.

The sharp sell-off is likely the result of news from Progressive Energy (PGN), Rex’s partner in its Colona synthetic fuel investment, that production at the fuel facilities has ceased in anticipation of the reduction or phase-out of Section 29/45K tax credits. Synthetic fuel credits are phased out if oil prices reach certain levels.

Rex had always been aware of the possible phase-out, but hadn’t previously stated that it did not expect to receive any additional income from the sale of its synthetic fuel interests. Last week, Rex’s Chairman and CEO, Stuart Rose, acknowledged that Rex no longer expected additional income from the synfuel investments.

The market’s violent reaction to Rex’s first-quarter results and the synfuel announcement is entirely overdone. Such a reaction would have been appropriate if the market had been valuing Rex on an earnings power basis with the expectation that income from the sale of the synfuel partnership interests would have continued at the same level as a year ago.

But, that was never the expectation. In the first quarter of 2006, shares of Rex stores were trading at less than seven times last year’s earnings. Obviously, the stock was not being valued on the basis of last year’s earnings.

Even a year ago, the majority of the value in Rex Stores was not derived from the income received from the sale of the company’s LP interests. For several years now, Rex Stores has been an asset play. The company has substantial real estate holdings (largely unmortgaged) spread across many different states.

In addition to its many real properties, the company still has both state NOL tax credits - and much more importantly, federal AMT credits. The credits are largely the result of the synfuel investments. While the value of the company’s real estate is difficult to value, the fact that Rex has managed to halve its total liabilities in less than five years has created an interesting opportunity in the company’s common stock.

Shares of Rex Stores currently trade at about 75% of book. The book value of the company’s assets is less inflated than the book value of the assets of most public corporations. Even if the retail chain merely managed to break even, shares of Rex Stores would not be overvalued at current levels. So, why all the selling?

Part of the problem may be speculators. Recently, Rex has been making investments in ethanol. Earlier this year, shares of Rex Stores had risen suddenly when the company’s interest in ethanol became more widely known.

For long-term shareholders, the transition from synfuel investments to ethanol investments was not unexpected. However, Rex Stores was not particularly well known outside of investors who hunt for such book value bargains. The public’s interest in ethanol and its new found knowledge of this small, rather obscure electronics retailer may be the reason for the recent wild ride – both on the way up and on the way down Of course, it remains to be seen if steadier hands (particularly value-oriented funds) are taking part in the selling, or are staying on the sidelines.

Geoff Gannon's site is www.gannononinvesting.com

Previewing the American Society of Clinical Oncology Annual Meeting (ASCO)

Main Stock Tickers: ABBI, ADH, AMGN, ARIA, BSM, CELG, CEGE, EXEL, DNA, GHDX, GNTA, GSK, HNAB, INGN, MLNM, MYGN, OSIP, PFE, PCYC, SUPG

This Friday will be the launch of the largest cancer and oncology event of the year. The American Society of Clinical Oncology (known as "ASCO" and referred to as ASCO hereafter) annual meeting in Atlanta, Georgia begins on Friday, June 2, 2006 and will go through Tuesday, June 6, 2006.

This is a compiled list of public companies that trade on US exchanges only, as we are geared toward the investment community perspective to this event. It is broken down by a full list exhibitors, a list of which of the companies are in each subset to identify stock candidates ahead of media teases, it also shows recent developments in Congress, and it even has a brief explanation of which companies have either confirmed they are presenting data or that have shown up in media or research reports as presenting data.

This is a few days ahead of the event so the list will only grow with many more companies confirming they intend to present embargoed data at the conference. There are some companies that have been noted recently as already having presented data, but this is discussed in each case.

For several years ASCO has been THE launch platform of choice for many biotech and drug companies to issue embargoed trial and test data to the oncology and investment community. The focus this year seems to be more on combination treatments than on new novel treatments, but in all honesty that can change literally in a matter of three seconds after new potential ground breaking data is presented.

You can peruse the ASCO website (link) to determine additional data. Because of the volume of the data ahead this is a partial document and should be considered work in progress due to the fact that it is certain to expand every few hours.

FULL LIST OF ASCO EXHIBITORS:
Under the full list of exhibitors please note that any longer written explanation than the company being a subsidiary means that the company paid extra to be listed as a Featured Exhibitor on the ASCO Annual Meeting site. The featured exhibitors are listed first and each letter of the alphabet has a space in between letters. This is only a list of the public companies, and there are likely other public company subsidiaries that were either overlooked or that were omitted intentionally. Some of the tickers may also have changed or no longer appear because of the ongoing list of mergers that are present in the medical, drug, and biotech fields.

ABAXIS...division of Abraxis Bioscience, Inc. (ABBI-NASDAQ): Developing innovative, next generation cancer therapies. Through research, innovative science, and creative thinking, we are working to redefine the treatment of cancer as we know it. As it became clear to us that nanotechnology (the science of molecular particles, measured in nanometers—billionths of a meter) would intersect with cellular biology, molecular biology, and medicine, we made the bold commitment to make this convergence happen. We have transformed the highly promising concept of protein-bound particle chemotherapeutics into an exciting new patient reality.
ANTIGENICS INC. (AGEN-NASDAQ): developing Oncophage, an autologous cancer vaccine in late-stage development for metastatic melanoma and RCC. The company's oncology portfolio also includes Aroplatin and AG-858.
ABBOTT (ABT-NYSE)
ADHEREX TECHNOLOGIES INC. (ADH-AMEX)
AETERNA ZENTARIS (AEZS-NASDAQ)
ALLOS THERAPEUTICS, INC. (ALTH-NASDAQ)
AMGEN (AMGN-NASDAQ)
ARIAD PHARMACEUTICALS INC. (ARIA-NASDAQ)
ASTRAZENECA (AZN-NYSE/ADR)
AXCAN PHARMA (AXCA-NASDAQ)

BAYER PHARMACEUTICALS CORPORATION (BAY-NYSE/ADR): discover and manufacture innovative products that will improve human and animal health worldwide by diagnosing, preventing and treating disease.
BAXTER DEUTSCHLAND GMBH, part of Baxter Labs (BAX-NYSE)
BERLEX, part of Schering AG (SHR-NYSE/ADR)
BIO-IMAGING TECHNOLOGIES, INC. (BITI-NASDAQ)
BIOGEN IDEC (BIIB-NASDAQ)
BRISTOL-MYERS SQUIBB (BMY-NYSE)
BSD MEDICAL (BSM-AMEX)

CELGENE CORPORATION (CELG-NASDAQ): innovative therapies enable providers to offer the highest-quality care for better health care outcomes, creating less demand on health care resources.
CELL GENESYS, INC. (CEGE-NASDAQ)
CEPHALON ONCOLOGY (CEPH-NASDAQ)
CEPHEID (CPHD-NASDAQ)
CHARLES RIVER LABORATORIES (CRL-NYSE)
CHIRON, now under Novartis (NVS-NYSE/ADR)
CIPHERGEN (CIPH-NASDAQ)
CLARIENT (CLRT-NASDAQ)
COVANCE (CVD-NYSE)
CYTOGEN CORPORATION (CYTO-NASDAQ)
CYTOKINETICS (CYTK-NASDAQ)

DAKO (majority shareholder is Novo Nordisk (NVO-NYSE/ADR)...pre-IPO intends to list as public stock company: Dako’s primary business area, cell-based cancer diagnostics, is divided into Pathology and Flow Cytometry, which account for 73% and 17% of sales respectively. Added to this is 10% from other products. Dako has a global market share of 35-40% in specific tissue-based cancer tests. Dako has a market share of less than 5% in the world market for flow cytometry.

ELI LILLY & COMPANY (LLY-NYSE): In addition to delivering meaningful support programs, Lilly Oncology has a long-term commitment to advance the treatment of cancer by delivering solutions through innovative technology.
EXELIXIS INCORPORATED (EXEL-NASDAQ): Committed to making a meaningful impact on the lives of cancer patients through the development of first-in or best-in class therapies.
ENZON PHARMACEUTICALS (ENZN-NASDAQ)

FRESENIUS BIOTECH GMBH (FMS-NYSE/ADR)

GE HEALTHCARE, part of General Electric (GE-NYSE): provides transformational medical technologies to help shape a new age of patient care, enabling healthcare providers to better diagnose, treat and manage disease.
GENOMIC HEALTH, INC. (GHDX-NASDAQ): Genomic Health develops clinically validated molecular diagnostics to provide individualized information on the likelihood of disease recurrence and response to therapy for cancer patients.
GENZYME (GENZ-NASDAQ): Leading biotechs dedicated to making a major positive impact on the lives of people with serious diseases.
GENENTECH BIOONCOLOGY, Genentech (DNA-NYSE)
GENITOPE CORPORATION (GTOP-NASDAQ)
GENTA INCORPORATED (GNTA-NASDAQ)
GLAXOSMITHKLINE (GSK-NYSE/ADR)
GTX INC. (GTXI-NASDAQ)

HANA BIOSCIENCES, INC. (HNAB-NASDAQ)

IMCLONE SYSTEMS INC. (IMCL-NASDAQ): dedicated to developing breakthrough medicines in the area of oncology.
IMMUNOMEDICS, INC. (IMMU-NASDAQ): Humanized antibodies tested alone or combined with the radioisotope Yttrium-90; Anti-CD22 Epratuzumab, Anti-CD20 treat NHL and SLE; hPAM4 targets MUC1 expressing pancreatic tumors.
IMS HEALTH (RX-NYSE)
INTROGEN THERAPEUTICS (INGN-NASDAQ)

KENDLE INTERNATIONAL (KNDL-NASDAQ)
KERYX BIOPHARMACEUTICALS, INC. (KERX-NASDAQ)
KYPHON INC. (KYPH-NASDAQ)

MDS PHARMA SERVICES, part of MDS (MDZ-NYSE): manages oncology trials by utilizing renowned experts, advanced technologies, global infrastructure, exceptional drug development strategies and complete clinical capabilities.
MEDIMMUNE ONCOLOGY, INC. (MEDI-NASDAQ) focused infectious diseases, cancer, and inflammatory diseases. The company has four marketed products, including Ethyol® (amifostine).
MGI PHARMA, INC. (MOGN-NASDAQ) markets Aloxi® (palonosetron hydrochloride) Injection and Gliadel® (polifeprosan 20 with carmustine implant) Wafer in the U.S.
MERCK ONCOLOGY (MRK-NYSE)
MILLENNIUM BIOTECHNOLOGIES (MBTG-NASDAQ/OTC)
MILLENNIUM PHARMACEUTICALS INC. (MLNM-NASDAQ)
MYRIAD GENETICS (MYGN-NASDAQ)

NEOPHARM INC. (NEOL-NASDAQ)
NEORX CORPORATION (NERX-NASDAQ)
NOVACEA, INC. (NOVC-NASDAQ) (very recent IPO 5/10/06)
NOVARTIS ONCOLOGY, part of Novartis (NVS-NASDAQ/ADR)

ORTHO BIOTECH PRODUCTS LP, a unit of Johnson & Johnson (JNJ-NYSE): markets PROCRIT(R) (Epoetin alfa) used to treat anemia associated with serious medical conditions.
ONYX PHARMACEUTICALS (ONXX-NASDAQ)
OSI PHARMACEUTICALS (OSIP-NASDAQ)
OXIGENE, INC. (OXGN-NASDAQ)

PHARMANET, a merged company of SFBC (SFCC-NASDAQ)
PRA INTERNATIONAL (PRAI-NASDAQ): a clinical research organization in oncology and special expertise in CNS, respiratory and cardiovascular diseases.
PAREXEL INTERNATIONAL (PRXL-NASDAQ)
PDL BIOPHARMA, INC. (PDLI-NASDAQ)
PFIZER ONCOLOGY, part of Pfizer (PFE-NYSE)
PHARMACYCLICS (PCYC-NASDAQ)
PHARMION CORPORATION (PHRM-NASDAQ)
POINT THERAPEUTICS (POTP-NASDAQ)
PPD (PPDI-NASDAQ)

QUEST DIAGNOSTICS (DGX-NYSE)

ROCHE (RHHBY-NASDAQ/ADR/OTC): Diagnostics and drug development and commercialization in oncology and multiple other disease treatments.

SUPERGEN (SUPG-NASDAQ) dedicated to acquiring, developing, and commercializing therapies for hematologists and oncologists. We market Nipent® (pentostatin for injection), Mitomycin, and SurfaceSafe®.
SANOFI-AVENTIS (SNY-NYSE/ADR)
SAVIENT PHARMACEUTICALS, INC. (SVNT-NASDAQ)
SCHERING-PLOUGH (SGP-NYSE)
SCICLONE PHARMACEUTICALS (SCLN-NASDAQ)
SGX PHARMACEUTICALS, INC. (SGXP-NASDAQ)
SIRTEX MEDICAL, INC. (SXMDF-NASDAQ/ADR/OTC)

TELIK, INC. (TELK-NASDAQ)
THRESHOLD PHARMACEUTICALS (THLD-NASDAQ)
TRANSGENOMIC, INC. (TBIO-NASDAQ)

US ONCOLOGY (former USON-NASDAQ)

VARIAN MEDICAL SYSTEMS (VAR-NYSE): supplier of advanced medical technology and oncology information systems for the treatment of cancer and/or neurological conditions.
VALLEYLAB/TYCO HEALTHCARE, part of Tyco (TYC-NYSE)
VENTANA MEDICAL SYSTEMS (VMSI-NASDAQ)

WATSON PHARMA, INC. (WPI-NYSE)
WYETH (WYE-NYSE)

YM BIOSCIENCES, INC. (YMI-AMEX)


LISTED CATEGORIES OF EACH COMPANY PRESENTATION AT ASCO

This list is from the ASCO website and it seems very incomplete, so these should just be considered incomplete.

Antibodies:
Dako, PDL

Biomarkers:
Genomic Health, Ciphergen , Quest, Transgenomic

Biotechnology (broad-based):
Antigenics, Celgene, Exelixis, Imclone, Medimmune, MGI Pharma, PRA Int'l, Adherex, AEterna Zentaris, ARIAD, Biogen-Idec, Cell Genesys, Genta, Hana Bio, Introgen, Keryx Bio, NeoRX, Novacea, OSI Pharma, Threshold Pharma

Breast Cancer:
Dako, Genomic Health, Roche, BSD Medical, Clarient, GTX, Myriad, Pfizer, Sanofi Aventis, Schering Plough

Cancer Prevention:
GTX Inc.

Cancer Survivorship:
Ciphergen

Clinical Lab Services:
Genomic Health, Genzyme, Biomedical Systems, Clarient, Transgenomic

Clinical Research:
MDS Pharma, PRA Int'l, Charles River, PPD, Threshold

Consulting:
Bio-Imaging

Contract Research:
Charles River, Covance

Cytotoxic Chemotherapy:
AEterna Zentaris, NeoRx, Sanofi Aventis

Diagnostic Imaging and Imaging Services:
GE, Bio-Imaging, Clarient

Gastrointestinal Cancer:
Dako, Immunomedics, Roche, Myriad, Pfizer, Sanofi Aventis, Sirtex, Threshold

Genitourinary Cancer:
Cell Genesys, GTX, Novacea, Onyx Pharma

Gynecological Cancer:
AEterna Zentaris, Ciphergen, Schering Plough

Head & Neck Cancer:
Medimmune, Introgen

Health Services Research:
IMS Health

Hematologic Cancer:
Celegene, Biogen Idec, Cephalon, Enzon, Novartis, Pharmion

Human Genetics:
Myriad

Immunotherapy:
Antigenics, Biogen Idec, Cell Genesys, Schering Plough

Lab Services:
Genzyme, MDS Pharma, Covance, Quest, Transgenomic

Leukemia/Lymphoma:
Celgene, Immunomedics, SuperGen, Allos, Cephalon, Enzon, Genta, PDL, Pharmacyclics, Point Therapeutics

Lung Cancer:
Axcan, NeoRx, PDL, Pharmacyclics, Point Therapeutics

Medical Devices:
Abaxis, BSD Medical, Kyphon, Valleylab/Tyco

Medical Equipment:
GE, Varian, Abaxis

Melanoma:
Antigenics, Genta, Point Therapeutics

Metastatic Disease or Brain Metastases:
Allos, Phamrcyclics, Sirtex

Microarray:
Quest

Molecular Therapeutics:
Exelixis, Onyx Pharma, OSI Pharma

Nuclear Medicine:
Immunomedics, Sirtex

Nutritional Support:
Millennium Biotechnologies-MBTG, Savient

Pediatric Oncology:
Genzyme, Enzon

Pharmaceutical (broad-based):
Bayer, Eli Lilly, Exelixis, MGI Pharma, Ortho-JNJ, Supergen, Allos, Axcan, Bristol-Myers Squibb, GlaxoSmithkline, Keryx, Millennium Pharmaceuticals-MLNM, Novacea, Novartis, OSI Pharma, Pfizer, Pharmion, Sciclone, Solvay, Wyeth

Research Technology:
SuperGen

Supportive Care:
MGI Pharma, Roche, Cephalon, Hana Bio, Savient

Trial Management:
MDS Pharma, PRA Int'l, Varian, Charles River, Covance, PPD

COMPANIES WITH NEWS OR PRESENTATIONS EXPECTED OR ANNOUNCED AT ASCO AHEAD OF TIME:

ABAXIS, a division of Abraxis Bioscience, Inc. (ABBI-NASDAQ): expected to post nanotech convergence for cancer treatments in the future.

Adherex Technologies (ADH-AMEX): Announced that the Company has concluded the Phase Ib component of its Phase Ib/II ADH-1 trial in Europe and has begun the expanded accrual restricted to lung and ovarian cancers. The study, which is examining a weekly dosing schedule of ADH-1, will now enroll patients at the maximum studied dose of 2400 mg/m2 with N-cadherin positive non-small cell lung cancer and ovarian cancer. The Company expects to enroll approximately 20 further patients in this trial. The number of patients enrolled could be increased, depending on the level of anti-tumor activity noted. The Phase Ib data will be reported at a poster discussion presentation at the 2006 American Society of Clinical Oncology Annual meeting on Saturday, June 3, 2006 from 8 a.m.-1 p.m.

Amgen (AMGN-NASDAQ): Set to report on Denosumab, an experimental osteoporosis treatment formerly known as AMG-162, could receive accelerated approval should pending Phase II data prove positive. Phase II trials to be presented at ASCO; not confirmed since this is indicated as osteoporosis treatment but it is indicated for metastatic bone diseases.

ARIAD (ARIA-NASDAQ): Comprehensive Clinical Data on ARIAD's Novel mTOR Inhibitor, AP23573, to Be Presented at the ASCO Annual Meeting. ARIAD to Host Investor Conference Call on June 5, 2006 at 6:30 p.m. EST.

BSD Medical (BSM-AMEX): may Re-report progress in the application of hyperthermia therapy to the treatment of soft tissue sarcomas, breast cancer, ovarian cancer, cervical cancer, prostate cancer, bladder cancer, esophagus cancer, gastric cancer, pancreatic cancer, intra-peritoneal cancer and colorectal cancer. This data has been presented just last week.

Celgene (CELG-NASDAQ): expected to update Phase II data for Rivlimid in the treatment of chronic lymphocytic leukemia and updates on the Revlimid phase 2 trails in multiple myeloma at ASCO.

Cell Genesys (CEGE-NASDAQ): may re-release reports of Interim Results of CG0070 Phase 1 Trial in Bladder Cancer after 3 of 9 showed a complete response and no one had side effects and the company plans to expand trial enrollment.

Exelixis (EXEL-NASDAQ): was notified by participating clinical investigators that abstracts containing data from the company's Phase I clinical trials of XL647, XL880 and XL999 have been accepted for ASCO. Data from the Phase I trials of XL647 and XL880 will be presented and discussed in the Developmental Therapeutics: Molecular Therapeutics session at 12:00 p.m. ET on Saturday, June 3rd and data from the weekly dosing arm of the Phase I XL999 trial will be published in abstract form.

Genetech (DNA-NYSE): Phase II for OSIP's Tarceva plus DNA's Avastin data will be presented. Genentech-DNA has recently received an indication for Avastin in metastatic breast cancer according to reports.

Genomic Health (GHDX-NASDAQ): reportedly will be presenting beneficial data of its Oncotype DX that will be used in a large scale study that was just initiated by the National Cancer Institute in approximately 10,000 patients and 900 centers.

Genta Inc. (GNTA-NASDAQ): announced that several abstracts related to Genasense® (oblimersen sodium) Injection, the Company's lead anticancer compound, will be featured at ASCO. Abstracts include the following: Pooled Safety Analysis of Oblimersen Alone or with Fludarabine and Cyclophosphamide in Patients with Advanced Chronic Lymphocytic Leukemia. Saturday, June 3, 2006, 8:00 am-12:00 pm; Impact of Prognostic Markers on Outcomes in Patients with Advanced Chronic Lymphocytic Leukemia Treated with the Regimen of Fludarabine/Rituximab plus Oblimersen (Bcl-2 Antisense). Saturday, June 3, 2006, 8:00 am-12:00 pm.

GlaxoSmithkline (GSK-NYSE/ADR): will present data on Lapatinib as a first line defense for breast cancer, which has shown to be 35% effective in past reports. Presentation Saturday, June 3, 2006 at 9:30 AM - 10:15 AM.

Hana Biosciences (HNAB-NASDAQ): announced that Phase I trials in solid tumors and non small cell lung cancer with Talotrexin (PT-523) will be presented at ASCO. Details on the presentations are as follows: "A Phase I Study of Talotrexin (PT-523) in Patients with Relapsed or Refractory Non-Small Cell Lung Cancer." on Sunday, June 4th from 8:00am-12:00pm; "Pharmacokinetics of PT-523, A Novel Aminopterin Analogue, in Patients with Solid Tumors." Sunday, June 4th from 2:00-6:00pm.

Introgen (INGN-NASDAQ): will announce important new clinical data for ADVEXIN Cancer Therapy. During presentations at the ASGT on 5/31/06 and at an ASCO-sanctioned symposium, Introgen and its clinical collaborators will discuss clinical trial results and findings related to a set of prognostic indicators associated with high response rates and increased survival of ADVEXIN patients with recurrent squamous cell carcinoma of the head and neck. Also to be presented are the results of a Phase 1 trial, conducted in Japan, of ADVEXIN in patients with advanced non-small cell cancer. In addition to ADVEXIN data, results from studies involving INGN 241 (mda-7/IL24 therapy) and INGN 007 viral cancer therapy programs will be presented.

Millennium Pharmaceuticals, Inc. (MLNM-NASDAQ): announced that additional data from studies of VELCADE will be featured in multiple sessions for multiple indications at ASCO for multiple myeloma, tandem transplants, non-Hodgkins lymphoma, autologous stem cell transplant.

Myriad Genetic (MYGN-NASDAQ): presents "BRCA1/2" mutation prevalence data will be presented on a preliminary basis that has not been verified. FRI JUN 2: 300-515P.

OSI Pharma (OSIP-NASDAQ): Phase 2 for OSIP's Tarceva plus DNA's Avastin data will be presented at ASCO, June 2-6. OSIP will be speaking at the Bear Stearns Biotech conference on 5/31.

Pfizer (PFE-NYSE): expected to release data for experimental cancer drug Sutent at ASCO. Onyx Pharma (ONXX-NASDAQ) has had Sutent act as an overhang on it that it has recently launched with Bayer (BAY-NYSE/ADR) in recent trading.

Pharmacyclics (PCYC-NASDAQ): has said it will have multiple presentations and published abstracts regarding Xcytrin® Injection, including an oral presentation of Phase 3 SMART (Study of Neurologic Progression with Motexafin Gadolinium And Radiation Therapy) trial data. The presentations and publications are part of the proceedings at the 2006 American Society of Clinical Oncology Annual Meeting (ASCO). It will hold an investor reception featuring executive management and SMART trial investigators on Saturday, June 3rd, following the lung cancer session, where additional data and new analyses from the Phase 3 SMART trial will be presented. The company also will host a conference call on Monday, June 5th at 9:00 a.m. EDT to discuss the ASCO presentation.

SuperGen (SUPG-NASDAQ) and MGI Pharma (MOGN-NASDAQ): may announce additional data on the first commercial shipment of Dacogen(TM) (decitabine) injection but it was already announced last week that SuperGen has achieved the $20 million commercialization milestone. Additionally, SuperGen will earn a royalty on worldwide net sales starting at 20% and escalating to a maximum of 30%.

RECENT LEGISLATIVE DEVELOPMENTS IN CANCER
Comprehensive Cancer Care Improvement Act of 2006: Last Wednesday, Reps. Lois Capps (D-CA) and Tom Davis (R-VA) introduced HR 5465, the "Comprehensive Cancer Care Improvement Act of 2006," to reform the Medicare system so it more appropriately pays for all of the services needed to provide patients with comprehensive cancer care.

Medicare Early Detection of Cancer Promotion Act of 2006: HR 5437, the "Medicare Early Detection of Cancer Promotion Act of 2006," introduced May 19 by Rep. Clay Shaw (R-FL), would eliminate coinsurance payments for mammograms and colorectal screenings in Medicare. Currently, Medicare provides coverage for breast, cervical, colon and prostate cancer screening tests, for which beneficiaries must provide a 20 percent co-payment.

-Jon C. Ogg
May 30, 2006

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Microsoft Whistling Past The Graveyard MSFT, YHOO, GOOG

Microsoft's management has yet to come out and admit how serious problems at the company have become. In June 2001, the stock was above $36. It dropped below $23 in 2002, and the current $23.50 is as low as it has been since. Odd, in a way.

Revenue for the quarter ending March 31 was up nicely from $9.6 billion a year ago to $10.9 billion. Operating income was up to $3.89 billion from $3.33 billion. How many companies can boast about that kind of margin. And, the company has about $35 billion of cash and short-term investments.

Operating income in the Client, Server and Tools, and Information Worker segments is large and growing. Together, these older-line businesses brought in operating income of $5.6 billion in Q1. Which means the other three businesses operated by the company, MSN, Mobile and Embedded Devices, and Home and Entertainment, were a big drag.

Piracy, open source solutions, and IP and antitrust problems have all taken a piece out of Microsoft's vaunted reputation. But, the core fear about Microsoft is that software will no longer be sold the way it has been in the past. This means that companies delivering applications over IP will overtake the Microsoft model in the next few years.

In the arena of search technology, it is unlikely that Microsoft can cut into the lead that Google and Yahoo! have established. The fact that Google will be bundling some of its critical software with Dell PCs is hardly good news for Microsoft.

In a recent downgrade of Microsoft's stock, Caris & Co. made a prescient observation:
"Microsoft's forced shift from a software company to a digital services company is an admission that its traditional business model is challenged," said Analyst Tim Boyd. The company's stock price is an indication that this view is now widely held.

So, what can Microsoft do? Based on Microsoft's inability to change the minds of the doubting legions of investors, the stock has dropped 17% from its 52-week high of $28.38 and trades barely above $23.

But, the company still has two critical assets. One is its huge cash reserves and positive cash flow and the other is its market capitalization of over $238 billion. Perhaps the best course for Microsoft is based on the old adage "if you can't beat them, join them".

What does Microsoft need? A better position in search is the sine qua non of delivering services and software over IP to the PC and many other devices. And,it needs traffic.... Access to the tens of million of regular internet users.

The company that has both is Yahoo!. Yahoo!'s stock is now trading near a 52-week low and its market cap is small compared to Microsoft's at $45 billion. Yahoo!'s stock has not been above $40 for any sustained period in the last 5 years! Would shareholders take $40? It is a large premium given current valuations, but Microsoft's situation absolutely requires something that will transform the company in a moment's time.

Douglas A. McIntyre

Tribune Company Eats Its Own Cooking TRB

Tribune Company today announced that it would buy back 25% of its shares for $2 billion. Shares can be tendered for not less than $28.00 and not more than $32.50. The offer begins immediately.

Tribune has been trading near its lows, with a 52-week nadir of $29.07 against a high of $39.56. The stock rose 7.6% to $30 on the news.

The tick up is not nearly enough under the circumstances.

Tribune's revenue has been fairly flat over the last three years. In 2003, revenue was $5.595 billion, then $5.26 billion in 2004, and $5.596 billion in 2005. Operating income dropped from $1.36 billion in 2003 to $1.147 in 2005.

But the company's interactive properties have been doing unusually well. In April, Netratings says that company's 50 sites drew 14.8 million average unique users per month. This is up 32% from the same period a year ago.

In the first quarter of the year ending March 31, revenue dropped 1% to $1.299 billion. Operating profit dropped 12% to $222.9 million. The company insists that due to staff and other cost cuts that overall expenses are trending down. Tribune says it is committed to reducing costs another $200 million over the next two years.

Because the company has several very large newspapers, it has the opportunity to drive traffic to its online properties in a way that public newspaper companies in smaller markets do not. Tribune owns the LA Times, the Chicago Tribune and Newsday. Tribune's websites also tend to be large and in profitable internet niches. These include careerbuilder.com, cars.com and apartments.com. All fit well with the newspaper classified business which is migrating online.

Given the share drop in the number of Tribune shares, the online progress the company is making and expense reductions, the company should trade much closer to its 52-week high.

Douglas A. McIntyre
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