Cramer's MAD MONEY Recap for June 22, 2006

Stock Tickers: WHR, ALL, ZZ, TRN

Cramer evaluated Whirlpool (WHR) and said that the government allowing the Maytag merger to proceed was bad for consumers, but good for investors. He said WHR is now a near-monopoly in washing machines and will realize over $250M in annual savings, and it's a Buy.

Cramer also evaluated the insurance industry and said he likes Allstate (ALL). They sustained heavy Katrina claims, but it now has stopped writing policies from many potential hurricane victims and has already boosted premiums. He said it's dirt cheap at 8.2 times 2006 EPS estimates, with a dividend of 2.6%, and they have a share buyback plan. He says its a Buy.

He revisited Sealy (ZZ) as a past IPO he recommended that viewers Buy. He then thought it was worth $20, and safe to buy up to $18; it hit $18 and fell to around $12 now. Cramer said he was wrong on the top tick but at $12 he would actually double down as the company's fundamentals remain the same and it is at the high-end of mattress sales. He says Buy Sealy.

In a CEO interview, Cramer commented on rail car and barge sectors and he spoke briefly with Trinity Industries' (TRN) CEO Timothy Wallace. The company is involved in both sectors. Cramer: He said they are in a sweet spot in the economy and gave it two thumbs up.

"Lightning Round": Cramer was Positive: Altria (MO), and Alberto (ACV), Ciena (CIEN), Arena (ARNA), Best Buy (BBY), Continental (CAL), Hansen (HANS) 3 days after it splits, Qualcomm (QCOM), General Motors (GM), Mitsubishi (MTU), Lifecell (LIFC), V F Corp (VFC), Valero (VLO), UBS (UBS), LoopNet (LOOP), Electronic Arts (ERTS), McDermott (MDR), Micron (MU), Southern Copper (PCU); and he was Negative on: Coherent (COHR), Elan (ELN), Peru Copper (CUP), and Western Refining (WNR).

Neurocrine Gets Dumped by Pfizer

Stock Tickers: NBIX, PFE, SEPR, NKTR, DOVP, QSC, SNY, KG

Neurocrine Biosciences (NBIX) announced today after the close that Neurocrine and Pfizer (PFE) have agreed to terminate the collaboration agreement to develop and co-promote Indiplon. Translation: Pfizer killed the ongoing collaboration with Neurocrine after its recent FDA woes and its implosion. Neurocrine shares are not-surprisingly trading down 26% at $10.20 after-hours.

Neurocrine will reacquire all worldwide rights for Indiplon capsules and tablets and will independently develop indiplon for approval and commercialization. It will continue to meet with the FDA for the resubmissions of each Indiplon new drug application and plans to commercialize Indiplon as quickly as possible upon approval. Neurocrine also plans to review business and commercial alternatives to expedite successful commercialization of Indiplon. Pfizer will supposedly continue to support Indiplon for a period of up to 180 days to ensure a smooth transition, although it is highly unlikely that Neurocrine will be able to depend on Pfizer for much going forward.

In December 2002 Neurocrine entered into an exclusive worldwide collaboration agreement with Pfizer to develop and commercialize Indiplon. What is at question is whether or not Neurocrine will get to keep all of the milestone payments. The company was not a one-hit wonder without any other drugs in its pipeline, but this was their great potential blockbuster if they would have received full approval.

We have noted that the termination may be a possibility and that biotech implosions of this magnitude should be avoided until the dust settles. You can likely expect a further round of class action suits against Neurocrine to hit the tape tomorrow or Monday, as that is almost always the case. After this story we have posted some links to the two previous stories.

There are some other companies to watch on this news as well. Sepracor (SEPR), maker of a competing drug Lunesta, is up 4.7% at $59.09 after-hours. Nektar Therapeutics (NKTR), Pfizer's partner for Exubera, has not traded after hours. DOV Pharmaceuticals, Neurocrine's license partner on Indiplon, (DOVP) is down another 6.5% at $2.02. Another company named Questcor (QSC) makes a sleep drug called Doral (quazepam) that may be more successfully marketed now or down the road as a result of this. Sanofi-Aventis (SNY) makes Ambien and King Phamra (KG) makes Sonata, both of which are huge sellers for sleep disorders.

Jon C. Ogg
June 22, 2006

See our previous stories below:

MAY 16 STORY


MAY 17 STORY

Market Wrap for Thursday, June 22, 2006

DJIA 11,019.11; Down 60.35 (0.54%)
NASDAQ 2,122.98; Down 18.22 (0.85%)
S&P500 1,245.60; Down 6.60 (0.53%)
10YR 5.198%

The markets on Thursday gave back Wednesday's gains as investors grappled over fears of the economy slowing and interest rates simultaneously.

Shares of drug coated stent makers traded unreasonably lower after the WSJ reported that some doctors are curbing use. JNJ -$0.61 at $61.18; BSX -$0.50 to $18.62; SRDX -$2.33 at $36.97; ANPI -$0.69 at $11.99.

Teva Pharmaceuticals (TEVA) fell another 3.1% to close at $31.25 after falling so much yesterday.

Rite Aid (RAD) fell 7.69% to close at $4.20 after a disappointing earnings report.

Medifast (MED) share fell 21% to close at $16.35 after a boutique report indicated caution on the company's financials and on Sanofi-Aventis' (SNY) European approval of Acomplia.

Apple (AAPL) was one of the few brightspots in tech land closing up 2.9% at $59.58 after word came out that it was going to test selling iMacs at 7 Best Buy stores and on reports that French lawmakers were softening an iTunes proposal.

Qualcomm (QCOM) closed down 6.38% at $41.38 after Nokia announced it would pull out of CDMA phone manufacturing, Qualcomm's bread and butter.

Bed Bath & Beyond (BBBY) fell 5.9% to close at $34.71 after meeting estimates after yesterday's close but failing to impress the street with guidance.

Novell (NOVL) rallied 9.1% to close at $6.55 after its board ousted both the CEO Jack Messman and CFO Joseph Tibbetts. See Doug's article (LINK HERE).

Federated (FD) rose 0.9% to $36.13 on reports that it is closing a deal to sell the remaining Lord & Taylor properties to NRDC Equity Partners for $1.19 billion dollars.

Univision (UVN) fell another 3% to $32.80 after bids are coming in lower and lower. The Televisa bid is supposed to come after the close, so stay tuned for this ongoing situation tomorrow.

Tomorrow we have the highly volatile Durable Goods report for the month of May, with expectations around 0.4% as of earlier this week. Depending on the reaction to Oracle's (ORCL) earnings and to Endo Pharmaceuticals (ENDP), we may see at least a few movers tomorrow that we know about ahead of time. We may also get a pricing for 8M shares in a secondary offering of Horizon Offshore (HOFF) that has been anticipated for more than a week.

Refuting the WSJ Article on Coated Stents

Primary Stock Tickers: JNJ, BSX, ABT, MDT, SRDX, ANPI, CONR

The Wall Street Journal today has reported that cardiologists at such prestigious hospitals as Los Angeles' Cedars-Sinai and Boston's Brigham and Women's report they are inserting fewer drug-coated stents into cardiac patients due to concerns that the devices can cause blood clots. They are not saying there is a drastic curbing of the use. There has reportedly not been a decline in sales.

Shares of the coated stents and their partners are trading lower on this, but is that reasonable? This article seems more like regression than progress if you take it any further.

The issue that needs to be taken up is just what these stents do, and why people use them. Stents are mesh metal tubes inserted into heart arteries (and will be used in many more arteries in the future) used to prevent arteries from re-blocking (restinosis) after an insertion. This is the number one invasive method to avoid a heart attack, or to help those who have had a heart attack from having another blockage. Just a few years ago, the number one prevention method to avoid heart attacks was an angioplasty. This is a procdue where doctors insert a balloon to basically push out blockage in heart arteries But, low and behold,arteries that were suffering blockage had a tendency to reclose. So began the birth of the bare metal stent business.

The problem with the bare metal stents was that scar tissue would eventually form and this also created restinosis. The drug coated stents have materially cut restinosis rates, but the risks of blood clotting (thromboses) have been out there for some time. The FDA made alerts about these risks back in 2003, and it is puzzling as to why the WSJ would choose to write about this now. There have been public issues with stents and there have even been recalls. Doctors keep patients on blood thinners for weeks after these stent insertions, and this is nothing new. This is one of the primary reasons that blood thinners are used by patients who have had this procedure.

Go ask a group of specialist doctors about ANY subject and you will get a whole variety of recommendations and opinions on each topic they specialize in. In truth, some doctors prefer J&J's Cypher stent and some prefer Boston Scientific's Taxus stent. You will even find doctors that have taken the traditional approach of "we should use the bare metal stents until we have long-term testing and have seen the full results and side effects that materialize through time." The problem with the latter scenario is that by the time they figure that out most of the patients that would benefit from these will be pushing up daisies and hanging out with Elvis.

Drug coated stents account for over $5 Billion in annual sales, and should not decline from this level. Anything is possible, but that is just not the trend and that is not what is modelled into street expectations.

The makers of bare metal stents, Abbott (ABT) and Medtronic (MDT), are actually benefitting today from this news. Keep in mind that the public will now be asking about these issues when they are advised that they need a stent, but the additional drop on these other drog coated stent makers and their suppliers seems unjust. The report is saying that this is "modest" curbing at some hospitals and no slow down in sales has been seen. If you ask me, I would say they are trying to create shock news in a period where there is a news vacuum ahead of next earnings season.

If these guys want to write about who is ultimately going to win in patent suits or who has the better drug coated stent that would be fine. If they want to say that the stents would ultimately be replaced by a new technology, that would be fine as well. But this WSJ article has the feel of news creation rather than reporting, and that may be true even for a deep investigative news reporting and analysis basis. There is ample evidence that patients on the verge of a heart attack who are asked if they want a regular bare metal stent or the drug coated stent would choose the drug coated stents. These polymers dissolve in a matter of weeks.

Johnson & Johnson (JNJ), maker of the Cypher drug coated stent, is down 1.1% at $61.10; and Boston Scientific (BSX), maker of the Taxus drug coated stent, is down 2% at $18.71. Their partners that provide the stent coatings are down even worse because of the leverage they have in relative exposure. SurModics (SRDX), J&J's polymer supplier for its Cypher stent, is trading down 7.3% to $36.43; and Angiotech Pharmaceuticals (ANPI), Boston Scientific's polymer supplier for Taxus, is down 4.65% to $12.09.

Abbott Laboratories (ABT) was up on the day, but their shares are now down 0.7% to $41.97; and Medtronic (MDT) is also trading lower by 0.7% to $49.03.

One leveraged stock to this situation is Conor Medsystems (CONR). The company focuses on the development of its COSTAR stent, a cobalt chromium paclitaxel eluting stent for the treatment of restenosis. It is said to cut down the time of absorption, although it has miniscule quarterly revenues at this point. Its shares are up 5.95% at $25.94.

While the WSJ does do some great pieces and while does do some great investigative work, the implications are probably not fair at all. The market reaction usually tends to make a case of bird flu out of what is obviously just a common cold. That is what has happened as a result of this WSJ article. The logic and science for coated stents is sound, and based on all the available data that should not change any time soon.

Jon C. Ogg
June 22, 2006

The Chrysler And Ford Conflict

Stocks: (DCX)(F)(GM)

According to several media sources, the Chysler unit of DaimlerChrysler will begin offering significant discounts on its vehicles in the U.S. within a few weeks to cut its inventory. The model will be so-called "employee discounts" which means that consumers get the sale price that the Chrysler employees would receive.

In the car industry, like the airlines, rivals tend to match one another's prices to keep market share from being taken away.

But, the management over at Ford announced yesterday that it was on track to get it North American operations profitable again by 2008. The also introduced their 2007 models.

With Ford's market share in North America down to 17.6%, the move by Chrysler opens the debate about whether Ford and GM will have to give up share to Chrysler or match the discounts and cut their yield-per-vehicle. Neither option will help Ford reach its goal.

Ford's stock is barely above its 52-week low of $6.38 and well down from the high of the period at $11.19. The announcement affirming the goal for profitability did not move the stock.

Wall Street seems to have an issue with Ford's credibility.

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com He does not own securities in any of the companies he writes about.

Intraday Price Moves

Stocks: CLL CWPC ECA NKO PDP SU TSK UTS

By Don Rogers of Speechers Blog

Crude oil continues to sell off from its high's earliey in the session, briefly touching but not hold the close of $70.98 to move higher to $71.99. Currently a move down to $70.35 on the intraday chart can takes us lower to $70.16. The stop from the entry down is $70.56. Gains made earlier at the open have now moved lower for UTS , CLL, TSK, CWPC, SU, PDP, WNWG. NYSE, NASDAQ, XAU, SOX, continue to give up gains made on the brief rally of last week.

As I mentioned in an earlier article we did see the impulse move I discussed but it has failed at least at this point in time to turn into a trend reversal to move us higher on a consistent basis. Bargain hunters are out in force but it will take massive, sustained buying to move the indexes up from recent lows. Short positions increasing is also worriesome as the big players are counting on further weakness and take advantage of any moves up to add to their growing short positions. Remaining positive in the face of increased short positions is difficult and investors should be careful adding to heavily to existing positions if they are averaging down losses. Continued losses could only add to the losing position on paper.

The utilisation of margin at these times hoping for a bounce higher on sustained buying is not advised at this time. Margin is best utilised if the market is giving a strong signal up or down for adding to or taking out a new long or short position but in these sideways markets any gains may very be offset by the costs of that margin and commissions.

As much as we all would like to see sustained upwards movement the market is in a state of flux and is catching its breath. We are not seeing strong downward movement although the downward market pressures seem to be building which could explode to lower lows. None of the long entry positions on the major indexes are close to being hit in todays session and as I wrap this up we are approaching the downside target on oil which should act as another reason to sell off some of the juniors.

Remember, the amateurs open the market, the pro's close it.

http://www.entryandexitinvesting.com/

Hot News on ADBE, GIS, BBBY

By Yaser Anwar, CSC of Equity Investment Ideas

ADOBE SYSTEMS: Should be on the move after signing a multi-year deal with Google. Google is paying Adobe a significant amount in the deal. You have to wonder what kind of future this company has, a medium sized software company. Stock's gone from $8 to $40 over the past four years, now back down to $30. A mover over the short term, I say, so it may be good for a quick pop.

GENERAL MILLS: It should get a boost from an upbeat analyst report. The nation's Number 2 foodie is up in Europe this morning. Leonard Teitelbaum of Merrill Lynch put out a buy on GIS saying earnings should be tasty in 2007. Stock hasn't moved much over the past five years. But look at the brands: Green Giant, Wheaties, Betty Crocker, Pillsbury, Yoplait, Old El Paso. Can't beat that! I like this as a buy and hold. Interesting GIS has the same market cap as Adobe, but its P/E is about half.

BED BATH & BEYOND: Question: Beyond WHAT? The stock is under pressure. The nation's biggest home-furnishings retailer announced last night that it produced the smallest profit increase in ten years, with earnings rising a mere 1.5 percent to $100 million. Profit per share came in at 35 cents a share, less than some analysts' estimates. How much more room is there for this company to grow? It has over 800 stores. Medium expensive. I'll pass.

http://www.equityinvestmentideas.blogspot.com/

Why Economy is still strong

By Yaser Anwar, CSC of Equity Investment Ideas

Merrill Lynch's Chief Economist, David Rosenberg put out a piece recently which echoed a lot of the points we've been echoing here recently. He outlines five reasons why investors shouldn't panic:

1. We've gone 820 sessions now without a 10% correction in the broad market, which is the third longest stretch ever. We have been overdue for a pullback for some time.

2. The forward P/E has compressed to a mere 14.1x – back to where it was in mid-October 2005 right around the last time the market was when it began to find its legs.

3. Massive buybacks – over $100 bln this year or +22% year-over-year.

4. Earnings backdrop remains strong (at least for the current quarter). Negative pre-announcements remain lower than last year's levels.

5. Inflation expectations are starting to subside. Gold, Copper, Silver, and other major metals are all well off their recent highs, the dollar is strong, and the yield curve is flattening again.

http://www.equityinvestmentideas.blogspot.com/

Best Buy Test Marketing Macs Should Boost Apple

By Chad Brand of The Peridot Capitalist

Electronics retailer Best Buy (BBY) announced yesterday that they have begun test marketing Macintosh computers in some of its stores. A potential distribution deal with one of the largest retailers of computers, combined with new software that can run Windows, sure bodes well for Apple's (AAPL) Mac division. You have to like the odds that people buy Macs over Gateways at retail. Investors seem to be focusing on iPod sales right now, as the stock is down significantly to $57 and change. While not inexpensive, shares of AAPL seem to have more room to run than most tech stocks.

http://peridotcapital.blogspot.com/

Reality Finally Setting in for LCD Panel Makers

By William Trent, CFA of Stock Market Beat

After repeatedly insisting that things were going to be fine by August, LCD panel makers now appear to be accepting the reality: they have been making too damn many panels and it is going to hurt their profitability at least through the remainder of the year. Now maybe they will work to reign in production so the stock prices can bottom.Global LCD-TV panel inventory to reach 15m units in 2006

TFT-LCD panel makers are expected to suffer from serious inventory issues throughout this year, with LCD-TV panel inventory likely to reach 15 million units in 2006, according to estimates from Taiwan-based panel makers.

The global supply for LCD-TV panels will total 55 million units in 2006, while worldwide demand for LCD TVs will only attain 40 million units, Taiwan-based panel makers noted.
Although demand will pick up during the second half, amid strong seasonality, the oversupply of panels will still drag down panel makers’ profitability, sources indicated.

Currently, with the exception of Samsung Electronics, such panel makers as LG.Philips LCD, Chi Mei Optoelectronics (CMO), Quanta Display (QDI) and Chunghwa Picture Tubes (CPT) are all facing LCD-TV inventory problems, sources at the Taiwan-based panel makers pointed out. Sources at the Korea-based panel makers even indicated that CMO is seeing its 32-inch LCD-TV panel inventory level increase to about one month, while LG.Philips LCD also has its 37-inch LCD-TV panels piling up.

http://stockmarketbeat.com/blog1/

Solar Power Article Raises More Questions Than Answers

By Willam Trent, CFA of Stock Market Beat

Than Answers
We recently started exploring the solar power industry, noting first that Plantronics (PLT) had installed a new solar power system and later that MEMC was holding up better than other semiconductor equipment suppliers due to its exposure to solar cell manufacturers, who also use silicon wafers. We admit to being new to the industry, so we aren’t up to speed on the intricacies. Therefore, this article raised more questions than answers for us.

Nanosolar Inc., a privately held solar energy company, said on Wednesday it plans to build what it called the world’s largest factory to produce solar cells, in the San Francisco Bay Area. The plant would manufacture about 200 million solar cells a year with a total energy capacity of 430 megawatts, or enough to power more than 300,000 homes, Nanosolar said in a release.

The company… also plans to build a solar panel fabrication plant in Berlin, Germany. The company said it arranged a $100 million financing package for the projects, including $75 million of preferred stock.

Nanosolar and other private solar companies such as Miasole and Heliovolt use a thin-film technology that requires only a fraction of the amount of silicon needed in conventional solar cells.

California is pushing a $2.9 billion program to make the state one of the world’s largest producers of solar power. The “California Solar Initiative” aims to add 3,000 megawatts of solar energy over 11 years through the installation of 1 million solar energy systems at homes, businesses, farms, schools and public buildings. The state currently generates about 100 megawatts of solar electricity, enough to power about 80,000 homes.

Now our questions:

Does Nanosolar’s technology still use wafers?
How does the answer to question 1 affect MEMC?
How costly is Nanosolar’s technology relative to both traditional energy sources and current solar technology?
How expensive would oil have to be for Nanosolar’s technology to be cost competitive without subsidies?
How much sun is required to make solar effective?

We believe solar tech will ultimately create an investment boom that puts the telecom/Internet bubble to shame. However, we think there is a load of time to figure out the answers to these and many other questions before committing to one of the few investable plays currently available.

http://stockmarketbeat.com/blog1/

Garmin Market Share - Will it be Sustained?

By William Trent, CFA of Stock Market Beat

One day after presenting the bullish case for Garmin (GRMN), BusinessWeek came across the same bearish data we did: namely that big competitors are entering the niche. However, their article contained some good nuggets about the overall market and the market share of the current leaders.

Analyst Ron Stearns of Frost and Sullivan in San Antonio pegged the automotive portion of the consumer GPS business at $922 million and reckons consumers will buy more than 1.2 million units this year. Add in outdoor units aimed at hikers and boaters and you hit more than 4 million units and $1.8 billion in sales. And both market segments are growing. By 2010, Stearns expects combined unit sales (both automotive and outdoor markets) of 8.3 million and $2.7 billion in revenue.But it’s a fluid market. Garmin, launched in 1989, was once an upstart seen invading the turf of Magellan, first in the recreational segments that it dominated and later in the automotive portion of the business.

Garmin is now the dominant player in the U.S. market with share just shy of 50%. But it has been fending off a new kid on the block, TomTom, whose name in Europe is practically synonymous with GPS receivers. TomTom controls more than half the market in Europe, and Garmin struggles with share of about 10% over there.

“I will confess I was among those concerned about this turning into a commodity business, especially when Sony came in,” says Rich Valera, analyst with Needham and Co. in New York. “But Sony’s product is really mediocre, and there’s nothing to really differentiate it from Garmin or TomTom or Magellan.” Sony’s Nav-u bears a resemblance to Garmin’s Nuvi and sells for about $549.

Yeah, Sony (SNE) has never taken over a consumer electronics niche by putting out a copy-cat product before, so don’t you worry about it.

http://www.stockmarketbeat.com/

Techdirt: Should We Welcome Microsoft’s ‘Predatory’ Pricing?

Stocks: (MSFT)(SYMC)(MFE)

By William Trent, CFA of Stock Market Beat


We talked about Microsoft’s recent entry into the security software market here. While we noted that Symantec and McAfee appeared concerned, we also questioned whether consumers would pay Microsoft to defend against viruses and worms exploiting Microsoft’s Windows operating system. It appears to create a moral hazzard for Microsoft - do they improve Windows or let it stay buggy so they can sell more security software?

Recently it became clear that Symantec and McAfee weren’t the only ones concerned. Some channel partners and competitors have vocally alleged that Microsoft is pricing its new OneCare suite at predatory levels. Techdirt weighs in here.

For some time there’s been concern about how Microsoft’s push into security software might square with its reputation (and conviction) as a monopolist…. There’s no doubt that Microsoft does want to take shots at its competitors — that’s what all businesses do. What’s funny though is that the argument boils down to the fact that OneCare is too good of a deal, that its licensing terms are too flexible, and that a software package of its caliber just shouldn’t be so affordable.

All this sounds pretty good for consumers, whom the law should ultimately be designed to protect. If security software is such a commodity that price is the only concern for customers, then the price should be dropping. In addition to the direct concerns about pricing, the company argues that Microsoft will establish a monopoly in the space, and that investment in new research and startups will dry up. One reason this isn’t likely is that security software doesn’t lend itself to a natural monopoly the way an OS does (not to mention the fact that the vaunted Windows monopoly itself is seen as weakening).

Besides, wasn’t the antitrust argument always that they were trying to kill competition so they could turn around and raise prices? How much did you pay for your last Internet Explorer download? Then, as soon as IE quit being adequate for many users Firefox was developed.
No, we say to hell with the antitrust argument. The moral hazard is the more compelling case here.

http://www.stockmarketbeat.com/

Nokia, Rebuffed, Leaves in Huff

Stocks: (NOK)(QCOM)

By William Trent, CFA of Stock Market Beat

Nokia, Rebuffed, Leaves in Huff
In a story that seems to repeat itself every couple of years, Nokia has decided it doesn’t need the CDMA market anyway, and it’s going to take its ball and go home. The problem is, it never owned the ball - so everyone else is just going to keep playing without them while they sit in the corner sulking.

Nokia Pulls Out Of CDMA Phone Market - Yahoo! News
Nokia, the world’s largest mobile phone maker, said it would stop making phones using the CDMA standard and had scrapped plans to produce them with Japan’s Sanyo Electric Co.The Finnish company said on Thursday it would pull out of CDMA (Code Division Multiple Access) phone manufacturing, which it sees as a shrinking market in the longer term, though it will continue to offer to sell Nokia rebranded CDMA phones produced by contract manufacturers in the North American market, where the standard is popular.

CDMA is the less popular wireless telephony technology, used by around 25 to 30 percent of all mobile phone subscribers, and competes with the GSM standard used by around 70 percent of the world’s 2 billion wireless subscribers.

Though Nokia holds the number one spot in global handset sales, built on its strength in GSM which it helped to invent, the Finnish company has trailed in CDMA. It has tried to avoid using chips by Qualcomm Inc., but could not avoid paying significant technology licencing fees to Qualcomm which holds most patents to the CDMA technology.

The two have a bitter history over technology licensing and patent infringement cases.
You can tell by the tone of the article that plenty of Nokia’s point of view came through. CDMA is the “less popular” technology and “is declining anyway.” However, another article on the topic paints a different picture.

CDMA has been successful in Japan, the U.S., Brazil, India and China, but Europe has been dominated by a different technology called GSM, or “global system for mobile communication.”
So the technology that is more popular in two of the largest economies and thefast-growing economies often-referred to as the BRICs is something they just won’t bother with? That won’t hurt Motorola’s or Samsung’s feelings, we’re sure.

By the way, if you wonder what technology is really gaining share, you need look no farther than the respective share prices for Nokia and Qualcomm.

http://www.stockmarketbeat.com/

Watching the AT&T-BellSouth Merger Saga

Stock Tickers: T, BLS, CBEY

“The AT&T and BellSouth Merger: What Does it Mean for Consumers?”

At 3:00 PM EST, the Senate Judiciary Committee's Antitrust Subcommittee will hold a hearing on the AT&T (T) and BellSouth (BLS) merger and what it means for consumers. Witnesses are the following:

Edward Whitacre Jr., chairman/CEO of AT&T;
Duane Ackerman, chairman/CEO of BellSouth Corporation;
James Geiger, president/CEO of Cbeyond Communications (CBEY);
Jonathan Rubin, a senior research fellow of the American Antitrust Institute.

Because this is an oversight hearing, it is unlikely to result in any immediate action. If you read our previous article (LINK HERE) on this issue you will see that there has been a growing movement against the merger on antitrust issues. This ties into much more than anticompetitive issues as far as what a combined BellSouth and AT&T (which is really the old AT&T and SBC Communications) and its dominance over multi-regions in the US. This also ties in with some of the issues around net neutrality, so this could very easily be picked up by the major networks later today.

If you wish to listen to a webcast you can link to it via this post:
http://judiciary.senate.gov/hearing.cfm?id=1958

Jon C. Ogg, with contributions from Tony Brush
June 22, 2006

Pre-Market Notes for June 22, 2006

(ABLE) Able Energy CFO is resigning.
(ADBE) Adobe announced Google toolbar distribution pact.
(AGAX) Argan filed to sell 1.75M shares.
(ALTR) Altera said it will have restate prior earnings due to optiosn grants.
(AMB) AMB Property filed to sell $500M in notes.
(AMR) AMR is also part of a price fixing probe.
(ANX) Adventrx presents broad antiviral activity for Thiovir saying it exhibits broad-spectrum antiviral activity against human and avian influenza,immunodeficiency, and herpes.
(AZ) Allianz announced plans to cut 7,480 jobs at insurance and Desdner Bank units.
(BA) Boeing received 6 plane order for 747 freighters from Singapore.
(BBBY) Bed Bath & Beyond $0.35 EPS vs $0.35e
(BSX) Boston Scientific heart device is reportedly failing at 10-times projected rates.
(CCDC) Concorde Career agrees to be acquired by Liberty Partners for $19.80 per share.
(CLC) Clarcor $0.32 EPS vs $0.38e.
(CRA) Celera announced collaboration pact with Medarex (MEDX); lowered revenue guidance at investor conference, but maintained it will be profitable by year end.
(DLM) Del Monte $0.23 EPS vs $0.20e.
(DNA/BIIB) Genentech & Biogen announced positive results from an analysis of REFLEX, a Phase III clinical study of Rituxan in patients with rheumatoid arthritis who have had an inadequate response to previous treatment.
(ENDP) Endo has an FDA panel meeting over its pain treatment.
(FD) Federated will close a $1.2 Billion deal to buy the Lord & Taylor chain this week according to WSJ.
(FINL) Finish Line $0.09 EPS vs $0.09e.
(GLGC) Genelogic lowered 2006 & 2007 guidance.
(GMP) Green Mountain shareholders will receive $35.00 per share in a Northern New England Energy acquisition.
(ICGN) Icagen announced its sickle cell study has 75% enrollment so far.
(JBL) Jabil $0.36 EPS vs $0.37e; lowered EPS guidance next quarter too; gets stock option probe.
(MCK) McKesson reiterated guidance at investor meeting of $2.55-2.70 for 2006; consensus estimate is $2.63+.
(MEDI) Medimmune filed to sell $1B in convertible senior notes.
(N) Inco Ltd sees Q2 EPS at $1.70 to $1.75 vs $1.55e.
(NOVL) Novell says Ron Hovsepian to succeed Jack Messman as CEO.
(OVTI) OmniVision gets negative comments from Herb Greenberg.
(PARL) Parlux review committee said it would not be wise to proceed with a management buyout.
(UALA) UAL is cooperating into a pricing probe with British Air.
(SUPG) Supergen sells North American Nipent and SurfaceSafe rights to Mayne for $34M.
(TKLC) Tekelec is restructuring and will have $3.4M charge this quarter.
(UTSI) UTStarcom -$0.09/R$596.6M vs -$0.65/$520M(e); next quarter guidance looks light;
(UVN) Univision's bidding process is still looking like it is coming under expectations; now under $11 Billion.
(WAT) Waters has sais it entered into collaborations with Chinese partners for food safety and environmental regulatory compliance.
(WWWW) Web.com filed to rescind its acquisition of WebSource Media after it learned the FTC has filed and unfair trade and deceptive practice action against WebSource.
(WYE) Wyeth says Enbrel shows benefit in Arthritis therapy.
(XNPT) Xenoport has a 4.5M share secondary at $17.00.
(XRTX) Xyratex $0.85 EPS vs $0.87e.

Analyst Calls:
AAI & AMR started as Buy at UBS.
AAPL reitr Overweight and $90 tgt at MSDW; reitr Outperform at Piper Jaffray.
AINV added to purchase list at FBR.
ALK started as Hold at UBS.
APU started as Underweight at Lehman.
BAX reitr Overweight at MSDW.
BBBY reitr Outperform at Oppenheimer, cut to Peer perform at Bear Stearns.
BEAS started as Buy at Deutsche Bank.
BEE started as Buy at UBS.
BEN started as Overweight at JPMorgan.
BMTI started as Buy at Deutsche Bank.
BUD raised to Neutral at UBS.
CAL started as Buy at UBS.
CCOI started as Outperform at Thomas Weisel.
COMS reitr Equal Weight at Lehman.
CPNO started as Overweight at Lehman.
CWST cut to Underperform at FBR.
EV started as Underweight at JPMorgan.
FDRY maintained outperform at Thomas Weisel.
FNSR maintained outperform at CIBC.
FS started as Hold at AGEdwards.
GIS raised to Buy at Merrill Lynch.
JBLU started as Hold at UBS.
JNS started as Neutral at JPMorgan.
LEAP reitr Buy at Soleil.
LUV started as Buy at UBS.
MA started as Overweight at MSDW.
MTA raised to Buy at Citigroup.
NFLX raised to Overweight at Lehman.
NILE raised to Overweight at Lehman.
NRG reitr Overweight at Prudential.
PNRA raised to Outperform at CIBC.
PWR raised to Outperform at FBR.
RNWK cut to Underperform at Goldman Sachs.
S cut to Neutral at Baird.
SUPG cut to Sell at Lazard.
TD raised to Buy at Merrill Lynch.
TEVA maintained buy at UBS, cut to Mkt Perform at FBR.
TKLC raisewd to Buy at Jefferies.
TROW started as Overweight at JPMorgan.
UAUA started as Buy at UBS.
UTSI maintained sell at Oppenheimer and maintained underweight at Prudential.
WEBX started as Hold at Jefferies.
WSTC cut to Neutral at Baird.

New Management Will Not Solve Novell's Problems

Stocks: (IBM)(NOVL)(RHAT)(ORCL)

Novell announced that it said goodbye to it CEO and CFO in the hope of improving the company's prospects. But, the COO was promoted meaning it is note really a regime change.

Novell's number have been weak lately. The April 30 quarter turned in revenue of $278 million and an operating loss of $2.5 million.

The company has been competing, without much success, with RedHat for the Linux open-source corporate business. Novell's old Netware operating system continues its declining sales. The Linux system replacing it appears to have picked up very little share.

Although the company's Open Platforms Solution revenue was $57 million in the last quarter, up from $20 million in the quarter a year ago, the old Netware product line saw revenue drop 16%. And, the $57 million from open-source is not much for a company with a quarterly topline of $278 million.

Novell is trapped in the midst of a change in business models. Its old operating system no longer has much of a customer base, and Linux open-source system sales are going to companies like RedHat and IBM. Oracle is also beginning to adopt Linux for some of its products.

Over the last 52-week period, Novell's stock has dropped from $9.83 to $6. Wall Street seems to have lost confidence in the company, and, a review of Novell's prospect would indicate that the smart money has been right.

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in the companies he writes about.

Apple's Content Problem (AAPL)

One of the most interesting aspects of the Apple (AAPL) SEC filings is the reference made to content for the iPod and iTune products and services.

"The Company pays substantial fees to obtain the rights to offer to its customers this third-party digital content. The Company’s licensing arrangements with these third-party content providers are short-term in nature and do not guarantee the future renewal of these arrangements at commercially reasonable terms, if at all."

This issue has been more visible recently as Apple negotiates with movie studios to procure video content for the iPod. However, it points to the issue that Apple has with the music companies. The success of iTune content sales could hurt its margins as the record companies look for a bigger piece of the action. From the latest Apple 10-Q: "Certain parties in the music industry have consolidated and formed alliances, which could limit the availability and increase the fees required to offer digital content to customers through the iTunes Music Store."

And, why wouldn't the companies that provide content to iTunes want a larger cut? None of them could have forecast the huge success of the iPod model, but now that the tremendous sales volume is obvious, suppliers like content owners will certainly press for a larger piece of the pie.

The risk to Apple's margins are significant. iPod sales in the last quarter hit 8.526 million units up from 5.311 million in the year ago period, a 61% increase. Revenue from iPod sales hit $1.714 billion, up 69%. The theory that Mac sales will become a second strong leg for Apple's growth are not supported by the numbers. Mac unit sales were 1.112 million up from 1.07 million in the first quarter a year ago. Total sales for Mac products were only up 5% while the company'stotala revenues were up 34% in Q1 06.

Apple is already facing intellectual property suits from companies like Creative Technology (CREAF) who want a part of the revenue that the company gets from iPod. As a matter of fact, Apple filings indicate that there are 24 legal actions involving the company. Granted, many of these have nothing to do with iPod, but successful, cash rich companies draw litigation and the number of suits involving the iPod and iTunes may well increase.

Apple's strength is becoming a weakness. Although content companies need the iPod as a distribution platform because of its tremendous success, they are bound to want a larger portion of the revenue from a level of success no one could have anticipated when the product was launched.


Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in any of the companies he writes about.

Short Interest Rises On NYSE And AMEX

In a sign that some investors are forecasting that the stock markets and a number of individual stocks will drop, short interest on the NYSE and AMEX went up in June.

The total number of shares short on the NYSE as of June 15 went up for the fourth month in a row to 9.087 billion shares from 8.613 in the previous month.

On the AMEX short interest for the same period rose from 907 million shares to 997 million.

Douglas A. McIntyre

Companies With Large Operating Margins

Stocks: (AMGN)(CSCO)(CRDN)(FFIV)((DNA)(GENZ)(GILD)(BF.B)(MCHP)
(MSFT)(OXY)(TXN)

Large operating margins can be a sign of growing business and stock appreciation.

These are some stocks with large operating margins based on trailing twelve month financial statements

Amgen Margin: 38%
Cisco Margin: 26%
Ceradyne Margin: 25%
F5 Networks Margin: 25%
Genetech Margin: 30%
Genzyme Margin: 21%
Brown-Forman Margin: 23%
Gilead Margin: 55%
Microchip Tech Margin: 35%
Occidental Petroleum Margin: 45%
Texas Instruments Margin: 22%
Microsoft Margin: 36%

Source for data: Reuters

Douglas A. McIntyre

European Stock Market Report 6/22/2006

Stocks: (BAB(BT)(BP)(VOD)(UN)(UL)(PUK)(RTRSY)(AZ)(AXA)(DCX)(BAY)(BF)
(DB)(DT)(SAP)(SI)(FTE)(TMS)(CSR)(NVS)(SCM)

European stock were higher at 5:45 AM New York time.

The FTSE was up 1.1% to 5,725. BEA was up 1.6% to 264.75. Barclays was up 1.4% to 610.5. BP was up 1.4% to 612. British Airways was down 4.9% to 349.75 on a price fixing probe. BT was up 1.5% to 231. Diageo was up .2% to 915.5. GlaxoSmithKline was up .3% to 1497. Prudential was up 1% to 574.5. Reuters was up .4% to 371.25. Unilever was up 1.2% to 1161. Vodafone was up 1.3% to 115.75.

The DAXX was up .9% to 5,552. Allianz was up 1.4% to 121.36. BASF was up .9% to 61.01. Bayer was up .9% to 33.37. DaimlerChrysler was up .2% to 38. Deutsche Bank was up .3% to 84.88. Deutsche Telekom was up 1% to 12.59. SAP was up .2% to 163.61. Siemens was up .2% to 68.65.

The CAC 40 was up 1% to 4,820. Alcatel was up 1.4% to 10.04. AXA was up 1.9% to 24.57. France Telecom was up .5% to 16.94. ST Micro was up .5% to 12.69. Thomson was up .2% to 13.26. Vivendi was down .1% to 27.57.

The SMI-Index was up 1% to 7,497. Credit Suisse was up .8% to 67.3. Swisscom was up .7% to 399.75. Nestle was up .1% to 373.25. Novartis was up .8% to 65.15.

Douglas A. McIntyre

Media Digest 6/22/2006

Stocks: (BAB)(F)(DCX)(AA)(ADBE)(GOOG)(AZ)(UVN)(FD)(GT)(BA)(CVX)(VG)

Reuters writes that Britain's Office of Fair Trade and the U.S. Justice Department are looking into price fixing by major airlines including British Airways.

Reuters also writes that Ford says that it is on track to be profitable in its North American operations by 2008. The company also released it 2007 model line.

Reuters reports Chrysler will offer discounts on its cars in July to clear out inventory.

Reuters also reports that Alcoa believes that aerospace use will increase demand for aluminum.

Reuters writes that Adobe and Google will enter a cooperative venture that will include distributing Google products with Adobe's Shockwas player.

Reuters also writes that Allianz will cut 7,500 jobs and restructure is Dresdner Bank operations.

Reuters also reports that private equity groups Blackstone and KKR have dropped out of the bidding for Univision.

The Wall Street Journal writes that Federated is near a deal to sell its Lord & Tayler stores to NRDC and Apollo Real Estate Advisors.

WSJ also writes that Goodyear will cut is production of low-end tires because of increased commodity prices and lack of demand.

WSJ also writes that Boeing may sell its Connexion in-flight internet venture to a satellite company or private equity group.

The New York Times writes that Royal Dutch Shell, Chevron, and ConocoPhilips might be willing to give up tax benefits for drilling in the Gulf of Mexico as they face angry lawmakers who are unhappy about the tax breaks.

NYTimes reports that the FCC has adopted rules that would require internet phone providers to pay a fee to underwrite services in rural and low-income areas. The decision could affect companies like Vonage.

Douglas A. McIntyre

Asia Markets 6/22/2006

Stocks: (CAJ)(FUJIY)(HIT)(HMC)(NIPNY)(NTT)(DCM)(SNE)(TM)(CHL)(CN)
(CHU)(HBC)(PCW)

Markets in Asia were up sharply.

The Nikkei was up 3.4% to 15,135. Canon was up 3.6% to 8000. Daiwa Securities was up 5.1% to 1142. Fuji Photo was up 4.4% to 3900. Hitachi was up 2.1% to 744. Japan Airlines was up .3% to 300. Honda was up 2.2% to 7370. Konica was up 2.7% to 1347. Mitsubishi Corp was up 3.8% to 2250. NEC was up .9% to 591. NTT was up 2.6% to 552000. Docomo was up .6% to 168000. Sharp was up 4.5% to 1767. Softbank was up 2.3% to 2485. Sony was up 3.8% to 4940. Toshiba was up 2.8% to 731. Toyota was up 1.8% to 5870.

The Hang Seng was up 1.1% to 15,824. China Mobile was up 2.1% to 42.35. China Netcom was down 1.2% to 12.45. China Unicom was flat at 6.85. HSBC was up .7% to 134.8. Lenovo was up 2% to 2.525. PCCW was up 10.6% to 5.75 on word it may sell some of its assets.

The KOPSI was up 1% to 1,239.

The Straits Times Index was up 1.4% to 2,362.

The Shanghai Composite was down .2% to 1,596.

Douglas A. McIntyre

Increase in Construction Costs Forecast Bad For Florida Rock

Yaser Anwar, CSC of Equity Investment Advisors

Dallas-based The Turner Corp., the nation's leading general builder, announced on June 16 that construction costs in the second quarter of 2006 are projected to increase over the first quarter of 2006. According to the Turner Building Cost Index, the second-quarter 2006 index will rise to 787, showing a 2.75-percent increase over the first quarter 2006 index of 766 and a 11.89-percent increase over the second quarter 2005 index of 704. Turner has made its quarterly forecast for more than 50 years.

According to Karl F. Almstead, the Turner vice president responsible for the Cost Index: "The upward cost pressure from commodities such as cement, aluminum, copper, asphalt, and hydrocarbon energy due to domestic and global demand are driving up concrete, masonry, curtainwall, mechanical, electrical, and paving pricing.

Markets with significant volumes of available work continue to stretch the local labor and subcontractor resources."This may be a good opportunity to monitor short positions on builders such as Florida Rock(FRK). Housing has been one of the major employment creators, and with increase in costs, they will have to downsize, which reflects negatively on the economic environment.

http://www.equityinvestmentideas.blogspot.com/

Mortgage Applications Tumble

By Yaser Anwar, CSC of Equity Investment Ideas

Applications for mortgages dipped last week as interest rates climbed and the housing market cooled.

Overall, mortgage applications fell 0.8 percent to 567.6 last week from 571.9 the week before, according to the Mortgage Bankers Association. Purchase applications were unchanged from a week ago, while applications to refinance dropped 2.2 percent.
New homebuyers stalled out last week, and house purchases are down 22 percent from their peak last June. Some analysts suggest that homebuyers moved up their purchases in anticipation of further rate hikes in coming weeks. If so, that could mean worse numbers in the weeks ahead.

The Fed is signaling a rate hike when it meets next week. The jury is still out on future rate hikes.

Refinancings have cratered 43 percent since last year. That's because rates have gone nowhere but straight up. The average rate for a 30-year fixed mortgage was 6.73 percent, the highest since May 2002 says Bloomberg News.

Falling interest rates and rising home prices allowed homeowners to cash out the equity in their homes by refinancing. That extra cash, in turn, gave them the means to fuel a consumer-spending spree to strengthen the economy. So now, not only do we now face a possible real estate crash, but we also may face an economic slowdown.

This negative sentiment has surely been reflected in housing stocks such as Toll Brothers, KB Homes & the rest. These stocks may become a value play 'cause they trade at 4-6 times earnings.

I still believe investors should keep away as the Fed has at least two more rate hikes above. You will get a better opportunity to buy them.

http://www.equityinvestmentideas.blogspot.com/

Crude Inventory At 8-Year High

By Yaser Anwar, CSC of Equity Investment Ideas

Think the world's running out of oil? Well, the U.S. certainly has a solid stash of it.

The Energy Department announced that supplies of crude rose 1.4 million barrels to 347.1 million for the week ended June 16. That's the highest level since May 29, 1998, says the report.
Analysts had expected a 0.2 million draw on inventories. The latest numbers could be good news for consumers - an unexpected rise in inventories could sink oil prices.

But, it also may bring up murmurs that oil supply is not the problem. Gasoline inventories added just 300,000 barrels to its coffers, building them to 213.4 million barrels. That was well below what analysts had hoped for.

Many analysts argue that lack of refineries, not oil production, is the culprit when it comes to high fuel prices. In other words, it doesn't matter how much OPEC pumps if the raw material can't be refined.

However, it looks like there are some improvements in that territory as well. Refinery utilization increased for the second week in a row to 93.3 percent, says the report.

According to Economy.com, though, the utilization numbers are still well below average levels. From June 2000 to June 2005, says Economy.com, refinery utilization ran at a rate of 94.9 percent.

But, the research firm points out that the 2.3 percent boost in utilization shows that refineries are coming back online quickly. That can only help gas prices stabilize in the coming weeks. Just cross your fingers for the hurricanes to bypass the Gulf.

http://www.equityinvestmentideas.blogspot.com/

Why HP will continue its excellent run

By Yaser Anwar, CSC of Equity Investment Ideas

Hewlett-Packard is hiring "hundreds" of salespeople to increase demand across channels as part of a play for market share, CEO Mark Hurd revealed June 19 in an address to resellers at the vendor's Americas Partners Conference in Las Vegas.

The boost to the direct sales organization, while competing with VARs for business, would ultimately drive demand for HP's vast portfolio in the market and drive sales for VARs, Hurd said."This is not a statement about channel direction," Hurd told the more than 1,100 resellers. "This is about demand. As we add more salespeople, we add more demand for HP and increase the HP halo in the market. If you're aligned with us, you will benefit from increased opportunity."

The Palo Alto, Calif., company will use the additional staff to plug gaps in its coverage model on its march to greater market share, Hurd said. He called HP's current 4 percent share unacceptable.HP's market share more than doubles when the company has at least one salesperson, direct or indirect, assigned to an account, a ratio the company won't meet at its current configuration, he said.

HP has been a great turnaround story ever since Mark Hurd took over, outpacing Dell& IBM. This move should bring in more customers thus higher sales translating into revenues and the stock price.

http://www.equityinvestmentideas.blogspot.com/

Market Wrap for June 21, 2006

Stock Tickers: MS, FDX, DRI, F, HLSH, GOOG, YHOO, JOSB, TEVA MRK, ENDP, ORCL

DJIA 11,079.46; Up 104.62 (0.95%)
NASDAQ 2,141.20; Up 34.14 (1.62%)
S&P500 1,252.19; Up 12.07 (0.97%)
VIX 15.43; Down 1.26
10YR 5.155%


Today the US markets ended solidly higher, with most sectors closing up. Out of the DJIA's 30 components only 5 closed lower, and those were "just barely" negative on the day.

Morgan Stanley (MS) led the brokers higher and added some wind to financial sector after beating even the highest estimates handily; it closed up 4.3%at $59.48.

FedEx (FDX) also came in higher to close up 5.1% at $113.86 after beating earnings and offering positive guidance.

Darden Restaurants (DRI) rose 4.9% to close at $37.30 after beating earnings after yesterday's close and after announcing a share buyback plan.

Shares of Ford (F) managed to close 0.4% higher at $6.43 (very close to long-term lows) after reports that it may not live up to its profitability targets, but the company refuted this.

HealthSouth (HLSH) managed to only close down 0.8% at $3.72 after the company said its general counsel was leaving to become general cousel of Calpine (CPLNQ).

Shares of Google (GOOG) closed up $14.96 at $402.13 after 3 positive brokerage reports and after strong search results. Yahoo! (YHOO) managed to close up 1.5 % at $31.06 after Google's search gains appearedto be at the expense of others' search ad dollars.

The winning analyst call mover today was Jos. A. Bank Clothiers (JOSB), which closed up 10.3% at $24.54 after boutique research firm Ryan Beck hiked its shares to an Outperform rating.

Teva Pharma (TEVA) shares got skunked; it closed down 9.5% at $32.27 (close to year lows) after Merck (MRK) announced it would have major price cuts on Zocor to under what Teva was going to sell the generic for.

Items to watch tomorrow: Weekly Jobless Claims, May's Leading Indicators, EIA Natural Gas weekly inventories; Endo Pharmaceuticals (ENDP) FDA review. Oracle (ORCL) has its earnings at the close, but they already raised guidance last week for the quarter.

New York Times DealBook Digest 6/21/2006

Stocks: (MS)(UVN)(MIR)(GS)(KPN)(IBAS)

According to New York Times DealBook, Morgan Stanley's numbers were well received on the one year anniversary of CEO John Mack. The stock was up as much as 5%. Net income more than doubled to $1.96 billion.

DealBook also reports that the two key bidders for Univision missed the deadline for bidding driving the stock of the broadcaster down.

DealBook writes that Madison Dearborn, the private equity outfit, may be buying turnaround firm AlixPartners. Alix has worked with bankrupt companies including KMart and Worldcom.

DealBook reports that Pirate Capital, which owns over 1% of energy firm Mirant, has written a letter to the board calling for the sale of "non-core" assets and a share buyback.

DealBook also writes that Goldman Sach Asset Management has become the number one hedge fund in terms of assets according to Alpha magazine with $21 billion under management. D.E.Shaw moved from No.7 last year to No. 3 this year.

DealBook reports that dental and medical supply company Henry Schein is buying three companies in related businesses from Darby Group for $51.5 million.

DealBooks writes that Dutch telecom company KPN is merging its international wholesale voice business with iBasis and pay $55 million for a majority stake in the combined company.

Douglas A. McIntyre

Previewing Endo Ahead of Tomorrow

Stock Tickers: ENDP, PPCO, EPCT

Endo Pharmaceuticals (ENDP-NASDAQ) has its Oxymorphone for chronic pain PDUFA review is expected June 22, 2006 (tomorrow) that will determine the approval status. If that is the case, you may expect that the shares will be halted awaiting the news as often happens during FDA reviews. The stock is down about 3% off of its 5-day highs and down about 10% off of its 3-month highs, but all in all that really isn't too bad over the last 3-months considering the meltdown we saw in the market and in biotechs and in some emerging drug companies. It is also about 3% above its recent lows.

It looks like the labelling negotiations may be at issue, but the company has reportedly finished these negotiations just two days before prior review. This is an extended release opioid, and it is one of several products. The company released data on their study at the 25th Annual Scientific Meeting of the American Pain Society in a release on May 4, which you can read at the end if you wish.

After looking at different research reports predicting big moves up and down on this pending approval, it starts to sound like these guys are tired of getting burned on approvals and non-approvals to the like of a Neurocrine Bio (NBIX) blow-up that happened last month that they are perhaps not focusing on the big issue here.

Endo actually makes money with or without this tomorrow. Its 2005 Revenues were $820 Million with net income of $202.2M applicable to shareholders. Its market cap is $3.83 Billion and has a P/E ratio of about 18.4 based on the trailing 12-month data. Current analyst estimates are $1.75 EPS and $880+M in revenues for fiscal year 2006 and EPS of $1.98 and revenues of $1.022 Billion for fiscal 2007. You will want to know that there is a very wide discrepancy on these forward estimates, and that is largely because of the factthat sales on these vary and estimates are based on forward approvals. So its forward P/E ratios for 2006 and 2007 are 16.4 and 14.5, respectively.

The company is not an expensive company by any metric. As of March 31 it had cash and equivalents of $583.9M, receivables of $305M, and even $54M in inventory. They carried short term-liabilities of $413M but have No long-term debt. They have their own sales force and have existing products on the market, and on the surface it appears that they only have to spend 10% to 13% of revenues on R&D.

After writing this and seeing where some have projected multi-points of downside if they do not get a full approval, what comes to mind is SUPPORT. Please understand that this is not predicting an FDA outcome and it is not saying that the stock can't get hit hard based on an adverse ruling. What is something you can likely presume is that IF there is an adverse ruling and the stock gets hit too hard on any bad news, there will be plenty of bottom fishing traders doing their analysis and looking to buy the name on sale. That doesn't even give an assured rally if it gaps lower, but it would at least offer some decent support if it does gap down significantly.

The short interest from June is not yet out, but the may short interest was 1.67 million shares out of a 133 million share float. Also as of May institutions held 90.7% of the float and insiders held another 2.2% of the float. These current stock options are far from cheap too: the July $25 CALL is $4.50 with the July $30 CALL is $1.60; the Jul $25 PUTS are $0.65 and the July $30 PUTS are $2.75. It looks like the recent blow-ups and the recent spike in volatility may be adding to the cost of these options.

Endo also has approval of DepoDur, a post-surgery extended release version of morphine. Lidoderm is on the market, a 5% lidocaine patch. Its Percocet, oxycodone and acetomenphen tablets, is on the market. It also has its Frova tablets on the market. Its topical anesthetic patch (Synera) looks like it was just launched Monday, and that is a self-contained topical patch to prevent pain associated with needles and dermatological procedures. It also has generic products currently on the market. It also has an impressive pipeline: EN3203 for acute moderate-to-severe pain developed with Penwest Pharma (PPCO-NASDAQ), Frova for menstrual migraines, Rapinyl for cancer pain, a topical Ketoprofen patch for soft tissue and joint or ligament mild sprains or injuries, Lidoderm for chronic low back pain, CHRONOGESIC for Chronic moderate-to-severe pain in patients who require chronic opioid administration and who are opioid responsive that is licensed from Epicept (EPCT-NASDAQ), and a transdermal Sufentanil Patch for moderate to severe chronic pain for up to 7 days (also licensed from Epicept).

According to a recent Business Week article where Endo was added to the #35 Position of teh Business Week 100 Hot Growth Companies: When Endo got its pain-relieving patch Lidoderm approved by the U.S. Food & Drug Administration in 1999, the pharmaceutical company thought it would address a tiny market of 200,000 people who suffer pain related to shingles. But the product has been snapped up by everyone from weekend warriors with occasional back pain to office workers who have carpal tunnel syndrome. Clearly pain pays: In the quarter ended Mar. 31, Endo reported 48% sales growth and 50% earnings per share growth. The company expects sales of Lidoderm to skyrocket 26%, to at least $530 million. LINK HERE

Jon C. Ogg
June 21, 2006

Here is that data presentation link from May 4 that may give some insight into tomorrow's meeting: LINK HERE

Stocks That Missed The Rally

Stocks: (F)(PFE)(T)(BAC)(SUNW)(LVLT)(SYMC)

It is generally not a good sign when large-cap stocks do not move up as much as the market on a big rally day. It usually means that the level of skepticism about near-term prospects is fairly high and it may take really good news to get them moving above current levels.

At 3PM, the Dow is up 1.2%. The Nasdaq is up nearly 2.1%

Of the stocks that trade on the NYSE and usually have high daily volume, Ford is up less than .8% even though it said its restucturing is on target. Pfizer is down .1%. AT&T is down .1%. Verizon is only up .4%. And, Bank of America is only up .8%.

Moving to the Nasdaq where the average is up even more, Sun is only up 1.4%. Level 3 is up 1.2%. Symantec is only up .8%.

Douglas A. McIntyre.

Investors Intelligence Survey

By Chad Brand of The Peridot Capitalist

The latest numbers show 35.6% of those surveyed are bearish, which is the highest level since October 2002. In case you don't remember that point in time nearly four years ago, it was the month the market bottomed.

http://www.peridotcapitalist.com/

My Take on Mark Cuban's Latest Venture

By Chad Brand of The Peridot Capitalist

In case you haven't heard, billionaire entrepreneur and owner of the Dallas Mavericks, Mark Cuban, has caused quite the commotion by announcing his latest venture, ShareSleuth.com. The site, which will debut next month, will be a blog-style investigative reporting site that will focus on exposing corporate fraud. The site will be edited by Christopher Carey, a long time business reporter who recently quit his job at my hometown paper, the St. Louis Post-Dispatch.

Sounds pretty cool, right? Well, all was well and good until Cuban disclosed that not only does he plan on investing in the site, but he also will be taking investment positions based on what the investigations uncover. He plans on disclosing all of his investments, but will make the trades after the research has been done and before the site publishes its findings.

Given the controversial nature of most of what Cuban says and does, it's not that surprising that many are outraged at this idea. However, let's calm down and analyze exactly what is going on here. Then we can decide if what Cuban plans to do is illegal (it's not) or perhaps unethical.This company is going to investigate individual companies and the people behind them. If something fishy is uncovered, Cuban might make trades based on this information (presumably by shorting common stocks). Then the research will be published on ShareSleuth.com and any positions Cuban has will be fully and properly disclosed.

Now some might be up in arms that Cuban will be in a position to short a company's shares prior to his editor publishing the negative research to the public. Let's think about this for a second. How is what Cuban plans to do any different than a hedge fund, pension fund, or mutual fund manager coming on CNBC and talking about what stocks he or she likes. The manager has previously conducted in-depth research, come to a conclusion, traded the stock, and come on the air to explain and disclose the position.

I really don't see how ShareSleuth.com will be any different than someone from Goldman Sachs recommending a stock on CNBC. In fact, investors should be happy that there will be a new place to find negative research on public companies. Most of the time everybody is telling you what investments to buy because they are in the business of selling investments.

http://www.peridotcapitalist.com/

Contrarian Thinking On Telecoms

By Yaser Anwar, CSC of Equity Investment Ideas

Question: With gold, emerging markets, commodities, and housing all getting crushed, how could you possibly have made money in stocks during the past month?

Answer: By owning stocks everyone hates. By owning telecoms.Big telecom companies like AT&T were loved 10 years ago. Investors thought broadband investments would make them rich. Those stocks were killed in the tech bear market… and now reside in the “left for dead” bargain bin.

A contributor had this to say:“Everyone hates the big old phone companies, so we can buy them at fire-sale prices and limit our downside risk.”As the prices demonstrate… the downside risk is minimal with big telecoms. The big telecom ETF (TTH) fell only slightly during the big correction… and sits near yearly highs.

http://www.equityinvestmentideas.blogspot.com/

PPI rises in Germany meaning stronger EUR/USD

By Yaser Anwar, CSC of Equity Investment Ideas

Bloomberg reports, Producer price inflation in Germany, Europe's largest economy, last month accelerated to the fastest pace in 24 years, strengthening the argument for higher interest rates at the European Central Bank. This will lead to stronger EUR/USD connection Goods from plastics to newsprint were 6.2 percent more expensive in May than a year earlier, compared with 6.1 percent more in April, the Federal Statistics Office in Wiesbaden said today.

http://www.equityinvestmentideas.blogspot.com/

A sold investment you've never heard of- Asphalt

By Yaser Anwar, CSC of Equity Investment Ideas

Asphalt prices are skyrocketing as costs for oil, a key component of the paving material, are near records. In some parts of the country, there are asphalt shortages. Both price and availability problems are forcing local governments across the USA to scale back or cancel road projects this summer, the main paving season in much of the country.

Nationwide, asphalt prices are up 42% in the second quarter from the same time a year ago, according to the Engineering News-Record.Asphalt is made from sand, gravel and other substances that are bound together by a goopy substance called liquid asphalt. Liquid asphalt is made from the remnants of oil after it is refined into gasoline and other products.

http://www.equityinvestmentideas.blogspot.com/

Morgan Stanley Big News Flops

Stocks: (MS)(LEH)(GS)(BCS)

Morgan Stanley announced that its revenue was up 48% for the period ending May 31 compared to a year ago, hitting $8.9 billion. Earnings before taxes were up 128% to nearly $3.2 billion. Earnings for the institutional securities and Discover card businesses were especially strong.

Prudential immediately upgraded the stock. The stock barely moved 4% depites dozens of headlines about the spectacular performance. The shares still sit under $60, well below the 52-week high of $66.

Like the shareholders of Goldman Sachs, Lehman Bros., and Bear Stearns, the Morgan Stanley holders are learning a hard lesson. No matter how much earning rise, if Wall Street is concerned about the market in general, investment banking stocks will not react. A mediocre market environment smells too much of risk.

The argument about market weakness and banking stocks has its flaws. M&A activity has been unusually strong, and that is not likely to disappear soon. Hidden in the merganser Stanley announcement was the fact that the firm had a 30% share in completed M&A transactions in the first five months of the year. The business not only produces great revenue. It tends to have superior margins.

With the markets off and no clear catalyst to make them run up again, the skepticism about investment banking results will persist. And that is not a positive of Morgan Stanley shareholders.

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in the companies he writes about.

Lessons to View in the Univision Saga

There is a valuable lesson to be learned from developments in M&A land. Take a look at Univision (UVN-NYSE) today, with the stock down about 4.4% to under $34.00.

Here is a LINK to the article.

Last week when we identified this stock it had closed the day before at $35.60 and had previously put in highs at just over $36.50 all on hopes that the Televisa SA (TV-NYSE/ADR) led buyout group would pay $40.00 per share. Televisa's group has Venevision Investments and private-equity firms Bain Capital, Blackstone Group, Cascade Investments and Kohlberg Kravis Roberts & Co; but they have reportedly lost the private equity group Carlyle as a partner. The WSJ has said a second group, consisting of Texas Pacific Group Inc., Thomas H. Lee Partners, Madison Dearborn Partners, Providence Equity Partners Inc. and media mogul Haim Saban, was putting together a bid in the $35.00 per share range.

Part of the problem is that Televisa has a lot of control in this deal and it has had a lot of indirect control in the operations of Univision. There are also regulatory issues as Univision is the largest Spanish-language media company in the United States. Its holdings include Univision Radio, Univision Television Group, Galavision as the Spanish-language cable network, Univision Music Group, and Univision Online. If Univision goes with the other group, then they can almost immediately expect Televisa to come into the US market as a direct competitor in force. Some of the alternate plans were outlined in that article last week as well (see LINK).

It would appear that a $35.00 cap seems to be sort of in the works. By the time this other consortium could actually integrate and work out all of the necessary kinks you could already see Televisa owning competing networks and already operating against it. The one thing to understand that is critical when it comes to private equity is that private equity investors typically want steady established businesses that do not face tough spending and tough markets ahead. So if you were looking at buying Univision and knew that if you won that Televisa would be undermining most markets you dominate, then how much would you be willing to pay? A billion dollars isn't what it used to be, but regardless of that you just have to wonder what the value of Univision is now to others.

We noted $10 Billion last week as a possibility of the ultimate price tag. This new bid is $11 Billion if it is correct. The company was hoping for $12 Billion before. There is no way to know what the final payout will be, but the price action is starting to reflect more risk than reward for those looking for buyout candidates.

Is Motorola About to Join the M&A Group?

Stock tickers: MOT, NOK, SI, ERICY, ALA, LU, CSCO, NT, TLAN, JNPR, CIEN, ADCT, ANDW, AV, NTGR, FDRY, COMS

The list telecom equipment and solution providers is consolidating and getting smaller each day. This segment is consolidating into near full-service providers that can offer almost any solution on a nearly global basis. This week we have seen Nokia (NOK-NYSE/ADR) and Siemens (SI-NYSE/ADR) enter into a quasi-merger by creating a 50-50 joint venture combine their units that make equipment for telecommunications networks. This was so each could fully compete against Ericsson (ERICY-NASDAQ/ADR). We are still in the midst of an Alcatel (ALA-NYSE/ADR) acquisition of Lucent (LU-NYSE). Cicso (CSCO-NASDAQ) is now more and more of integrated communications and telecom equipment player than it was compared to when they were just the Router King of the late 90’s, and their recent roll-up of Scientific Atlanta has rounded them out even more.

So, where does this leave the sector and more specifically where does this leave Motorola (MOT-NYSE)? The company finally turned around under visionary and go-getter Ed Zander, although if you look at its recent performance you will see where Motorola's stock has been dead money for the last year. If you read analyst reports and other media reports you will determine that Motorola will likely have to make an acquisition if it wants to compete on the global scale. Offering the Razr and the Q phones has been great for the company, but in this new world it is required to be a full one-stop shop for the global telecom world. Of course Motorola does have many pieces of the puzzle, but it has much room for improvement. Motorola currently has a market capitalization of $49 Billion and has a tiny price-to-earnings ratio of merely 11.04, so needless to say it can quite easily afford to make a purchase.

Recent reports put NorTel (NT-NYSE/ADR) as possible target. Motorola is a company that used to be thought of as restructure-ola as they would announce layoffs and restructures on a regular basis, and NorTel has been in a steady state of change and it may have too many problems for Motorola to want to fuss over. It would also have to likely shave off some units so they could avoid having too many Departments of Redundency Departments. NorTel has a market cap of about $9 Billion, but it has been in its own Bataan death march and loses money. The company is also thought of as a real mess, and it would take a true optimist thinking nothing worse can occur than what has already happened.

Today Merrill Lynch raised Motorola to a Buy, and also telegraphed that it could buy Tellabs (TLAB-NASDAQ). Tellabs would give it a better footprint in the wireline vending operations and it could quite easily roll-up its operations. One of the issues that could make Motorola the most natural acquirer of Tellabs is location. Motorola is based in Schaumberg, Illinois and Tellabs HQ is based in Naperville, Illinois; and both are just extensions of Chicago. Tellabs currently has a $6.5 Billion market cap, but trades with a price to earnings ratio of about 28.

A name that has come up in the past is Juniper Networks (JNPR-NASDAQ), although that has all but gone quiet now. This was deemed the natural fit after Cisco decided to go head to head against Motorola by purchasing Scientific Atlanta in the set-top box areas. Juniper is unfortunately plagued by problems, and their ability to steal more market share from Cisco seems to have petered out. Juniper's stock is down almost 50% over the last 18 months or so and it still has a market cap of about $9 Billion. They are a pure-play in core routers and switches that would be a great fit to round out Motorola's product lines, but considering the premium that would be required for them to approve a deal it would be deemed quite expensive. Juniper also trades at a P/E ratio of about 27.4 and the verdict is still out on whether or not the company will be able to resume its earnings growth in 2007.

What are some other names that could offer a more well-rounded solution for the company in high-speed data networking, wireline, routers and the like?

-Ciena (CIEN-NASDAQ) is a name that has come up in merger circles on and off, but Motorola has notreally been mentioned in the same sentence. Ciena's business segments (Transport & Switching, Data Networking, Broadband Access, and Global Network Services) would provide some added depth, but the footprint just might not be worth the effort. Ciena has a market cap of only $2.45 Billion but loses money.

-ADC Telecommunications (ADCT-NASDAQ) has also been discussed in other outside merger circles before as a target, but now it is involved in acquiring Andrew Corp (ANDW-NASDAQ). After these companies are combined into one the new company will be a $3 Billionmarket cap company with a 35+ price to earnings ratio, although there would be overlaps and acquiring a company that just acquired another company can be more than difficult.

-Avaya (AV-NYSE) has surfaced as a potential merger name in the past, although that has been quiet as a church mouse up until recently. It has a global communications solutions unit and has a global services unit, so it is possible that someone could throw that around as a possible name that a larger player would want to own. It has a market cap of $5.2 Billion with a stated P/E of under 6.0, but that P/E looks a bit skewed on the surface.

-Netgear (NTGR-NASDAQ) offers a home and small business networking product integration that may be attractive to an acquirer (and would compete with Cisco's Linksys LAN and wireless LAN operations). They only have a market cap of $775 Million and trade with a 22.4 P/E ratio. They would be a fairly easy company to integrate, but honestly there has been no specific or credible deal talk out there in the name. It would be easy to see this as a fit since it has a reputable name and is in a sweet spot for whenever the next upgrade cycle comes.

-Foundry Networks (FDRY-NASDAQ) is a pure-play router and switch operation, but they are no stranger to problems. They seem overly dependent on on a small sales force, and they seem only competitive on smaller deals and on more price-sensitive deals. Foundry has a market cap of $1.52 Billion and trades with a 26 P/E ratio.

-3Com (COMS-NASDAQ) was one of the original ongoing takeover names in the past when it used to compete against Cisco, but it is thought of as a joke in most circles. It has had that Huawei router venture that was a direct competitor to Cisco routers, but it is hard to find anyone that will openly endorse 3Com as a winner and it has been deemed worse than dead money. They even spun off Palm (PALM-NASDAQ) in an effort to "unlock shareholder value" that in retrospect should be thought of as a corporate policy of wanting to get rid of what works and offers growth. 3Com has a market cap of $1.77 Billion, but it loses money and is projected to continue losing money.

Please understand that these names are just some that have come up as "potential" takeout bait on the past, and the point of this is Not to say any of these other specific names are in play right now. This is meant to ponder which companies would and would not offer added value. "Hello Moto!"

Regardless of what Motorola does or does not do, the street is telling them that they NEED to do a deal. We are in the midst of a M&A land grab, and Motorola may have some competitive disadvantages if they decide to remain on the sidelines. If an outright merger does not surface, you should probably at least bet that a joint venture in areas it has gaps in would surface. The problem with this is that joint ventures are often more problematic than mergers as far as integrating employees and making them equals, and there are just too many providers out there that could easily be gobbled up. The street's message to Ed Zander and crew is starting to resemble a "Do something!" message, and we'll just have to see if they are listening.



Jon C. Ogg
June 21, 2006

FedEx Shows Economy Still Humming

By Willaim Trent, CFA of Stock Market Beat

FedEx (FDX) beat the consensus estimate by a nickel and issued guidance that, adjusted for stock option expense, is ahead of expectations. The stock is up in pre-market trading.
As we have discussed, FedEx has more leverage to the economy than rival UPS. Their performance shows that the economy continues to be strong, and the guidance shows that there are no signs of a significant slowdown so far. The seemingly endless chatter over when the Fed will be through raising rates looks likely to continue for a while longer.FedEx delivers 4Q profit
FedEx Corp., operator of the world’s largest express transportation company, on Wednesday reported a 27 percent jump in fourth-quarter earnings, citing solid economic growth in U.S. and international markets.

Net income rose to $568 million, or $1.82 per share, from $448 million, or $1.46 per share, a year ago. Revenue totaled $8.49 billion, up 10 percent from $7.72 billion the previous year.
The results beat Wall Street expectations by a wide margin. On average, analysts were expecting quarterly profit of $1.77 per share on sales of $8.42 billion, according to a poll by Thomson Financial.

Frederick W. Smith, chairman, president and chief executive officer, said, “We remain optimistic about the global economic environment for fiscal 2007 and our ability to effectively manage our business.”

Looking ahead, FedEx said it expects earnings to range between $1.45 and $1.60 per share in the first quarter of fiscal 2007 and $6.45 to $6.80 per share for the full year. Included in this forecast is the company’s adoption of new accounting rules for stock options and other share-based payments, which is expected to reduce earnings by about 15 cents per share for the year.
On average, analysts are currently predicting first-quarter profit of $1.43 per share and earnings of $6.73 per share for fiscal 2007.

http://www.stockmarketbeat.com/

“New” Analysis of Oracle Market Share is Old News

By Willaim Trent, CFA of Stock Market Beat

Sometimes we wonder what value is being added by these market analyses that tell us what happened last year, long after it is public knowledge. In this case, the analysts at Gartner inform us that Oracle lost share to SAP in customer relationship management applications despite buying Siebel and Peoplesoft.

The problem is, we all knew Oracle was having trouble in apps last year. And the report comes out a week after Oracle’s blockbuster positive preannouncement that app sales rose 56 percent on an organic basis. Anyway, here’s a summary if you want to know what happened last year. (Actually, we did appreciate the last paragraph on the market share of the boutique vendors - despite our ribbing, there is some value to that kind of information.)

Only time will tell if Oracle Corp. got a bargain when it coughed up nearly $6 billion for Siebel Systems Inc. last year.

But if Oracle was betting that the addition of Siebel and its prodigious customer base would help it leapfrog over SAP AG to CRM market dominance, it—or CEO Larry Ellison, at any rate—was mistaken.

That’s the conclusion of the latest research from market watcher Gartner Inc., which found that SAP—and not the combined Oracle/Siebel—was the CRM market leader in 2005, on a revenue basis, at least. The CRM market as a whole is far from saturated: revenues increased by 13.7 percent from 2004, driven in part, Gartner research director Sharon Mertz says, by renewed business confidence amid a healthy commercial economy.

For the year, Gartner researchers say, SAP grew its CRM market share at both Oracle’s and Siebel’s expenses. Both firms bled CRM market revenues, Siebel ceding between 5 and 6 percent of its market share (even though it actually grew its revenues by about the same margin) and Oracle—the CRM practice of which includes the former PeopleSoft, too—hemorrhaging as much as 22 percent of its market share. SAP, on the other hand, posted solid if unspectacular market share growth (5 percent) while at the same time growing its revenues by almost 16 percent. Elsewhere, CRM-as-a-service pioneer Salesforce.com all but exploded—growing its modest market share by almost 35 percent (and its revenues by 44 percent). SAP’s performance gave it the CRM market lead, with more than a quarter of all revenues (25.9 percent) followed by the combined Oracle and Siebel with 23.4 percent. Salesforce.com was tied for third with Amdocs, both at 4.9 percent market share.

Going forward, the efforts of SAP and Oracle—and, to a lesser extent, Salesforce.com and Amdocs—will almost certainly focus on that elephant in the CRM market room: the roughly 41 percent of market share controlled by boutique and specialty CRM vendors, who in 2005 generated $2.33 billion in revenue.

http://www.stockmarketbeat.com/

Success Attracts Competition

By William Trent, CFA of Stock Market Beat

Garmin (GRMN) has been one of the most successful consumer electronics companies of the last couple of years, as evidenced by its share performance. The company is a leading provider of the GPS navigation systems that have become increasingly more popular in recent times.
According to Standard and Poor’s:

We think the personal navigation device market is poised for mass consumer adoption, and believe Garmin, as a market leader, is in a prime position to capitalize on the upswing. According to the NPD Group, Garmin maintains about a 50% market share for personal navigation devices sold at retail in the U.S. We see broader consumer adoption of PNDs driven by three factors: lower prices, technology that makes PNDs “must-have” items, and greater consumer awareness.

However, Garmin’s success is breeding new competition, as evidenced by the following story.
Philips Electronics said it would begin making mobile personal navigation systems to tap into their growing popularity, hurting shares of route-finding market leader TomTom.
Europe’s biggest consumer electronics producer will compete directly with Dutch navigation device maker TomTom by introducing a new line of three products from September and October in Germany, France and the Benelux countries starting at 400 euros ($500).
Shares in TomTom, which has a market share of around 50 percent in Europe, were down 3 percent to 30.55 euros.

“This will contribute to the commoditisation of these products. You can already get entry-level devices from reputable brands for as little as 199 euros. Profit margins are due to come down,” said analyst Marc Kennis at Bank Van Lanschot, who rates TomTom a “sell” with a share price target of 25 euros and Philips a “buy” with a target of 30.50 euros.

Philips is not the first mainstream consumer electronics company to have discovered the market for standalone navigation devices. Japan’s Sony entered the European market earlier this year after specialised niche players such as TomTom and Garmin created a booming industry.

Both Garmin and Sony have said they want to grab 20 percent of the European navigation devices market. The overall market in Europe and the United States is expected to roughly double to well over 9 million units this year.

http://www.stockmarketbeat.com/

US Pre-Market Notes for June 21, 2006

(ACXM) Axciom is reportedly having 7M shares tendered by ValueAct (activist shareholder investment group) at $25 per share.
(AEZS) Aeterna Zentaris was granted FDA clearance to move ahead with Phase III Cetrorelix.
(AFFX) Affymetrix said Invitrogen acquired non-exclusive rights to sell its spotted nucleic acid microarrays.
(ARNA) Arena Pharma presents favorable results from phase I APD125 study for better sleep maintenance.
(BIVN) Bioenvision new survival data on Evoltra presented on its BIOV-121 non-randomized phase II clinical study suggests that Evoltra is as effective as intensive chemotherapy in elderly patients.
(BUD) Anheueser Busch may expand into other beverages beyond Beer according to WSJ.
(CBK) Christopher & Banks $0.39 EPS vs $0.37e.
(COC) Corinthian Colleges gets second subpoena over marketing practices in Florida.
(CWTR) Coldwater Creek may be delisted by NASDAQ over incomplete quarterly filings.
(CYTO )Cytogen announcved its CFO is leaving.
(DD) Dupont and BP claimed a biofuel that was more efficient than ethanol.
(DRI) Darden $0.60 EPS vs $0.59e; announced a 25M share buyback plan.
(ERTS) EA is acquiring private Mythic Entertainment.
(FONR) Fonar gets a DoD pact for medical supplies.
(FVRL) Favrille filed to sell $60M in securities.
(HPQ) Hewlett Packard is cutting up to 15,300 in a corporate streamlining effort.
(HYTM) Hythiam, Inc. says Prometa protocol study shows clinical effectiveness for methamphetamine dependence.
(IBSE) iBasis is merging wholesale voice operations with KPN in EU for a $55M deal; will pay $113M out as dividend.
(LCUT) Lifetime Brands raised the lower-end of its earnings target.
(LNUX) VA Linux announced CFO appointment.
(MS) Morgan Stanley $1.85 EPS vs $1.45e.
(MUR) Murphy Oil announced an unspecified oil discovery at Thunder Bird in Gulf of Mexico.
(NRPH) New River Pharma says NRP104 may have lower abuse and greater safety profile in ADHD studies.
(OMX) started as Neutral at Oppenheimer.
(QTWW) Quantum Fuel System Tech was awarded pact for power generation equipment in China.
(S) Sprint NexTel got FCC approval to buy NXTP as expected.
(SBS) Sabesp is the way to play Brazil via water accoding to Barron's.
(SONC) Sonic $0.27 EPS vs $0.26e.
(SPSN) Spansion slightly raised Q2 revenue guidance.
(TWLL) Techwell IPO priced 5.5M shares at $9.00, under the range.
(UVN) Univision has 2 buyers prepared to pay current price of $35.40 according to WSJ; short of old $40 hopeful target; TV (Groupo Televisa) missed a dealine according to NYTimes, but UVN is expected to waive the deadline.
(WHRT) World Heart received NASDAQ non-compliance notice.

ANALYST CALLS:
AAPL reitr Buy at UBS
ABB raised to Buy at Deutsche Bank.
ACN reitr Overweight at Prudential.
AEA raised to Outperform at JMP Securities.
AH reitr Buy at Oppenheimer.
APOL reitr Buy at ThinkEquity.
ATYT started as Neutral at CSFB.
BMET reitr Overweight at Lehman.
BMHC cut to Neutral at Robinson Humphreys.
CACB raised to Outperform at RBC.
CCE raised to Overweight at MSDW.
CLRK raised to Outperform at CIBC.
CNXT started as Neutral at CSFB.
CVH raised to Overweight at Prudential.
DJ maintained underweight at Prudential.
GILD reitr Outperform at Piper Jaffray.
GLBC started as Outperform at Goldman Sachs.
GOOG reitr Outperform and $525 target at Bear Stearns; positive comments at Lehman.
IDIX reitr Sell at ThinkEquity.
JOSB raised to Outperform at Ryan Beck.
JPM cut to Neutral at Prudential.
KR raised to Neutral at B of A.
LTM raised to Buy at B of A.
MU started as Outperform at CSFB.
NFLX reitr Buy at Citigroup; reitr Outperform at Cowen.
NUAM started as Outperform at FBR.
NVDA started as Neutral at CSFB.
NYT maintained underweight at Prudential.
PMTI started as Buy at Lazard.
REV raised to Equal Weigfht at Lehman.
RFMD started as Neutral at CSFB.
S reitr Overweight at Lehman.
SGMS reitr Overweight at MSDW.
SIRF started as Neutral at CSFB.
SWKS started as Underperform at CSFB.
TWTC raised to Peer Perform at Bear Stearns.
VAR raised to Buy at Oppenheimer.
VFC reitr Overweight at Prudential.
WEN reitr Buy at UBS.
YHOO reitr Buy at Deutsche Bank.

GM's Big Cut (GM)

Credit agencies cut some of GM's debt recently as the automaker provided additional collateral for some of its loans. The company is renewing a $5.6 billion debt facility. Restatement of its results earlier this year motivated the lenders to ask for more security.

Although the a settlement among GM, Delphi, and the UAW appears to be done, which would take a fair amount of pressure off GM by making a crippling strike less likely, the fear that sales are still falling has cast a shadow over the company's recovery.

GM sales in Europe increased over 10% in May, and its operations in China has shown promise.

In North America, GM's largest market, Japanese cars still dominate quality surveys like JD Power. And the car makers North American sales dropped an extraordinary 16% in May, and share in NA has dropped three points to 22.5%. For the period, car sales dropped a more alarming 19%. Truck sales were down less, only 13%.

Credit agencies and lenders have lost patience with GM. The fact that more collateral is needed for debt is a sign that financial experts do not think the North American turnaround can stay ahead of falling sales.

And, that is bad news for GM and its shareholders.

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in companies he writes about.

Cramer's Mad Money Recap From June 20, 2006

Cramer opened his show discussing the two makers of passenger jets, Airbus and Boeing (BA) and investing in Boeing based on Airbus' implosion isn't the way he would play the other company's woes and suggested buying Triumph Group (TGI), Heico (HEI) and Moog (MOG/A).

Cramer then suggested investing in hotels to win from the travel boom. He said the best of breed in hotels is Hilton (HLT).

Cramer then recommended buying investment banks Bear Stearns (BSC), Goldman Sachs (GS) and Lehman Brothers (LEH) because they are all undervalued.

Cramer then interviewed the CEO/chairman of Darden Restaurants (DRI) (who reported earnings and a buyback now) to the show and Cramer concluded the stock is down right now and should be bought.

In the "Lightning Round," Cramer was POSITIVE on Amgen (AMGN), Grey Wolf (GW), Halliburton (HAL), Goldman Sachs (GS), Martek Biosciences (MATK), TECO Energy (TE), Southern (SO), Votorantim Celulose e Papel (VCP), Diageo (DEO), Tellabs (TLAB), Scientific Games (SGMS), Progressive (PGR), Pioneer Drilling (PDC); and he was Negative on Gaiam (GAIA), Geron (GERN), Northern Trust (NTRS), Usana Health Sciences (USNA), Microsoft (MSFT), Sonus Networks (SONS), and Steven Madden (SHOO).

Has Jabil Circuit Fallen Too Far? (JBL)

Jabil Circuit's stock was pounded when it told the market that its next quater would be slightly weaker that forecast due to higher than expected costs at its electromechanical business. The stock sold down to close to $23, well below the 12-month high of $43.70.

The provider of electronic manufacturing services had been doing quite well. Growth over the last three fiscal years (August 31) has been impressive with revenue moving from $4.7 billion in 2003 to $7.5 billion in 2005. Revenue in the February 2005 quarter was $2.3 billion and operating income was over $83 million. When the company cut is guidance, it reiterated that the quarterly numbers, that will be announced today, would still show revenue of $2.4 to $2.5 billion. So, Jabil is one its way to a fiscal year that will have revenue of nearly $10 billion.

The operational problems at the electromechanical business are likely to be fixed in the next quarter. If so, a drop of nearly 50% in the stock price from its high is probably not justified.
The company has almost $800 million in cash and debt of about $300 million. The market cap, that was about one times revenue is now at .6 times revenue.

With a company that is doing well, that valuation is almost certainly too low.

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does now own securities in companies he writes about.

News Corp And the Internet

Stocks: (NWS) (NWS-A)

News Corp purchase of web community MySpace for just over $500 million is beginning to look brilliant. Not only is the site beginning to produce ad revenue, but the auction of the search facility at MySpace to Google, Microsoft or Yahoo! is likely to bring in enough money to offset a fair amount of what News Corp paid for the business.

All of this is good news for the company because it was already doing well. Revenue in the quater ending in March was almost $6.2 billion and operating income was over $1 billion. Both numbers were up from the period a year ago. The company does have debt of over $11 billion.

News Corp has been shrewd in its M&A work. Most of the companies in which it has interests are providers of contribution distribution platforms. This includes a 37% interest in DirecTV, a 41% interest in Gemstar-TV Guide and a 38% interest in British Sky Broadcasting.

Most of the company's units are stable now, and some are growing at a fairly reasonable pace. The company's film unit had a slight drop in revenue in Q1 to $1.388 billion. Television was off a small amount to $1.347. Newspapers were flat at a little over $1 billion. But, these are the company's old line businesses, and they are down as their industries lose share to other media.

News Corp's cable programming operation had a significant increase in revenue in Q1 from $633 million last year in Q1 to $839 this year. Satellite TV rose from $624 to $675. Operating income at both cable and satellite broadcasting showed sharp improvements.

News Corp. is now faced with a problem, but the solution could be promising. With old line media revenue attrition and cable and satellite division making up for these drops, the new internet initiative could be the growth engine for the company over the next few years.

MySpace is one of the three or four most visited sites on the internet. The company has bought IGN Entertainment, a site with 28 million gaming fans. Fox Interactive has a strong share of the online news market, with the Fox News website in the top 15 news sites according to Alexa.

If News Corp can successful increase both the number of large web properties it owns and the traffice to its existing site, it is very possible that its stock could move up from where it trades now, near its 52-week high of $20.

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in companies he writes about.

European Stock Market Report 6/21/2006

Stocks: (TMS)(FTE)(ALA)(AXA)(BAY)(DCX)(DB)(DT)(SI)(SAP)(BEAS)(BCS)
((BAB)(PUK)(BT)(BP)(VOD)(RTRSY)(UN)(UL)(GSK)

European shares were off modestly at 5.15 AM New York Time.

The FTSE was down .4% to 5,635. BEA was down .7% to 357.75. Barclays was 1% to 597. BP was off .8% to 597.5. BT was up .9% to 225.25. British Air was off .8% to 259.25. GlaxoSmithKline was up 1.1% to 1498. Prudential was up .1% to 570.5. Unilever was flat at 1140. Vodafone was .9% at 115. Reuters was flat at 257.

The DAXX was down .7% to 3,756. Bayer was up .6% to 32.92. DaimlerChrysler was down 1.3% to 37.5. Deutsche Bank was down .9% to 83.47. Deustsche Telekom was down .4% to 12.44. Siemens was down .4% to 68.04. SAP was down 1% to 162.09.

The CAC 40 was down .3% to 4,755. Alcatel was down 1.1% to 9.77. AXA was down 1.3% to 24.12. France Telecom was down .7% to 16.73. ST Micro was flat at 12.54. Thomson was down .3% to 13. Vivendi was up .1% to 27.49.

Douglas A. McIntyre

News Digest 6/21/2006

Stocks: (UNV)(BUD)(GM)(NRG)(DD)(BP)(NWS)(MRK)(FDX)(PHG)(KR)

According to the Wall Street Journal, bidders for Univision will not pay a premium. Most offers will be close to the current price of $35.40 making the company's value about $11 billion.

The WSJ writes that Anheuser-Busch is considering making an entry into the hard liquor business as beer loses share to spirits.

WSJ writes that Moody's and S&P cut some GM debt as the auto company announced plans to amend a loan facility.

WSJ also reports that NRG plans to build power plant that would increase its capacity to product energy by about 40%

WSJ also writes that News Corp's MySpace community site is building sections that will be "safe" for advertisers screening out controversial material.

WSJ reports that Merck will price Zocor below a new generic competitor.

WSJ writes that DuPont and BP are joining forces to make a competitor to Ethanol, sugar-beet-derived butanol.

WSJ also reports that Fedex's shares have moved up sharply recently doubling since 2003. With financial results about to come out, investors wonder if the company can do well in a slowing economy.

Reuters reports that Euronext, the European exchange has started detailed talks with Italy's Borsa Italiana.

Reuters also reports that Philips said that its will take public or sell its chip unit and maintain only a minority interest. The unit had sales of $5.8 billion last year.

The New York Times writes that contruction for new homes was up in May, the first rise in three months.

The Times also reports that Kroger reported a profit and raised guidance. Sales rose over 8% to $19.4 billion,

Douglas A. McIntyre

Asia Markets 6/21/2006

Stocks: (CAJ)(FUJIY)(HMC)(NTT)(NIPNY)(DCM)(NMR)(SNE)(TM)(CHL)(CN)
(HBC)(PCW)

Asia markets were mixed with little movement up or down.

The Nikkei was off a fraction at 14,644. Canon was up .1% to 7720. Daiwa Secuties was off 1.7% to 1278. Fuji Photo was down .5% to 3740. Honda was .1% to 7200. Hitachi was off .6% to 729. NEC was up .8% to 586. NTT was up .8% to 538000. Docomo was up .6% to 167000. Nomura was off 1.9% to 2040. Sharp was down .9% to 1691. Softbank was down .4% to 2430. Sony was down 1.5% to 4770. Toyota was down .4% to 5760.

The Hang Seng was up .3% to 15.656. China Mobile was up 1.7% to 41.6. China Netcom was up .12% to 12.55. HSBC was down .1% to 134.1. Lenovo was flat at 2.45. PCCW was flat at 5.2.

The KOPSI was up .1% to 1,227.

The Straits Times Index was up .2% to 2,331.

The Shanghai Composite was up .4% to 1,598.

Douglas A. McIntyre

Microsoft Wants to Make Life Difficult for Sony

Stocks: (IBM)(MSFT)(SNE)(ATYT)

By William Trent, CFA of Stock Market Beat

News4Gamers.com breaks good news for video gamers that could have a significant impact on the overall consumer electronics industry:

It looks like Microsoft is planning to crash Sony’s PS3 launch party by dropping the price of the Xbox 360 this coming Christmas. A source close to Microsoft says consumers can expect a price drop of almost $100.

The source also revealed according to Britxbox.co.uk that the Xbox 360 hardware team are now busy redesigning the chips supplied by ATI and IBM to cut costs and allow a price drop to coincide with the release of Sony’s Playstation 3.

If this holds true you will be able to buy an Xbox 360 for half the price of the PS3 this Xmas. This will certainly put Microsoft in a very lucrative position when the next-gen console war starts for real later this year.

As we wrote recently, one major reason why the PS3 will be so expensive at launch ($500-$600) is that it will include a high-definition DVD player using Sony’s Blu-Ray technology. Since the first Blu-Ray player is expected to cost $1,000 when launched, the combination game console/DVD player could be a hot commodity. Or at least Sony hopes.

Sony is working hard to put its Blu-Ray technology everywhere in order to avoid repeating its Betamax blunder. Computers, gaming consoles, DVD players, televisions - even the movies in Sony’s Columbia Pictures and MGM libraries - all will be sporting Blu-Ray. If they gain enough traction they could own the standard in high-definition video and squash rival HD-DVD.

Yet consumer surveys clearly show that buyers are not interested in a format war. They want their high-def player to play any high-def movie. And as a result, Sony’s plan could backfire. With both XBox and Nintendo’s surprisingly buzzworthy Wii both set to sell for half the price of PS3, Sony risks losing the DVD format war and its dominant market share in gaming all in one swoop.

http://stockmarketbeat.com/blog1/

New York Times DealBook Digest 6/20/2006

Stocks: (NOK)(SI)(SVY.TO)(WLE.TO)(ERICY)(NYX)(EMMS)(ROK)(PA)

According to The New York Times DealBook, technology deals and "cross-border transactions" should turn in a strong performance in the second half of 2006. The information is based on a study by The Association for Corporate Growth and Thomson Financial . Survey repondents felt that technology deals would lead M&A activity.

DealBook also writes that analysts have downgraded Nokia due to its plan to form a joint venture with Siemens. One analyst predicted that the new entity would win 23% of the wireless network market just behind Ericsson. But, analysts are concerned that the integration of the two company's platforms will be difficult.

DealBook also says that Savanna Energy, a Canadian company in the oil field services industry, is acquiring Western Lakota for $561 million to get access to equipment that can do deeper drilling.

DealBook writes that the New York Stock Exchange is launching an investigation to short selling related to IPOs. The concern is that shares are being sold short before the offerings are traded.

DealBook writes that Emmis Communications has brought in lawyers and financial advisors to examine a possible buy-out offer from management.

DealBook says that Rockwell Automation has hired an advisor to sell its Dodge mechanical and Reliance electric motor businesses.

DealBook also reports that the FCC has approved the merger of satellite companies PanAmSat and IntelSat.

Douglas A. McIntyre

Actuant Gets Twenty Lashes (ATU)

xoActuant, which makes motor control systems for applications such as industrial tools and auto parts, announced earnings today. The company promptly took a beating with its stock off 20% to $45.60, well down from its 12-month high of $67.60.

Revenue for the period ending May 31 was $316.6 million up from $271.7 in the quarter a year ago. Operating profit rose from $33.9 million last year to $42.8 million. Revenue at the company's tools and supplies division rose 22% and engineering solutions rose 9%. The company had $52 million in cash flow.

But Wall Street hated the guidance, which is a bit hard to understand. Revenue in the next quarter will be flat at $310 to $320 million. It sounds bad at first, but it is 15% to 19% better than the same quarter last year, and EPS is forecast to be 16% to 24% better. The company did, however, guide for slow sales growth in the next fiscal, 2007. The percentage increase should be about 10%.

Bear Stearns said it was disappointed with the forecast, but the sales increase was impressive and 10% next year is hardly a disaster. The company's market cap is now down by about a third in a little over a month, and that is too much.

From fiscal 2003 (August 31) to fiscal 2005, revenue was up 66%. The four quarters previous to the one just announced had average revenue of $275, so the current quarter was a significant improvement. The company's operating margin has been running around 13%.

Under the circumstances, it seems reasonable that the stock is not back at $67, but, with a forward PE of 13, the stock has dropped to bargain range.

Douglas A McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in any of the companies he writes about.

The Pessimism About Ford Grows

Ford (F) took a nice bounce in April and came close to $8, but it is back a few cents from its 52-week low of $6.50.

Some of the company's news has been good. About 11,000 workers have agreed to take buy-outs. Ford plans to close at least 10 plants to further cut costs.

But, the company's North American market share is under siege. The most successful vehicle the company makes, its F-series pick-up, faces new competition from Toyota which is pushing its own pick-up line, the Tundra. According to forbes.com, Ford makes $8,000 on each of its trucks and it sold over 900,000 of the F-series last year. Any dent in this would do severe damage to the company's margins.

The Fitch credit agency recently downgraded Ford's debt rating based on the belief that the company's prospects of making money in North America are dim.

Ford's May vehicle sales were down 1.9%, but SUV sales were off 21% from a year ago, and F-series sales dropped 5.8%. Wall Street's concern is obvious. The brands with the highest margins are the ones with the most rapidly dropping sales.

With Ford's U.S. market share just above 17% and the prospects that it may fall further, investors are selling the stock down because they don't believe the company can cut enough costs in the near-term to keep up with dropping revenue.

Douglas A. McIntyre

Google's One-Trick Pony (GOOG)(MSFT)

Google is certainly a might machine. Revenue for the first quarter of 2006 rose to $2.254 billion from $1.257 a year earlier. Income from operations for the period was $743 million up from $443 million the year before. The company has about $9 billion in cash and marketable securities and a market capitalization of $119 billion.

However, the stock stands at about $390 now, which is where it was in November 2005. After a run to $470 in January and $440 in April, it has settled back quite a bit. Google's six month stock performance is below both the S&P 500 and the NASDAQ.

Perhaps the problem with the stock's performance is that, although Google has introduced a number of new services over the last year, advertising revenue is still 98% of the company's revenue. The balance comes from licenses of its web search technology.

In Google's 10-Q, the company says that it expects it growth rate to decline. It also expects margins to shrink. That being said, where will the future rapid growth come from at Google?

A look at the company's relatively new products does not immediately yield an answer to what Google's next killer product might be.

Google Earth works very well. But, it is free, and the revenue opportunity is unclear. Google Finance does not appear to have any source of revenue and is not nearly as good as the same free content from Yahoo!Finance or MSNMoney. Google Calendar has a number of nice features, but the revenue model seems to be missing. GMail and Blogger create the opportunity for Google to sell more text ads, but Blogger breaks down frequently, and GMail is also not as reliable as some other e-mail services.

The Google picture sharing and video sections are not special. There are a number of other services that provide both services, and Google seems to have only a modest share in these markets compared with companies like Photobucket, Flickr, and YourTube. The same is true with Google talk which has competition from Skype, AOL IM, Yahoo Messenger and a number of other services.

Google probably cannot build a new, strong revenue leg for its business by being in third of fourth place in a number of these markets. The company now faces the risks that Microsoft did many years ago when it had one set of products that produced virutally all of the cashflow. Microsoft finds itself in the position where that is still true today. For Google, free spreadsheet software is nice, but it doesn't feed the shareholders.

Douglas A. McIntrye can be reached at douglasamcintyre@gmail.com. He does not own stock in the companies he writes about.

Technicals of Rambus

By Yaser Anwar, CSC of Equity Investment Ideas

Rambus Inc. (RMBS) has shown very solid support at 22.20 the past few trading days.

Yesterday, the stock gapped up but quickly reversed and began down trending towards the gap. The stock faded into the gap, and filled it entirely not too long after.

We have two things to watch for today:
* A break of support at 22.20 would likely cause a quick move to the next support level at 22. If support at 22 were to break, the gap up from last Thursday would likely fill.
* If support holds at 22.20, the down trend line resistance must be watched carefully. In the event the down trend line resistance is broken, a bullish position should be taken in the stock.

http://www.equityinvestmentideas.blogspot.com/

Brocade Trading At Resistance

By Yaser Anwar, CSC, of Equity Investment Ideas

Brocade Systems (BRCD) has been in a sideways consolidation pattern since Mid-March with support at 5.50 and resistance at 6.25. The stock is trading at 6.25 resistance. The resistance level resulted from a combination of support turned resistance from before the consolidation pattern began, and proven resistance from a couple weeks ago.

http://www.equityinvestmentideas.blogspot.com/

Shelter From The Stock: Some Safe Small-Caps?

Stocks: (ABM)(ATO)(CTCO)(IHP)(OMI)(SAH)(SRR)(UNTD)

Usually investors don't look to small-caps for safety. These stocks are usually volatile and tend to be candidate for growth. But, a look at some S&P 600 Small Cap companies reveals an interest list of stocks that my be worth a look in a tough market. These all have low PEs and relatively large revenue.


ABM Industries Rev: $2.6 billion Market cap: $853 million PE: 15
Atmos Energy Rev: $6.2 billion Market cap: $2.1 billion PE: 14
Commonwealth Tel Rev: $335 million Market cap: $691 million PE: 12
IHOP Rev: $351 million Market cap: $820 million PE: 18
Owens & Minor Rev: $4.9 billion Market cap: $1.2 billion PE:18
Sonic Auto Rev: $8.2 billion Market cap: $944 million PE: 11
Stride Rite Rev: $621 million Market cap: $452 million PE: 19
United Online Rev: $522 million Market cap: $716 million PE:15

Source www.finance.yahoo.com

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in companies he writes about.

Golf Galaxy In The Rough (GGXY)

Golf Galaxy, which operates golf specialty stores, went public in August of last year. Recently the stock hit a 52-week high of $26.10, but it is tough to see how it got there.

The company recently announced its results for the quarter ending May 27. Revenue rose to $85.5 million from $58.6 million last year, but net income only hit $2.6 million compared to $1.7 million in 2005. Investors have to wonder what happened to the improvement in margins. Comparable store sales where up a paltry 1%.

Golf Galaxy guided that Q2 would have revenue as low as $98 million net income as low as $6.8 million. The company also revised its guidance for the year down to $292 to $300 million from $300 to $310 million.

The company's cash position dropped sharply from the immediately previous quarter moving down from $11.1 million to $2.9 million. Accounts payable rose from $22.3 million in the February 06 quarter to $47.5 million in the Q just announced. Never a good sign. Inventories also rose sharply.

The number of diluted share ran up from 8 million in May 05 to 11.6 million in May 06, which is a lot of dilution for shareholders.

With a trailing twelve month PE of almost 27, the stock may still be expensive despite its recent drop.

Douglas A. McIntyre can be reached at douglasamcintye@gmail.com. He does not own securities in the companies he writes about.

Trident Micro Gets Speared

Stocks: (TRID)(PXLW)(GNSS)

Trident Microsystems, with it stock already in a slid, fell another 14% today on news that it got subpoenas over options grants. The company makes digital chips for televisions. Wall Street is also concerned that sales of the LCD products that Trident supplies may be slowing.

Trident now sits at $17, down from a 52-week high of $31.49. The company's market cap is now below $1 billion.

While the question of whether any of the companies involved in the options scandal will have to restate earnings, there will probably not be a cash consequence to such an action. And, Trident has been doing remarkably well.

For the fiscal ending June 30, 2005, revenue rose to $69 million from $52.6 million the year before. The last four quarters have all shown sequential increases from $20.1 million in the June 05 quarter to $33.2 million in the September 05 quarter to $46 million in the December quarter to $44.7 million in the March 2006 quarter.

Operating income has also grown and was $8.6 million for the March 2006 period, an impressive margin. Trident is also sitting on almost $100 million in cash with no debt.

Trident's stock was recently downgraded by two Wall Street firms, which has helped push the stock lower.

Two of Trident's competitors, Genesis Microchip and Pixelworks, have done poorly recently, but the bug has not spread to Trident.

With the stock down by almost 50%, the price is starting to get attractive.

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in companies he writes about.

Investment Banking Sleight of Hand on Symantec

By Willaim Trent, CFA of Stock Market Beat

We recently admitted to being baffled by a series of financial transactions made by Symantec. As we were unable to figure out the intricacies of the deal, we said “To us this sounds like a way for investment banks to earn a fee and for hedge funds to get a sweetheart deal on the debt issuance.”
A commenter posited that we did not understand the deal (how true!) and explained what was happening on their website. We asked for a walk-through and they kindly obliged here. We thank them for explaining the deal, which we now understand.
To us it sounds like a way for investment banks to earn a fee and for hedge funds to get a sweetheart deal on the debt issuance. First let me give you a synopsis of their argument:
In our first post, we mentioned that Symantec entered into a form of derivative transaction, widely known as a call spread, which was structured to compensate for the dilution that would occur if convertible bonds holders exercise their right to convert into common stock.
Transaction Structure
So, what the heck is a call spread? In this case it was the the purchase of a call option at one exercise price and sale of another call option at a higher exercise price. Symantec did the following:
1. Purchased a Call: Symantec purchased a call option (from one or more of the underwriters) that gives Symantec the right to buy its own shares at a price 22.5% above the current stock price. That is $19.12, the same conversion price as the convertible notes. The number of shares underlying the call option was likely the same that would be issued if the convertible converts, 104,590,200 shares. This component is what Symantec refers to as “convertible note hedge transactions” in the press release.

2. Sold a Call: Symantec also sold a call option ( again, to one or more of the underwriters) that gives the purchasing underwriter(s) the right to purchase Symantec shares at a price 75% ($27.32) above the current stock price. Again the number of shares would have likely been something close to 104,590,200 shares. This component is what is referred to as “separate warrant transactions” in the press release.

Economic Cost
Symantec had to pay $ for the “convertible note hedge transactions” and got paid $ for the “separate warrant transactions”. So what are the numbers? According the the 8K, Symantec paid $592 million for the purchased call (#1 above) and received $326 million from the sale of the call (#2 above).

So, the net cost to Symantec was $266 million to create the call spread. $266 million amortized over the average life of the bonds (6 years) is $44 million per year. That equates to a 2.2% annual cost. Tack this imputed cost to the coupon on the convertible (.75% and 1.0% depending on the maturity) and you have an imputed annual cost of roughly 3%. So, simplisticly, Symantec is borrowing $2 billion and paying a 3% annual pre-tax cost. Not bad terms.

Sounds great. Only it omits one little detail: the company is still exposed to stock dilution above $27.32. And if you do the calculation right you take the present value of 1,734 (Symantec’s net proceeds), the future value of $2 billion Symantec must repay, the roughly 17.5 million in annual interest expense and the 6-year horizon to come up with a bond that pays a 3.4 percent coupon and is convertible into equity at $27.32 per share. Why not just issue that bond instead of entering into separate transactions?On closer inspection, the call Symantec sold is superfluous. They could have issued a straight bond and sold the option, or a convertible bond at the $27.32 price, or no bond and just sold the option. It is non-essential to any other transaction being done.Looking just at the convertible bond and step one, we see that there is a perfect hedge on the converts. In other words, without the second call option sale Symantec has created a synthetic bond that is not convertible. The question is whether this synthetic bond has a lower interest rate than a straight bond would have had. First to calculate the implied rate they are paying:

Their proceeds are $1,408 ($2,000 less the $592 they have to pay for a call that perfectly offsets the one imbedded in the convertible bond.) In six years they have to pay back $2,000 and in the meantime they must pay $17.5 per year in interest. Plugging all of that into a financial calculator gives us an implied interest rate of 7.11 percent.

So, is that better than they would have achieved simply by issuing non-convertible debt? It is hard to say, as S&P has not issued a credit rating for Symantec. However, their ratings of other software companies can be used as a proxy. We estimate that Symantec would be able to get a BBB+, the lowest investment-grade rating and similar to Moody’s Baa. This puts Symantec squarely between Oracle (A-) and Reynolds & Reynolds (BBB), which seems about right to us.
Conveniently, the Federal Reserve publishes the prevailing bond yield for the average Baa-rated bond. On June 12, when Symantec performed its financial hocus-pocus, the Seasoned Baa Corporate Bond Yield was 6.64 percent.

So in summary: Before issuing its superfluous call option Symantec paid higher transaction fees to create a synthetic bond that cost them 47 basis points per year more than issuing straight debt would have cost. No wonder the investment bankers were popping their corks.

http://stockmarketbeat.com/blog1/

Pre-Market Notes (June 20, 2006)

(ACLI) American Commercial Lines raised Q2 and FY 2006 EPS guidance.
(AEIS) Advanced Energy received multi power systems orders from KPE Solar-Cell in Hungary.
(APOL) Apollo Group $0.77 EPS vs $0.74e; gets subpoena over stock options grants.
(ARCI) Appliance Recycling Centers CFO has resigned to take position at another company.
(AVCT) Avocet announced 3M share buyback plan and signed $250M letter of credit.
(AVNR) Avanir Pharma said the FDA extends Neurodex NDA review by 90 days for its new drug application to treat involuntay emotion expression disorder.
(BEBE) Bebe stores boosted its dividend from $0.04 to $0.05.
(CFCI) CFC Int'l gets $16.75 buyout pffer from Illinois Tool Works.
(CPKI) California Pizza Kitchen announced $30M allocation for a share buyback plan.
(CWST) Casella Waste $0.02 EPS vs -$0.01e.
(CYTK) Cytokinetics extended its research pact with GSK.
(DCX) DaimlerChrysler is voluntarily delisting from 12 different stock exchanges because of minimal trading and no seen benefits.
(DPTR) Delta Petroleum rec'd US atty subpoena over stock options granting.
(DSCO) Discovery Labs is evaluating strategic alternatives with Jefferies as advisor.
(F) Ford is halting production of Focus cars in Russia because of excessive duties being demanded.
(FDS) FactSet Research $0.41 EPS vs $0.39e.
(GE) GE is looking to acquire a life science company that does protein research in Sweden named Biacore.
(GTN) Gray TV increased guidance on political ad spending, but by less than 1%.
(HGSI) Human Genome Sciences is expected to announce $165M in Abthrax sales to US government as part of anthrax initiatives in the company's first sale of that product.
(IEDU) Investools authorized a 3.5M share buyback plan.
(ITC) ITC Holdings filed to sell $200+M in common stock.
(LWAY) Lifeway Foods announced a 2 for 1 stock split.
(MLAN) Midland lowered EPS guidance.
(NANX) Nanophase announced new supply pact to BASF.
(NT) NorTel noted in NYTimes as possible merger target of either Huawei or Motorola because of telecome equipment mergers.
(OMN) Omnova $0.13 EPS vs $0.11e.
(PGI) Premeire Global Communications authorized 7M share buyback plan.
(PGIC) Progressive Gaming -$0.10 EPS vs $0.00e.
(PHG) Philips Electronics is reportedly launching a line of GPS products similar to those of Dutch navigation company TomTom, and therefore competing against Garmin.
(POWI) Power Integrations CFO announced termination pact and released POWI from any claims and obligations to him in pact.
(PRCS) Praecis Pharmaceuticals discontinues sales and activities of Plenaxis after not being able to find a buyer for it; sees $3.6M charge for discontinued operations.
(REY) Reynolds & Reynolds has a stake hiked by activist shareholder ValueAct raised to 12%.
(SJM) S.J.Smucker $0.62 EPS vs $0.57e.
(TGT) Target sees same-store sales of June trending toward the upper half of its 3% to 5% range.
(TIN) Temple Inland will have an $87M gain after government settlement.
(TMG) TransMontaigne signalled it is prepared to accept Morgan Stanley's $11.35 per share cash offer.
(TRN) Trinity Industries raised EPS guidance to $0.60 to $0.65 vs $0.57+e.
(VYYO) Vyyo cancelled a sublease agreement with TIBX-Tibco.
(YAKC) Yak Communications is exploring strategic alternatives.

ANALYST CALLS:
AAPL positive comments for 2006 at Piper Jaffray.
ADBE positive comments for 2006 at Piper Jaffray.
AMAT raised to Overweight at Prudential.
AMR started as Equal Weight at MSDW.
APD reitr Buy at Deutsche Bank.
ARMHY raised to Buy at Deutsche Bank.
ASML reitr Overweight at Prudential.
ATEC started as Sell at Think Equity.
ATYT maintained buy but cut estimates at Deutsche Bank.
BMI raised to Outperform at Baird.
BRKS raised to Overweight at Prudential.
CAL started as Equal Weight at MSDW.
CBH cut to Mkt Perform at FBR.
CEI raised to Equal Weight at MSDW.
COST raised to Overweight at JPMorgan.
CSGC reitr Buy at Citigroup.
CX started as Overweight at MSDW.
CYMI reitr Overweight at Prudential.
DK started as Outperform at Morgan Keegan.
ENDP started as Neutral at UBS.
GHL raised to Outperform at KBW.
GTK cut to Underweight at MSDW.
IPCC cut to Underperform at CSFB.
ISIL raised to Outperform at CSFB.
JBLU started as Overweight at MSDW.
LUV started as Underweight at MSDW.
MCK reitr Overweight at JPMorgan.
MGM cut to Underweight at MSDW.
MTSN raised to Neutral at Prudential.
NFLX cut to Hold at Soleil.
NNI started as Peer Perform at Bear Stearns.
NOK cut to Sector Perform at RBC.
NMR cut to Neutral at JPMorgan.
NVDA reitr Sell at Deutsche Bank.
PETM reitr Overweight at Lehman.
PFE reitr Hold at Citigroup.
PLAY started as Underperform at CSFB.
PTIE raised to Neutral at UBS.
RLI raised to Neutral at at CSFB.
SEPR noted as possible merger candidate according to Deutsche Bank.
SSP cut to Hold at Deutsche Bank.
TGT reitr Buy at UBS.
URBN started as Sector Perform at CIBC.
VE raised to Neutral at UBS.
WPI cut estimates at UBS.
XXIA raised to Strong Buy at JMP Securities.

Video game makers raised to Positive at Susquehanna: ATVI, ERTS, THQI, and TTWO.

European Stock Market Report 6/20/2006

Stocks: (BCS)(BP)(BT)(PUK)(BAB)(VOD)(RTRSY)(GSK)(UN)(UL)
(BAY)(DCX)(DB)(DT)(SI)(AXA)(ALA)(V)(FTE)(TMS)

European markets were down slightly at 5:30 AM New York time.

The FTSE was off .2% to 5,614. Barclays was off .5% to 602. BP was off 1.6% to 586. British Air was off .1% to 360. BT was up .2% to 226. GlaxoSmithKline was up .3% to 1470. Prudential was up 1% to 571.5. Reuters was up .1% to 365. Unilever was off .3% to 1136. Vodafone was up .2% to 115.25.

The DAXX was down .4% to 5,419. BASF was down .2% to 59.35. Bayer was off 1.6% to 32.37. DaimlerChrysler was up 5% to 37.59. DeutscheBank was down .7% to 82.49. Deutsche Telekom was down .8% to 12.4. Siemens was up .3% to 67.22.

The CAC 40 was down .3% to 4.716. Alacatel was down 1.2% to 9.71. Axa was down 1% to 24.07. France Telecom was down .8% to 16.75. ST Micro was down .7% to 12.41. Vivendi was up .6% to 27.48. Thomson was down 2.3% to 12.85.

Douglas A. McIntyre

Asia Markets 6/20/2006

Stocks: (CAJ)(FIJIY)(HIT)(HMC)(NIPNY)(NTT)(DCM)(SNE)(TM)(CHL)(CHU)(PCW)

Asian Markets fell sharply today.

The Nikkei was off 1.4% to 14,649. Canon was off 1% to 7710. Fuji Photo was off .3% to 3760. Hitachi was off 1.4% to 733. Honda was up .6% to 7210. NEC was off 3.2% to 581. NTT was up .4% to 534000. Docomo was flat at 166000. Softbank was down 4.1% to 2440. Sony was off .4% to 4940. Toyota was off 1% to 5780.

The Hang Seng was down over 1% to 15,609. China Mobile was off 1.5% to 40.9. China Unicom was off 2.3% to 6.7. HSBC was off .6% to 134.2. Lenovo was flat at 2.45. PCCW was up 8.3% to 5.2 on an offer to buy a large portion of its assets.

The KOPSI was down 2.1% to 1,226.

The Straits Times Index was down 1.5% to 2,332.

The Shanghai Composite was up .4% to 1,592.

Douglas A. McIntyre

Hedging Oil Bets

From Yaser Anwar of Equity Investment Ideas

Since oil related stocks are volatile & depend upon the crude oil price, a good way to hedge your position would be to sell short the ETF OIH (Oil Holders Trust). OIH is one of most volatile, so it can provide you with excellent trading opportunities. Personally i like to day trade OIH because it has 3$+ price swings up or down depending on the crude prices.


http://equityinvestmentideas.blogspot.com

Investor Sentiment

From Yaser Anwar of Equity Investment Ideas

33% bullish, 23% previous week46% bearish, 52% previous week22% neutral, 25% previous week

The median guess for the Dow closing value on Friday, 6/30: 10658 (it was 10843 last week).

Source: Low Risk

Media Digest 6/20/2006

Stocks: (VG)(VZ)(IBM)(MOT)(SI)(MT)(ALA)(LU)(NT)(YHOO)(AAPL)(MSFT)
(PCW)(LVLT)(BWNG)(GLBC)(TOL)

According to Reuters, Vonage announced that is had been sued for patent infringement by Verizon. The suit covers seven patents for voice over IP.

Reuters writes that IBM has developed a new transistor that is 100 times faster than current technology. In the future, this could allow for ultra-fast computers and wireless networks.

Reuters also reports that Motorola has announced a new set of cell phone handsets priced under $100 for emerging markets including China.

Reuters also writes that steel company Mittal says it is increasingly confident that its acquisition of Arcelor, another steel concern, will be completed.

Reuters reports that the merger of the telecommunications network equipment units of Nokia and Siemens and the merger of Lucent and Alcatel is putting pressure on companies like Motorola and Nortel to pursue consolidations of their own.

Reuters writes that the Yahoo!Messenger program will allow users to embed programs in it, including calendar functions and videos. Yahoo! hopes that the move will make it easier for users to collaborate with one another using multiple applications.

According to the Wall Street Journal, Siemens is in talks to sell the majority stake in its enterprise unit. The division has $4.4 billion in annual sales.

Th WSJ also writes that movie studios are having success bringing content to the Apple iPod and are also talking with Microsoft about supplying films to the rival devices being built by Microsoft.

The WSJ writes that Macquarie Bank Ltd. of Australia has submitted a bid for PCCW's key telcom and media assets.

WSJ also writes that investors are buying the depress shares of mid-sized telecom companies including Global Crossing, Level 3 and Broadwing based on assumptions that the stocks will recover from the sharp dip they took in the recent market sell-off.

The WSJ writes that shares of D.H. Horton and Toll Brothers dropped yesterday on reports of a slowdown in the housing market. Horton was off over 3% to $29.10 and Toll Bros. was down2% to $26.54.

The New York Times writes that Circuit City announced financial results that beat Wall Street estimates. But, the companies shares fell almost 3% to $28.63.

NYT also reports that Apollo Group, which operating online education business, received a subpoena from the U.S. Attorney regarding its stock option grants.

Douglas A. McIntyre

Recap of Cramer's "Mad Money" for June 19, 2006

Cramer opened up his show discussing that the Dept. of Transportation has been reviewing its Open Skies policy that would possibly ease foreign ownership of a US carrier and he noted that Air France has been wanting to buy a US airliner; he thinks Continental (CAL) is the right trade in the sector to hold until a European carrier makes a bid for a US carrier.

Cramer also compared the IPO's of Mastercard (MA) and Vonage (VG); with Vonage as the bad IPO that is still a sell, and Mastercard as the great IPO that is still a Buy that even went up in a down market.

In Cramer's "Discussion Round" he evaluated Urban Outfitters (URBN) as a pick he said he was wrong on and even after the selloff it is still a Sell.

In answsering emails Cramer was positive on Hansen (HANS) three days after the split; was also positive on Akamai Tech (AKAM).

In the "Lightning Round," Cramer was Positive on: Allegheny Tech (ATI), Con Ed (ED),Disney (DIS), Greywolf (GW), Halliburton (HAL), Hercules (HERO), Companhia Vale do Rio Doce (RIO), Nokia (NOK), Schlumberger (SLB), Smith Micro (SMSI), TXU Corp. (TXU); and he was Negative on Titanium Metals (TIE) and XTO Energy (XTO).

An iPod from Microsoft?

By Chad Brand of Peridot Capitalist

Evidently Microsoft (MSFT) is developing a digital music device and download service to compete with the iPod and iTunes from Apple (AAPL). Headlines like these show that Microsoft is feeling the heat and believes it must reinvent itself. I would agree completely with that assessment, but I also disagree with their apparent strategy.

Merely copying successful products that have already attracted scores of competition is not going to reinvigorate growth at Microsoft. They need to play offense, and by that I mean, develop new technologies and products. They should aim to be first to market, and force others to play defense by copying them.Adding another video game system to the market is not very innovative. Adding another mp3 player to the market is not innovative. Ditto for a music download service.

The companies that are taking aim at them today aren't doing so by copying. They are doing so by innovating. Google changed the online advertising market, has the best product out there, and now dominates.Google's beta of a new, free, online spreadsheet program isn't merely an imitation of Excel. You can see where Google is going with this. Low end computers nowadays can cost as little as $300 with a monitor included. However, if you want to put a copy of Microsoft Office on your new home machine in order to do work on weekends, the software package could easily double your system's cost to $600.

Large corporations have big pockets, so they will likely continue to equip all new systems with the full version of Office. Consumers though, hate paying hundreds of dollars for software that is oftentimes essential to do anything productive on their computer.

Microsoft may have a monopoly on desktop software, but their dominance has nowhere to go but down the drain as other companies innovate. An online spreadsheet program complete with free storage space on Google's own servers could ultimately dent Microsoft's Office business, though it will take time.Selling video game consoles and imitation iPods might make up for some of the business Microsft will undoubtedly lose to companies such as Google, but the margins will be so much lower that it will never completely make up for it.

Right now Microsoft gets nearly all of their operating income from Windows and Office. Those businesses are under attack, but do you really think the way to reinvent the largest software company on the planet is to go after the iPod?

http://peridotcapital.blogspot.com/

Can Arbinet Prosper From Net Neutrality Threats?

Arbinet- thexchange, Inc. (ARBX-NASDAQ) is no stranger to unclear and unresolved issues. Before reading much further you need to know that this is being pointed out as Possibility rather than as Matter of Fact.

Arbinet's stock has suffered almost monthly as the company has been hurt by performance and plagued by key personnel issues. Its shares at $5.00+ today are down from $8.00 at the beginning of May and down from over $11.00 last June. The shares were over $25 when they came public via IPO in 2004.

This company is still profitable, BUT....... Its profits have shrunk and unfortunately its sequential revenues have started to come in, hence the share performance to date. Will this continue? It should be anticipated that based on the current stock price the answer is probably yes (although it is too thin to know). The company as of its last quarter had cash and equivalents of $65.05M and receivables of $21.3M, with a total current asset base of $88.9M after other items. It listed its total assets as $117.8M after longer-term items were included. Its total current liabilities were $26.58M and it had a tiny amount of longer-term and other items that put its Total Liabilities at $30.39M. Its trailing P/E is about 12.0, but determining its future P/E is not very clear at all.

The company has a market cap of $130+M at current prices. This is not to portray the company as a value play. There are fundamental issues such as fewer and fewer key telecom carriers via consolidation, but this company if it can get its house in order Could offer some longer-term help to content providers and ultimately offer some cost curbing to consumers. This entire supposition is based on the chance that regulators seem at least willing to let the fiber and data network owners (the Verizons, Comcasts, and AT&T's) dictate some form of charges. This may allow them to dictate nearly whatever terms they wish to secondary and tertiary carriers who rely on their agreements with major carriers.

Arbinet solutions simplify the exchange of digital communications in a converging world. These include exchanges, a transaction management platform and managed services which streamline performance and improve profitability for Members. Arbinet's 600-plus voice and data members, including all 10 of the world's 10 largest international carriers, use Arbinet's Internet based electronic platforms to buy, sell, deliver and settle transactions valued at about $500 million in 2005. These Members include fixed, mobile and VoIP carriers, ISPs and content providers from more than 60 countries who exchange voice, data, content and value added services.

There is a dissident shareholder fight that has been ongoing where it looks like a founder is trying to re-establish some control, and we unfortunately do not yet know the results. We are still waiting for the actual results of the annual meeting vote count that could come literally at any moment. Glass Lewis had recommended shareholders vote in favor of the company's proposal and Institutional Shareholder Services-ISS had recommended that votes go to backing the dissident proposal. The outcome will be the defining factor.

Whatever the outcome of the vote is, change is needed for Arbinet to be successful. What the company needs to do is to become THE go-to source for lowering bandwidth exchange costs for content and search providers. Needing to do so does not imply that they Are, but the company seems as though they could and would be in a position to spearhead this critical issue of net neutrality.

The owners of the nationwide fiber lines want to essentially start charging those with the content or providing search results for the data that passes over their lines. This is no different than physical toll roads today, except for the fact that there are in many cases no other options. If someone wanted to drive a car on the NJ Turnpike from exit 7 to exit 15W they would pay an estimated toll of $3.45 per the authority's website. You can probably get there without having to use the toll road, but it will take forever and involve endless stop signs and turns. The analogy is that if you want what you have already been used to on the Internet as far as search speeds and content speeds, now someone is going to have to pay a toll; and the ultimate toll payer will end up being the consumer no matter what.

So if this company can establish their exchange for "packet" buyers and sellers for the search and content providers to lower data traffic costs to the end users (that would be You), then they would have a much larger market to capitalize off of. Once again: If, Then. They are partially already there but in the same breath you would have to say a million miles away.

The company is tiny and hardly has any estimates for longer-term, and it has no recent reporting from major street firms that is current. They now have missed earnings estimates and it is too opaque to determine within any reason what the forward numbers will be. What is important is that as long as the company can stay profitable and not dilute their balance sheet they have a shot of stabilizing at levels close to current stock prices. Up until recently that was never able to be said with any decent probability.

The fate of the company is not yet set, and that will be the case regardless of who wins control of the company. The outcome of this proxy fight was supposed to be known today, so this was held until after the close so that nobody would misconstrue this article and get burned from an imminent news release. There will almost certainly be much more data and opinions on this issue in the coming days and weeks.

Jon C. Ogg
June 19, 2006

Does eBay Deserve Better?

Stocks: (EBAY)(INTC)(AMZN)(YHOO)(GOOG)(MSFT)

eBay is down nearly a third from its twelve month high of $47.86, and fairly near its low for the period of $28.87. The company seems to be lumped with other large internet and tech giants that cannot seem to get out of their own ways. Intel, Microsoft, Amazon, and Yahoo! are certainly on that list.

Wall Street is concerned that new initiatives like Skype and blogs on the eBay site are unlikely to add to revenue. But, the prospect that terrifies investors is that search giant Google may get into the ecommerce business and that one of the targets may be the auction format of eBay.

The market may be forgetting that eBay now has 200 million people who have registered for the service. Of these, 75 million were active in the last quarter.

While Google may launch an online payment system of its own, and may even get into the auction market, it is far from certain that they will be successful. Google has introduced a number of new products to great fanfare, but examining its public financial files show that the company still makes virtually all of its money from key-word text advertising. Google also gives away most of its new services for free. This true for a large portion of its video products, its new spreadsheet software, Google e-mail, Google voice, and Google Earth. While these may be traffic builders for the company, it is still not clear how they will yield revenue. Google also has to fight a rear guard action against Microsoft and Yahoo!, both of whom are after a larger share of the search market.

If Google want to get share from eBay, it will probably have to heavily discount its competing service. It is by no means certain that a "scorched earth" plan of that kind will work.

eBay's growth can hardly be considered stagnant, especially given its size. In the quarter ending March 31, revenue rose from $1.032 billion in 2005 to $1.39 billion in 2006. Income from operations rose from $323 million to $336 million. The company increased sales and marketing costs from $271 million to $400 million. While this took a short term bite out of operating profit, it may well be the investment that keeps the company in the position of the premier online auction provider.

eBay's price to sales ratio in now just over 8, while Google's is 16.

Based on its pole position in its market and the drop in the company's valuation, eBay may well be a candidate for a move up in its share price.

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in the companies he writes about.

Qwest's Long Run

Stocks: (Q)(T)(CMCSA)

To say that buying shares in Qwest (Q) a year ago was a good investment is an understatement. The stock has run from $3.45 to $7.61, very near its 52-week high.

Most of the stocks in large telecom companies have had increases in their share prices in the last twelve months, but very few have doubled. Qwest has increased its market capitalization by $7 billion. Not bad for a company with $13 billion in revenue.

Qwest's numbers have improved, but not markedly. The last few quarters, revenue has been flat at around $3.5 billion. Operating income has improved particularly in the last quarter when it hit $354 million, up from the immediately previous quarter of $221 million.

The excitement about Qwest's prospect may be premature. The company is putting fiber-to-the-home deployments into the market, but, so far, Qwest is a relatively small player in an unproven market.

There has been at least some expectation that one of the larger telecom companies would buy quest as the likes of SBC and AT&T got married, but this has not materialized.

Wall Street is clearly getting concerned about Qwest's valuation. Recent analyst actions on the company include "Underperform" and "Sell" recommendations from Credit Suisse, Citigroup and Stifel Nicolaus. Part of Wall Street's concern is that Comcast is beginning to be more aggressive in Qwest markets offering the triple play of TV, VoIP, and broadband internet.

Cost controls have kept operating income moving in the right direction, but with most of these cuts behind it, the question about Qwest is whether it can make the topline grow. So far, the answer has been "no".

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in companies he writes about.

Wafers, Wafers Everywhere

By William Trent, CFA of Stock Market Beat

Advanced Micro Devices (AMD) has been gaining share in the microprocessor market from Intel, so it stands to reason that they should be increasing their production capacity faster than the overall semiconductor industry or PC industry’s revenue growth - both of which are running about 7 percent annually. However, this story sounds like they are getting ahead of themselves:
EETimes.com - Heard on the Beat: AMD mulls New York fab

Officials from Advance Micro Devices Inc. (AMD) were spotted in New York again to evaluate the state for a possible fab.

New York has an uphill battle to lure AMD. So far, AMD has build its advanced fabs in Germany. The company recently said it will invest $2.5 billion in Germany, adding a new 300-mm fab to replace an existing 200-mm facility that will be closed. AMD said the expansion will quadruple its processor production here within the next 30 months.

Quadrupling production in 30 months equates to 72 percent annual growth, or approximately 10x the pace of end-market demand. Intel also believes it can grow at least at the industry growth rate and is proceeding with its own aggressive production schedule. The price war between these two appears far from over.

Meanwhile, semiconductor makers of all stripes continue to aggressively expand despite the fact that supply is outpacing demand.

Spansion confirmed plans that it expects to invest $1.2 billion over three years in the SP-1 wafer fab in Aizu in the Fukushima presecture area of Japan.

The memory chip company plans to begin production of 45-nanometer devices at the facility by mid-2008, a spokeswoman at the company said. Spansion may also use the facility to manufacture 65nm devices.

http://stockmarketbeat.com/blog1/

What kind of technology products are consumers buying?

By William Trent, CFA of Stock Market Beat

Barron’s Tech Trader Daily Blog mines the Circuit City (CC) conference call for the nitty gritty.
Total television comparable store sales increased by solid double digits, led by triple-digit comparable store sales growth in flat panel displays. Comparable store sales of digital imaging products and accessories increased by double digits. Growth in the category was partially offset by a single-digit decline in comparable store sales of camcorders and a double-digit decline in comparable store sales of DVD hardware.

Comparable store sales of notebook computers and printers increased by double digits, and comparable store sales of monitors increased by single digits. Growth in the category was partially offset by a low single-digit decrease in comparable store sales of desktop computers.
Double-digit comparable store sales growth in mobile audio products reflects growth in navigation products. Comparable store sales growth in portable and mobile audio products was partially offset by a mid-single-digit comparable store sales decline in home audio products.

http://stockmarketbeat.com/blog1/

Circuit City's Expensive Inventory

Circuit City (CC) made a small profit in its first fiscal quarter ending May 31, and the market was appropriately unimpressed. Circuit City has been in the midst of a turnaround of sorts, but the stock has risen so far that there is hardly room for good news to take it higher.

The retail chain announced that revenue rose from $2.2 billion a year ago to $2.6 billion in the quarter that just ended. Operating income as $7.8 million or only .3% of sales compared with a small net loss of $19.2 million last year. Comparable store sales were up an impressive 14.6%. The company's cash position dropped from $817 million a year ago to $634 million. Much of the decline came from the company buying its own stock. Gross profit declined very slightly.

Wall Street expects that company to have revenue of $12.6 billion this fiscal year. But, even if it hits these numbers,investors may not reap further rewards.

Circuit City stock is up from a 52-week low of $15.26 to the current price of $29.64, very near the 52-week high. The company's trailing PE is 38.

While it is nice to see the company recover, the benefit of the improvement is probably already in the Circuit City stock.

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in the companies writes about.

Verizon's TV Show

Stocks: (VZ)(T)(CMCSA)(TWX)(DISH)

Verizon (VZ) has announced that it is lining up programming for the TV network it is creating new content for consumers who use the company's FiOS system. The new deal, with the Public Broadcasting System, now gives the Verizon fiber optic to the home operation another significant programmer as part of its channels. The FiOS operation offers 400 channels but the service is now limited to certain states, but Verizon is obviously ready to roll-out across more of the country.

AT&T, the merger of SBC and the old AT&T, has targeted a July launch for its TV over the internet product, uniting movies from Movielink and satellite TV from Echostar. The new system, called Homezone, will be combined high-speed internet, TV and VoIP.

The market seems skeptical that these new offerings will be the solution to the downward move in these company's stocks. Maybe the cable companies have too much of a lead.

The markets are fairly happy with the prospects of both AT&T and Verizon. This is despite the moves that the cable companies have made into the phone business by packaging VoIP with broadband.

AT&T is certainly viewed has having a promising business. The stock in near a 52-week high at $27.97. Revenue from 2004 to 2005 went up from $40.8 billion $43.9 billion. Revenue in the first quarter of 2006 was $15.8 billion and operating income was $2.2 billion.

Verizon trades at $32.72, in the middle of its trading range for 12-months with a high/low of $35.26/$29.13. Verizon has not only introducing the new TV service but it has even sued Vonage, the largest VoIP provider in the U.S. based on patent violations.

Verizon has also done well financially. Revenue in the calendar year 2005, was $75.1 billion, up from $71.3 billion in 2004. Revenue in Q1 2006 hit $22.7 billion and operating income was $3.9 billion. Both were improvement from the immediately previous quarter.

The cable operators, especially the large one like Comcast and TimeWarner are likely to fight the telco TV initiative both by lowering rates and by lobbying the federal government to slow down the distribution of programming by Verizon, AT&T and their counterparts around the country.

Someone will loss here, but it is hard to tell at this stage who that will be.

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in the companies he writes about.

Mixed News on the LCD Panel Front

By William Trent, CFA of Stock Market Beat

Readers who wish I would quit being bearish on LCD panel makers already, or more to the point investors who own LCD panel makers and wish the bleeding would stop, will just have to wait a while. The good news is, signs are forming that the industry recognizes the problem and is taking steps to solve it. When it stops getting worse it can start getting better.
According to DigiTimes, Taiwan-based panel makers are cutting production amid inventory issues and a dim industry outlook, with AU Optronics and Chi Mei Optoelectronics using the slow period to train employees at their LCD module plants in China while Chunghwa Picture Tubes and HannStar Display are both encouraging their employees to take holidays. DigiTimes quoted the Chinese-language Commercial Times as their source.

However, there are also signs that the process will be tortuous. Innolux Display stated it shipped more than five million LCD monitors through the first five months of this year, and it is confident that total shipments for this year will reach 16-18 million units. Eying the booming LCD TV market, Tuan said, the company is looking to enter the market starting from next quarter. In addition, Although the global LCD monitor market was slow in the first half of this year, BenQ is still positive about the outlook for this year and is confident it will achieve its goal of 15 million units for the whole year, up 55% from 9.7 million in 2005, according to Hermit Huang vice president and general manager of BenQ Digital Media Business Group. BenQ shipped about 3.4 million units in the first quarter of this year, according to the company.

Despite seasonal effects, the monthly shipments from BenQ in April and May remained at more than one million units, Huang pointed out.
Adding to the problem is that continued overproduction is speeding price declines. Manufacturers and retailers are no longer willing to hold inventory that is losing value so quickly.
Taiwan-based home appliance makers including Kolin, Sampo, Sanyo Taiwan, Teco Electric & Machinery and Tatung are striving to lower their LCD TV inventory to 10-15 days, according to the Chinese-language Commercial Times.

Due to fast-falling TV panel prices, most LCD TV makers are reluctant to accept orders of more than a month away. Several TV makers in Taiwan indicated LCD TV quotes for the US market will drop at least 20% between now and the fourth quarter, the paper said.

For the appliance makers to cut inventory means they will have to reduce the number of units they order from their suppliers. With some suppliers still aggressively ramping up production the inventory will swell on their own books. Then we’ll see the real capacity reductions.

http://stockmarketbeat.com/blog1/

By William Trent, CFA of Stock Market Beat

Semiconductor revenues have been strong in large part due to strong mobile phone sales, driven mainly by China and India. Now it looks like the Chinese market, which is not very transparent and thus difficult to forecast, may be slowing.

In recent days, evidence has begun to accumulate of some slowing in global cell phone sales, especially in China. For instance, the most excellent Asian IT news site DigiTimes reported yesterday that both BenQ and Compal Communications see slow growth in handsets in the current quarter.

And now the Street is getting worried. Several new reports from Citigroup touch on the issue this morning. Daryl Armstrong, who covers wireless telecom equipment, says that while “the Chinese handset market is healthy in general…we are seeing some inventories build up for slow-selling models, especially some low-end products from smaller manufacturers.” He blames this on “the growing number of models available onthe market, shortened product cycles, and increased demand for phones with more advanced features.”

We have been pointing out for some time that semiconductor supply is outpacing demand. Recently capacity has been tight, but as the new supply comes on more price cuts should be expected.

http://stockmarketbeat.com/blog1/

Plantronics Valuation

By William Trent, CFA of Stock Market Beat

Plantronics’ (PLT) core business has always been headsets used in office and call center environments. The rise of the mobile phone, including hands-free legislation, spurred an increasing exposure to consumer business lines that was heightened with the recent acquisition of Altec Lansing.

These consumer businesses are more fashion-oriented, less predictable, and offer lower margins than the office and call center market, which is essentially a duopoly between Plantronics and European competitor GN Netcom.

Plantronics has remained consistently free cash flow positive. For several years the cash was building up on the balance sheet before it was ultimately used in the Altec Lansing acquisition. The valuation, currently at 13.5x trailing EPS, is a low level compared to Plantronics’ history and to the market as a whole.

Guidance calls for another modest EPS dip in FY2007 (the company’s fiscal year ends in March) and for an increase the following year. These estimates should be taken with a grain of salt, as the same thing was said last year and because the estimates for Plantronics have frequently been off by very wide margins in both directions.

Although the company has consistently generated free cash flow, it fell off significantly in FY06. Cash flow from operations declined to $78.3 million from $93.6 million the year before, partly due to an $11 million ad campaign that did not improve sales in the consumer business lines (in fact sales declined in those segments.) Capital expenditures increased from $27.7 million to $41.9 million due to the completion of a new factory in China. Net result, free cash flow declined from $65.9 million in FY05 to $36.4 million in FY06. And that doesn’t count the $165.4 million they spent on Altec Lansing.

All that wouldn’t be too big a concern if it were clearly temporary. However, the company has said it plans to increase ad spending to $19 million in FY07, and expects to spend $45 million on Capex this year to expand its headquarters in Santa Cruz, California. So rather than being temporary, the lower free cash flow levels are actually looking somewhat persistent.
The higher capex will soon be reflected in depreciation expense, which was just $16 millionin FY06. When the higher spends of recent years flow through it will act as a drag on EPS for several years.

Therefore, although today’s valuation appears low, we will not be buyers again until it is lower still, or until we see evidence that the free cash flow is once again improving. A 3.6 percent free cash flow yield just doesn’t cut it when CDs are paying five percent.

http://stockmarketbeat.com/blog1/

Plantronics Has Nothing to Show from Ad Spend

By Willaim Trent, CFA of Stock Market Beat

Plantronics (PLT) spent $11 million on an advertising campaign in FY2006, according to their recently filed 10K. However, a look at the segment results suggest they have very little to show for it.

Working on the hypothesis that the advertising is geared toward their consumer-related business lines (the office and call center market is a duopoly between Plantronics and GN Netcom), a look at the segment data is disheartening:

Office and call center: + 21.9 percent
Mobile: - 4.9 percent
Gaming/Computer: - 10.4 percent
Other: - 1.3 percent

So the sales improved where the advertising dollars weren’t spent and declined where they were. It begs the question as to whether the last deal their head of marketing (hired in 2005) closed was getting himself hired.

What’s more, $11 million is not chump change for Plantronics, whose total cash flow from operations was $78 million. With 49 million shares outstanding it translates into about $0.16 in earnings per share. It’s valuation would look even more attractive had the earnings been $0.16 higher.

So given all this, at least the ad spending will be lower in FY07, right? Nope. The company is expecting it to rise to $19 million. Yikes.

http://www.stockmarketbeat.com/

Stocks : (NOK)(SI)(LU)

By William Trent, CFA of Stock Market Beat

With all of the consolidation among their customers allowing for network efficiencies, along with a dramatic decline in revenues following the telecom bubble, telecom equipment makers have increasingly been joining forces. Alcatel/Lucent, Tellabs/Advanced Fibre, Cisco/Scientific Atlanta, and now Nokia/Siemens.

The current deal applies only to their network equipment, not to handsets.Nokia, Siemens in $31.6 billion deal: report. - Jun. 18, 2006

Nokia and Siemens AG agreed to combine their phone equipment units in a deal worth around $31.6 billion, the Wall Street Journal reported on Sunday, citing people familiar with the matter.
The combined company would contribute both of their network equipment operations into a new entity to be based in Nokia’s home country of Finland, the Journal reported, with Nokia retaining a majority of board seats.

http://www.stockmarketbeat.com/

Catalysts that make Grant Prideco (GRP) a buy

By Yaser Anwar, CSC of Equity Investmetn Ideas

Grant Prideco, Inc. offers various oilfield equipment and services to the oil and gas industry worldwide. It operates through three segments: Drilling Products and Services, Drill Bits, and Tubular Technology and Services. The Drilling Products and Services segment manufactures and sells drill pipes, drill collars, heavyweight drill pipe, and drill stem accessories. (Y! Finance)

Catalysts that make GRP a buy:


The company has recorded strong growth over the past several years. Since '01, revenues have nearly doubled. Over the same period, operating margins have widened, which has led to an explosive rise in earnings. Per share profits totaled $1.74 in 2005 versus just 51 cents per share in '01.

Analysts expect this strong growth to continue, as is evident by the five-year projected growth rate of 32.8% vs GRP’s peers have a five-year projected growth rate of 23%
Despite the strong growth and bullish prospects, GRP trades at a discounted valuation. GRP's forward multiple is just 15.71 for growth of 32.8% vs HAL 18.15 for growth of 20% & SLB 21.9 for growth of 22%.

Judging by GRP’s track record, the long-term forecast could prove to be conservative. The company has exceeded expectations for 10 consecutive quarters. Most recently, GRP reported first-quarter results of 67 cents per share, nine cents above expectations.

The company anticipates generating profits of between $2.75 and $2.85 this year. Analysts are more optimistic, forecasting earnings of $2.89 per share for 2006. Both the 2006 and the 2007 consensus estimates were revised upwards following GRP’s first-quarter report.

GRP should be able to generate pricing traction in drill pipe, where it has a leading market share, given high activity in both land and offshore drilling. Based on management's view of rising demand, as well as the company's recent cost rationalization program, management anticipate that operating margins will continue to widen. Rising rig counts and higher drilling activity should deplete operators' inventories of drill pipe and related products. (Conference call)

Bottom line: GRP trades at a discounted valuation despite strong growth and rising. expectations. The company has recorded explosive earnings growth and is expected to maintain a strong growth rate into the future. As long as crude prices remain at elevated levels, GRP should do well.

http://equityinvestmentideas.blogspot.com/

Microsoft At The Rubicon

Stocks: (MSFT)(VIA)(CBS)(GE)(UTX)(GOOG)


A writer for the Wall Street Journal recently suggested blithely that Microsoft should consider breaking itself into three pieces as a way to unlock shareholder value. The program is not unlike the one the government looked at when Microsoft was facing antitrust issues with the U.S. government several years ago.

But, will making one public company into three, really help shareholders? Alternatively, will it simply create fees for the people who engineer the split? This seems to have been the case when Viacom was broken into two public companies, Viacom and CBS, Inc. CBS’s stock has gone nowhere, moving from a high of $27.45 in January to its current price of $25.99. The other part of the entity, Viacom, has seen its stock drop from above $44 in late 2005 and early 2006 to its current value of $36.15.

So, breaking enterprises into pieces that may be easier for institutional investors to understand, does not create value per se. This is especially true if the new companies do not perform well financially.

Part of the argument about breaking Microsoft into pieces is that it is too large to manage, In other words, it is no longer the simple operating system company that Gates and Ballmer were running a decade and more ago. The problem with this line of thought is that there are a number of larger companies that are well run. GE has revenue of $150 billion, and several complex divisions. Even United Technologies has revenue of over $40 billion coming from several divisions, and its stock trades near the high end of its 52-week range.

Microsoft’s stock price has not been anywhere near as strong. The stock, at $22.10, is at a 52-week low, and has not been this low since 2002.

Microsoft’s major problem, which is well understood, will not be solved by breaking the company into parts. Microsoft’s operating systems and related software, which have shipped with PCs and servers for years, are now competing with web-based and open source solutions which customers find increasingly more economic.

Microsoft’s OS and Office software throw off billions of dollars of cash per year, as the WSJ pointed out. However, much of this money is consumed by losses at newer businesses like the Xbox gaming platform or the cell phone and IP television software. Building and marketing the new software products, search technology, and operations like MSN, would be nearly impossible without the cash flow from the older businesses and the ubiquity of the operating system. A break-up of the company would orphan the divisions that the company is counting on for future growth.

What might get Microsoft back on track? Perhaps nothing. But, the conventional wisdom is that the company has to train its really big guns on the marketing of its OS, Office and server products using the internet as the delivery mechanism. This same line of reasoning argues that companies like Google have taken the lead in this form of delivery with products like their date-base search and spreadsheet software.

Microsoft has the marketing dollars and muscle to get its “Live” and so-called Web 2.0 products widely distributed. However, the financial model is extremely difficult for a corporation that is used to huge margins on its products. Google has a number of products which are delivered on the web, from Google Earth to its Google Pack of internet search, photo organizer, and Google video player. It is unlikely that Google makes any money on these products.

It appears that Google is as much a prisoner of its advertising key-word model as Microsoft is of its OS. Both have established, large, and seemingly, insurmountable leads in their fields. Both still struggle to find additional, large businesses. Google may only be different in that it began its diversification long after Microsoft did. What both have in common is that they have not found that unusually large second business, one that will deliver high market share and substantial margins.

The common thread between Google and Microsoft is that consumers, whether they are corporate or individual, now get a great deal of the software that they use on computers and servers either free or at very little cost. Virtually all search technology is free, despite its tremendous value. Advertisers offer a revenue stream for this model. But, with applications like blogging software, photo-sharing, free voice over IP, text chat, e-mail, video, and even some classifieds (craigslist), there is no consistent way to get significant financial yield. As spreadsheet software comes online at no charge and Linux improves as an alternate to Microsoft OS and server applications, the options for making money on Web 2.0 fade.

Breaking up Microsoft will not answer the shareholder question about the value of Microsoft’s stock. Delivering software over the internet that can command a price at volume, along with large margins, may. Microsoft has as good a chance as any company in the world to unlock the door to this online software opportunity, but it is possible that it is a business that has slipped through everyone’s hands. “Free” is not a model that allows companies to make up low margins with volume.

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in companies he writes about.

Newspapers Have A Tough May

Stocks: (TRB)(MNI)(KRI)(NYT)(DJ)(GCI)(WPO)


The newspaper industry has already suffered declines in advertising revenue and circulation that have been enough to push their public stocks to 52-week lows. Knight-Ridder, the combination of two family-controlled newspaper groups, and the Tribune Company, the marriage of the McCormick and Chandler print empires have been seen their futures changed by shareholder dissatisfaction. Knight-Ridder has been liquidated, and the Tribune is facing the same possibility..

McClatchy, which may end up with the dubious distinction of buying the Knight chain and selling off some of its pieces, recently reported its results for May. The company’s newspaper properties in California and the Carolinas did fairly well, with revenue up in these regions. But, the circulation of all the newspapers in the company fell 2.7% daily and an alarming 4.9% on Sundays. Advertising revenue at the company’s Northwest and Minneapolis properties was fairly flat. If it had not been for real estate advertising, the modest company-wide increase would not have occurred. Categories like automotive and national advertising were off sharply. It is not surprising that McClatchy trades very near its 12-month low of $43.07, well down from the period high of $68.40.

The New York Times Company announced that its May revenue was up 4.4% in the advertising department and 4% overall. The New York Times division of the company saw ad revenue rise 5.6%, but the company’s operations in New England, led by the Boston Globe, had an ad revenue drop-off of 6.9%. The internet ad revenue of the three newspaper operations rose 26.9% in May. The company’s About.com internet operation had a 59% increase in revenue. Looking at the company’s last 10-Q, it is likely that The New York Times Company overall revenue would have fallen, if it were not for the online businesses.

An article at Marketwatch.com describes how the newspaper industry is begging for the indulgence of its shareholders, while it tries to make the transition from print to online advertising. But, the entreaties will undoubtedly fall on deaf ears.

The reason for shareholder dissent is relatively simple. It comes from the shareholder structure that many newspaper companies set up long ago. Whether it is The New York Times Company, the Tribune, or the companies that were merged to create the Knight-Ridder, the rationale was that families must control the voting shares of these enterprises to protect the integrity of their content. Callous management working for financially motivated shareholders would lead editors to make decisions that might be influenced by the almighty dollar.

It is, however, time to pay the piper. Knight-Ridder has done so by selling itself to a smaller rival. The Tribune Company is now threatened by a revolt of the Chandler family interests, whose ancestors build the Los Angeles Times. Why? They want “value”(aka, a higher stock price).

The New York Times Company would also argue that the Sultzberger family, which has controlled the company since its formation, must run the company as a public trust. No outside influence here. But, with a scandal that forced the editor of it flagship newspaper to step down still fresh in the public’s mind, and questions about the reporter Judith Miller’s articles on the CIA leaks that lead to the Scooter Libby indictment, The New York Times Company has not done anything to indicate is a better steward of news integrity than any other prominent news organization.

Certainly, the NYT has shown that it is a poor torch-bearer for the interests of its shareholders. The company now trades at $23.75, near its 52-week low and about half of the price in early 2004. The company’s market capitalization is only one times sales according to Yahoo!Finance.. Gannett’s is 1.7 times sales. McClatchy’s is a bit above 1.7 times. Dow Jones is at 1.6 times. The Washington Post trades at over twice sales.

The market is discounting shares in the NYT, to some extent, because it is controlled by the super-voting shares of the Sulzbergers. But, if this was the only reason, the shares of Dow Jones, which has similar family ownership, would be much lower as well. The same holds true for the Washington Post. It appears the valuation discount to other public newspaper companies is based, to a large extent, on the NYT shareholders concern over management.

And, why not? The company’s revenue has been flat for three years Operating income has dropped each year over the same period. By contrast, revenue at Gannett has risen each year over that time, and operating income has stayed steady. Even companies like Dow Jones and newspaper group Media General have had modest revenue increases each year since 2003. The Washington Post, another family-controlled news company, has actually seen revenue improve in three years, primarily because of its entry into the online education business.

The patience of shareholders in all of these public newspaper companies has run out The issues with the New York Times are especially acute. It has, most would argue, the best news franchise of any newspaper in the United States. Its primary online web property, nytimes.com, ranks seventh of all news sites on the internet, after sites like YahooNews, BBC, CNN, and MSNBC. No other newspaper can claim that kind of reach on the web. But, there is little evidence that the company has exploited it.

It would not be surprising to see some of the family members at the New York Times Company decide that the special voting shares that have kept management in office also depress the company’s value. With family control gone at places like Knight-Ridder and Pulitzer, and slipping away at the Tribune, the Times may well be next.

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in any of the companies he writes about.

Connacher Oil & Gas Ltd

Stocks: CLL CWPC ECA NKO PDP SU TSK UTS

By Don Rogers

There are many CLL.TSX investors who are counting on after-hours market action on Friday to be the harbinger for a short squeeze which they hope will kick off trading on Monday morning. Many feel the unusual after-hours action coupled with a run up into the close signals the long awaited EUB decision will be announced this week. Guestimates range from a dollar to a run-up to over $6.00 by Friday's close causing many long suffering investors to be smiling over the weekend.

On the surface CEO Gusella and his staff have put all the pieces of the puzzle into place with the acquisitions of Luke Energy, the refinery down in Montana, and the Private Placement which raised approximately $CDN100 million leaving the company pretty much debt free and in the position, should the EUB annoucement come down Tuesday or sometime this week, to be up and running and producing within 300-360 days. Mr. Gusella has mentioned in earlier statements they are well along the way to having the SAGD infrastructure ready to go once the EUB stamps their application. Two earlier objections have now both been withdrawn and letters of support issued on behalf of CLL. June 23 is another important date when the Private Placement shares are freed up for trading.

The PP price was $5.25 and the stock closed at $3.85 on Monday leaving just another weeks session to have the price rise above $5.25. Of course with every positive there are negatives but rather than go into those here check out the CLL board for yourself.

Monday's trading should begin what proves to be an interesting week of trading for CLL shareholders. Many of them have their fingers crossed hoping this is the week when all goes according to plan; some are being a bit cautious having been down this road before only to see the move fizzle and reverse lower.

At the time of this writing oil is down slightly sitting at $70.06. Oil pricing, should all the news come in as shareholders hope it will should allow CLL to move against the trend if oil continues to trade lower tomorrow.One of the other complaints becoming more frequent is the perceived lack of volume as the summer doldrums begin to find there way into the markets. Summer trading has always been a challenge, particularly for daytraders who need volume and volatility to open up those daily ranges and provide some spread for them to work with. The latest students I have are complaining the lack of volume is allowing a move at the open, very little movement the rest of the day, and a small continuation of the morning trend headed into the close.

Not very exciting stuff but it allows me to at least spend more time on the market and trading mechanics and to see the moves spelled out over a longer period of time giving them time to digest what they have been shown. On Friday the markets for the most part were like watching the two bottomed ranked teams in FIFA playing for the World Cup in the dark in front of a convention of blind people. There may be something actually going on but no one can see it and no one really cares.

Bargain hunters are out there looking for beaten down stocks, uranium is getting a lot of press, tech stocks are not setting the world on fire and the two day rally fizzled on Friday. All in all not very positive events but all good things come to those who wait. Just ask those CLL shareholders who finally hope to see their patience rewarded beginning Monday morning and through the week.

The Energy and Index watch numbers will be updated partway through Monday's session. Thanks to those who sent their many questions sent to my inbox. I much prefer to answer them in that manner than to take up space in the column. For those who wish to email me with their questions they can do so at rodgers.don@gmail.com

Remember, the amateurs open the market, the pro's close it.

http://www.entryandexitinvesting.com/

Technical Analysis of the QQQQ

By Yaser Anwar of Equity Investment Ideas

In my last report I mentioned that the bears were able to push the QQQQ below the short-term support, near $38.50.

The declines continued throughout the early part of the week, but Thursday's bullish price action briefly sent the price back above the resistance.

This move above the trendline was very short lived as the bears pushed it back down on Friday.
The support/resistance near $38.50 continues to be influential and it will likely be a factor in how the price moves this week.

Watch to see whether the bulls will keep up the momentum they started on Thursday, or if this was just a false move before the QQQQ continues its move lower.

http://equityinvestmentideas.blogspot.com/

European Stock Market Report 6/19/2006

Stocks: (BAA)(BEAS)(BCS)(BAB)(BP)(BT)(DEO)(PUK)(RTRSY)(UN)(UL)(VOD)(BF)
(BAY)(DCX)(DB)(DT)(SAP(SI)(ALA(AXA)(FTE)(TMS)(V)

European exchanges opened higher.

Th FTSE was up 1% to 5,652 at 5.30 AM New York time. BAA was flat at 929. BEA Systems was up 1.4% to 357.75. Barclays was up .8% to 604.5. BP was up .6% to 602.5. British Airways was up 1.8% to 360.25. BT was up 1% to 225.5. Diageo was up .9% to 908. GlaxoSmithKline was up 1% to 1470. Prudential was up 1.2% to 560. Reuters was down .5% to 359. Unilever was up .5% to 1137. Vodafone was was up .9% to 115.5.

The DAXX was up 1.4% to 5,449. BASF was flat at 59.71. Bayer was down .1% to 33.17. DaimlerChrysler was up .7% to 37.51. Deutsche Bank was up .5% to 82.66. Deutsche Telekom was down .3% to 12.47. SAP was up 2.7% to 164.55. Siemens was up 7.9% to 67.77.

The CAC 40 was up 1% to 4,741. Alcatel was up 2.4% to 9.9. AXA was up 1.6% to 24.38. France Telecom was up .1% to 16.96. L'Oreal was up 1.7% to 69.2. ST Micro was up 2.3% to 12.54. Thomson was up .3% to 13.39. Vivendi was up .6% to 27.1.

Douglas A. McIntyre

Asia Markets 6/19/2006

Stocks: (CAJ)(FUJIY)(HIT)(HMC)(NTT)(DCM)(SNE)(TM)(CHL)(CN)(CHU)(HBC)(PCW)

Most Asian markets were relatively flat.

The Nikkei was down .1% to 14,860. Canon was up .7% to 7790. Daiwa Securities was down 2.7% to 1323. Fuji Photo was up .8% at 3770. Hitachi was down 1.1% to 743. Honda was up .3% to 7170. NEC was down 1.2% to 600. NTT was up 1% to 532000. Docomo was down .6% to 166000. Softbank was up 2.8% to 2545. Sony was down 1.6% to 4860. Toyota was flat at 5840.

The Hang Seng was down .6% to 15,744. China Mobile was down .6% to 41.75. China Netcom was flat at 12.7. China Unicom was off .7% to 6.85. HSBC was down .2% to 135.3. Lenovo was flat at 2.45. PCCW was flat at 4.8.

The KOPSI was off .8% to 1,252.

The Straits Times Index was down .3% to 2,366.

The Shanghai Composite was up .8% to 1,586.

Douglas A. McIntyre

Media Digest 6/19/2006

Stocks: (NOK)(SI)(T)INYX)(BA)(LMT)(QCOM)(GM)(VZ)(HAS)(TRB)

According to the Wall Street Journal, Nokia and Siemens agreed to combine their pphone equipment units in a deal worth $31.6 billion.

WSJ also reports that the co-CEO of Airbus parent EADS is losing support over the timing of his share sales and problems with the company's new super jet.

WSJ reports that AT&T will launch a TV service to compete with cable companies. It will include movies delivered over the internet and Echostar satellite TV. Movielink will provide the films.

Deutsche Boerse is working on ways to make an offer for Euronext attractive to the exchange, which has agreed to by bought by the New York Stock Exchange Group.

There is still tension between Boeing and Lockheed as the combination of the government rockets units get closer to antitrust approval.

A Qualcomm technology that would compete with Wimax has been delayed after a standards group stopped its review of the service.

Shanghai Automotive Industry Group, which build cars in China, has hired the former head of GM in China to run the expansion of selling its cars overseas.

Reuters reports that Nestle will buy the Jenny Craig diet company for $600 million.

WSJ writes that Verizon will expand its cell phone offerings at Wal-Mart discount stores to improve distribution of its products.

WSJ reports that the NYSE could set up its own exchange in London if it buys Europe exchange Euronext. The operation would compete with the London Stock Exchange.

Verizon has made a deal with the Public Broadcasting Service to carry its shows on the new television service that Verizon will offer over its fiber network.

The New York Times reports that Hasbro will introduce a line of baby care products such as diapers through its Playschool operations.

NYT reports that the "synergy" between its TV and newspaper operations is working well in Chicago, but not in its East Coast and West Coast divisions.

Douglas A. McIntyre

Clear Harbors

By Yaser Anwar, CSC of Equity Investment Ideas

Clear Harbors (CLHB) was trading sideways until the end of April. On May 4, 2006 the stock broke upward through all the moving averages, and started an uptrend. It created the bullish wide range bar pattern with over a 22% gain in one day. Since then, the stock has continued higher to an all-time new high for the stock. Two weeks ago it retraced to the 40MA while holding well above that level. For the last three trading days, CLHB kept going higher on higher volume to reach an all-time new high again. This is the setup for a bullish continuation pattern, perhaps being an indication that the stock will continue to an even higher level.

http://equityinvestmentideas.blogspot.com/

Barron's Digest June 19, 2006 Issue

Stocks: (IPG)(COF)(C)(JPM)(WM)(CBH)(NFB)(BBT)(RTP(BHP)(DEO)(FWLT)(ABB)(MU)(ORCL)
(LYO)(YRCW)(DHI)(NEM)(OVTI)(EFA)(BGT)(PMF)(ARW)(ANF)(KOSP)(DRC)(CHAP)
(MEG)(MWA)(CSG)(TRB)(LCAPA)(TG)(MRVL)(EBAY)(QCOM)(SVU)(JBLU)(DRL)
(DTPI)(AAI)(TASR)(POZN)(AMKR)(CHL)(CTRIP)(TOMO)(SOHU)(SINA)(BIDU(GOOG)
(XOM)(PFE)(IBM)(HPQ)(AMGN)(BA)(T)(MRK)

Barron's writes that Interpublic Group is trading near a 52-week low at $8.57. The company may be moving away from its numerous problems which have included several financial restatments. The company refinanced some of its debt and combined two of its large ad agency properties. The company is also back on a normal reporting schedule for its financials.

Capital One Financial was instrumental in changing the credit card industry in the 1990s. Recently it has been acquiring banks including North Fork and Hibernia. Investors became concerned about whether Capital One could integrate the properties it has bought. North Fork's mortage business has also been a concern. However, some analysts believe that if Capital One can become a large consumer financial player, it can compete with Citigroup, JPMorgan Chase, Washington Mutual, and Commerce Bank. Capital One's first quarter earnings were up 74% from a year ago to $833 million.

Financial researcher Robert Haugen says that the volatility of the stock market has increased recently and the the trend will continue. Much of this is the stock market reacting to its own moves instead of actual news or events. He fears that the increase in volatility could eventually lead to a depression of the economy.

Metal prices have slumped and may have created some bargains in companies that produce them including Rio Tinto and BHP Billiton.

Diageo, the British distiller is up 12% in the last 52-weeks but it may do even better. The company's premium brands like Smirnoff have the chance to raise prices, and the company is expanding overseas expecially in China. Consumption of spirits in the U.S. could rise 11% in the next five years occording to one industry expert.

Barron's Midyear Roundtable of professional investors made their picks for the second half. Art Samberg likes Foster Wheeler, ABB, Micron Tech, and Oracle. John Neff favors Citigroup, Lyondell Chemical, YRC Worldwide, and D.R. Horton. Fred Hickey would be long Newmont Mining and short OmniVision Tech. Bill Gross like funds EFA, BGT, and PMF. Scott Black likes Arrow Electronics and Abercrombie & Fitch. Oscar Schafer likes Kos Pharma and Dresser-Rand Group. Merrill Witmer likes Chaparral Steel , Media General, and Muelier Watter Products. Mario Gabelli like Cadbury Schweppes, Tribune, Liberty General, Ladbrokes and Tredegar. Abby Cohen likes Marvell Tech, eBay and Qualcomm. Archie MacCallaster likes DuperValu, JetBlue and Doral Financial.

Some of the highest valued small-cap stocks have gotten even more expensive. Companies like consulting outfit DiamondCluster trades at 909 times earnings Taser trades at 373 times earnings. Amkor Tech at 276 times. AirTran at 400 times. Pozen, the biotech company, at 305 times.

China's Shanghai B-Shares index is down 10% in the last month and American depositary receipts of Chinese internet companies are donw about 19% from highs of the last three months.
If China Mobile is able to change the country's internet rules, it could affect some stocks, but the basic trend of internet use in China is still up. Among the stocks that could bounce back are Ctrip.com Tom Online, and Sohu.com. China Mobile may if the government curtails the sale of cellphone ringtones and text messaging. The company would then produce its own offerings called "mobile value-added services". This could cut into the business of companies like Tom. Chinese search engine Baidu.com has done well, up over 34% since May on takeover rumors including that Google may buy the company.

Click fraud may hurt Google and Yahoo!'s pay-per-click model Detection software could help stop the problem, but, if its grows worse, these companies could be hurt.

The JPMorgan Intrepid America Fund is a large-cap fund that has a 14.4 % return over the three years ending June 15. The Intrepid America funds top ten holdings are Exxon, Pfizer, Bank of America, IBM, HP, Amgen, Boeing, AT&T Merck, and Oracle which as a group make up almost 19% of the fund's holdings.

Douglas A. McIntyre

Ably Linkin

Stocks: MSFT - DELL - HPQ - SBUX - LXK - AAPL - IBM

By William Trent, CFA of Stock Market Beat

Apple (AAPL) is facing down a patent lawsuit. And sweatshop allegations. And a $100,000 fine. Now we know they are successful. They’re targets. That did not, however, stop Standard and Poors from raising their rating to Strong Buy.

Microsoft (MSFT) gets an Urge. And gives us 10 reasons to upgrade to Vista, which they claim will be the most secure operating system ever. Evah!

1. Enhanced security through improved Group Policy and BitLocker
2. Network Access Protection
3. New Terminal Services capabilities
4. A new networking stack
5. Enhancements to Directory Services
6. New Server Core feature
7. Expanded Unix/Linux support
8. Enhanced performance monitoring
9. An enhanced Internet Information Server (IIS), version 7.0
10. Enhanced management features and new Server Manager tool

Look out! HP’s (HPQ) got a blade! DELL’s fighting back with a sense of urgency.

Lexmark (LXK) is looking to increase market share - in Taiwan.

Maybe Starbucks (SBUX) should get a premium valuation for being a terrorism hedge.

Bank of America finds IBM’s valuation compelling.

http://www.stockmarketbeat.com/

Media Digest 6/17/2006

Stocks; (SBUX)(ORCL)(NYX)(HD)(F)

According to Reuters, Starbucks has been targeted by The Center for Science in the Public Interest because of the high fat content of some of its products. The center will begin a campaign against the coffee chain.

Reuters writes that, based on Oracle's strong financial results, it appears that the company's efforts to purchase other software companies and integrate the products and services is starting to pay off. Oracle has spent $19 billion over the past several years building a company that can compete with SAP, the German software giant.

Reuters reports that the nead of the NYSE Group says that its rival bidder for European exchange Euronext cannot offer the strategic or financial strengths that the NYSE. He downplayed the viability of the bid from Deutsche Boerse.

The Wall Street Journal reports that Home Depot said it have five instances of incorrect dating of stock options, all before 2000.

WSJ also reports that Ford says that 10,000 to 11,000 workers will take its buy-out offers this year. Ford is making an effort to cut its workforce to become more competitive in North America.

WSJ says that Nissan has cutback output due to weak demand for its vehicles in Japan and North America.

The New York Times says that it will terminate the pension plans for 13,000 active and retired pilots. The termination of the plan will allow 1,000 pilots to stay beyond a July 1 date that would have forced their early retirements.

The NYT also reports that the head of EADS, which control Airbus, claims that his sale of stock was a "coincidence" and not related to a problem with the company's new jumbo jet.

NYT also said that Ford will revamp three plants in Mexico to lower costs.

Douglas A. McIntyre

Weekly Wrap for Week of June 16, 2006

Friday's Closing Day Changes
DJIA 11,014.55; Down 0.64 (0.01%)
NASDAQ 2,129.95; Down 14.20 (0.66%)
S&P500 1,251.55; Down 4.61 (0.37%)
10YR Bond 5.128%
VIX 17.09; Up 1.19

THIS WEEK IN REVIEW

This week started out looking like another dismal market, but the markets finally caught a bid and the DJIA rallied almost 400 points off its intra-week lows. It looked all set to have a hell in a hand basket scenario when Core CPI for May was 0.1% higher than the estimate, but this ended up being the capitulation the markets needed to start their strong recovery on very high daily volume.

Bernanke was originally still hawkish early in the week but when he spoke Thursday at the Economic Club of Chicago he actually said current energy prices were manageable and that some of the market expectations of inflation have come down a bit. That was the first time in recent weeks that the stock market actually rallied WHILE he was speaking.

The DJIA Up 1% on the week to end at 11,014.55. The S&P 500 Index closed down 0.1% for the week and the NASDAQ closed down 0.3% for the week.

Even Iran signaled gradually that they may review nuclear proposals, but unfortunately if history is any predictor that situation will be ongoing and may not ever get resolved. President Bush also made a surprise visit in Baghdad by showing up announced and unexpectedly.

The international markets were originally getting hit hard on a leverage basis compared to the US, but when we recovered they recovered exponentially. The Templeton Russia Fund (TRF) closed at $60.05, up 6% for the week and up over 23% from this weeks lows. The India Fund (IFN) close up over 5% for the week at $44.35, but up about 25% from the lows. The Turkish Investment Fund (TKF) closed up less than 1% at $16.60, but it was up over 10% from its weekly lows. Even the iShares Japan (EWJ) posted considerable gains of about 6% off their lows to close out at $12.91 after Japan basically kept its zero interest rate policy to add stability to falling market of an economy that has finally managed to get off its decade-plus stagnation..

Microsoft's (MSFT) Bill Gates announced a two-year transition period in which he will leave Microsoft in day to day roles to focus on his charity and foundation initiatives, although he will remain Chairman of the company. This would have been blasphemous and discouraging news several years ago, but in a mature and stagnant business that few seem to love anymore it was just deemed another day at the office. The stock closed actually up 0.1% the day after the news and up almost 1% on the week.

This week Intel (INTC) was the beneficiary of several key upgrades, and it closed up 6.6% for the week to end at $18.30. First Albany raised it from a Hold to a Buy, Goldman Sachs raised it from In-Line to Outperform, and HSBC raised it from Neutral to Outperform.

Shares of discrete and analog semiconductor designer Diodes (DIOD) showed incredible performance closing up 14% this week at $40.49 after beating estimates handily.

Oracle (ORCL) posted some strong gains at the end of the week after forecasting that its earnings for the quarter had exceeded estimates. Its shares were up 5% initially on the news and closed up 5.3% at $14.19 for the week.

Creative Labs (CREAF) rose 4% to close at $5.20, although it was up almost 10% on the news itself, after the US International Trade Commission decided it would investigate claims of Apple (AAPL) infringing Creative’s patents on the wildly popular iPod. Apple was victim to several research reports commenting about iPod sales coming in under original targets and its shares closed out at $57.56, down about 4% on the week.

Neurocrine Bio (NBIX) fell another 21% Friday to $15.18, and down about 22% total for the week after disclosing that it sent the FDA additional data on its sleep aid but need further tests, which would result in more delays and keeps the approval process in limbo.

Stock option probes this week continued with such companies as Michaels Stores (MIK), Equinix (EQIX), Macrovision (MVSN), and DRS Tech (DRS) disclosing new stock options inquiries from the SEC, an Attorney General, or at least as an internal note.

Boeing (BA) finished quite well by posting gains of 6% or more on the week by closing at $85.54 after Airbus' parent EADS in Europe disclosed delays and possible order cancellations of that giant ugly Airbus A380 that looks like a Mongoloid dolphin from the front.

Shares of Cray (CRAYD) rallied only 2.5% on the week but closed up 7.4% on Friday to end the week at $7.08 after securing a $200M supercomputer order with the Department of Energy's Oak Ridge National Labs in Tennessee.

Martek Bioscience (MATK) showed another strong week. It closed up about 10% at $29.48 after securing a 15-year supply pact with General Mills, and that after closing up 3% the week before after beating earnings expectations.

The big IPO of the week was VeraSun (VSE), the second largest ethanol pure-play behind ADM (ADM) in the country. VSE opened up close to $30.00 after pricing a higher number at 18.25 M shares for a higher price of $23.00 that had already been hiked once. The stock closed down well off the highs at $25.25 for the week after Cramer on "Mad Money" indicated that he thinks the Ethanol Fad may be coming to an end.

Out of the financial stocks Bear Stearns (BSC) was the real winner of the week, even though it actually closed lower for the week. It was the one that had the best general attitude in its conference call after earnings. It closed at $131.44, down 4% on the week but up almost 10% above the lows during the market slide.

Oil and energy stocks fared out ok as Exxon closed flat for the week at $58.80, Schlumberger closed down and almost 2% on the week at $58.25, and Transocean (RIG) closed up almost 1% at $76.27. The big winner in the group this week from a very positive endorsement from Jim Cramer's "Mad Money" was Carrizo Oil & Gas (CRZO) that closed up about 5% to end the week at $30.15.

As you can tell by the overall positive tone, this week was a much different week compared to the week before. The stock markets have finally caught a bid and it at least feels as though we have found either some decent support levels or even some sort of near-term bottoms. Friday was Triple Witching where options and futures all coincidentally expire simultaneously, although it was not the contributor of as much volatility as we saw mid-week as the markets experienced continued melt-downs followed by massive buying interest and short covering.

Jon C. Ogg
June 16, 2006

Issues to Watch for the Week of June 19 to June 23

Next week looks pretty light on the economics front for the week before the FOMC meeting. We have at least 2 Fed governors speaking: Atlanta Fed's Guynn speaks at 9:30 on June 19 and Cleveland Fed's Pianalto at 1:10 PM on June 22.

On June 20, we get May's Housing Starts & Building Permits, and these will probably show weak numbers based on all of the recent weekly data on applications and based on the recent homebuilder forecasts that have already been presented. On June 22 we get to see another expected drop in May's Leading Economic Indicators and on June 23 we will get to see the highly-volatile May Durable Goods Orders.

The Mortgage Banker’s Association releases the First Quarter 2006 National Delinquency Survey on Monday, but this is when the homebuilders were only just starting to report problems and delinquencies tend to lag a bit.

One interesting development next week on June 20 (that may possibly be delayed until following weeks because of difficulties in getting many eager participants) is that The Senate Judiciary Committee holds a hearing in the afternoon on examining short selling activities of hedge funds and independent analysts. While this will not have an actual market impact, it will have major media coverage and you will likely be bombarded with media reports questioning the ethics of short selling. There will also be a tie into "independent research" and how independent some research firms may be using research reports as tools to aid their clients without making proper disclosures to the public. Whatever the outcome happens to be, it will be heated on all sides.

The Senate Commerce Committee's subcommittee on Technology, Innovation and Competitiveness will hold a hearing on the topic of: Accelerating the Adoption of Health Information Technology. The hearing will provide an update on the development of health information technology. The House is expected to consider the bill during the week of June 19 regarding health and IT. (See full detailed report here this weekend)

Earnings for Next Week:
Monday, June 19: CarMax (KMX), Circuit City (CC), Dyncorp (DCP)
Tuesday, June 20: Apollo Group (APOL), FactSet (FDS), Golf Galaxy (GGXY), Kroger (KR), JMSmucker (SJM), Progress Software (PRGS), Qiao Xinx Universal Telephone (XING), Sonic (SONC)
Wednesday, June 21: Bed Bath & Beyond (BBBY), Darden (DRI), Finish Line (FINL), Jabil (JBL, already warned), Morgan Stanley (MS)
Thursday, June 22: Del Monte Foods (DLM), Gerber (GRB), Intervoice (INTV), Oracle (ORCL, already beat), Rite Aid (RAD), Smart Modular (SMOD), Solectron (SLR), Tektronix (TEK)
Friday, June 23: quiet.

Don't forget that Sunday is Father's Day, at least not if you don't want ongoing guilt trips for the next year.

Jon C. Ogg
June 16, 2006

New York Times DealBook Summary 6/16/2006

Stocks: (CME)(NYX)(NDAQ)(SHR)(BAY)(VZ)(EPL)(SGY)(PXP)(MIR)(NRG)(VE)(TELN)

According to New York Times DealBook, shares of the public exchanges have fallen sharply. The Nasdaq's shares ware down 43% and the NYSE is down 41%. from 52-week highs. The Chicago Mercantile Exchange has done better, off just 11% from its high for the year.

DealBook says that Merck may have actually done well in its failed takeover of Schering, which is being bought by Bayer for $20.8 billion. Merck made money on its investment, and may end up in joint ventures with Schering. Merck is the German drug company, not to be confused with the U.S. company with the same name.

DealBook says that Canadian investment bank GMP Capital Trust bought private equity group EdgeStone Capital for $140.8 million.

DealBook writes that a Morgan Stanley analyst feels that Verizon's spin-off of its yellow page unit is a "mixed bag". It will reduce earnings by 8%. Verizon Information Service, the name for the unit that will become independent, is projected to have $1.65 billion in EBITDA this year.

DealBook writes that Energy Partners Ltd made a bid for oil and gas producer Stone Energy at $51 a share. But, this competes with a previous offer from Plains Exploration and Production. The Energy Partners bid is good until Sunday.


DealBook writes that Mirant, the energy company, will meet with shareholders over the near-term to discuss its future now that it has withdrawn its offer for NRG Energy. After the failed takeover bid, the company indicated it would not look at other acquisitions.

DealBook reports that Veolia Environment will not make a hostile bid battle for Vinci. Veolia said it still would like to pursue the merger and that a deal would add $882.5 million in core revenues to the combined company.

DealBook also says that Telenor has told some investors in Vimpelcom that it may buy additional stock in the Russian mobile operator. Telenor, based in Norway, owns a 26.6% voting position in Vimpelcom already.

Douglas A. McIntyre

Energy And Index Watch

Stocks: CLL CWPC HSE NKO SU TSK UTS

Don Rodgers of Price and Volume Analysis and Market Information

You will recall my posted entry of $68.65 for $65.76 on Oil. We did receive the price entry but the volume fell short. With the only rule being VOLUME VALIDATES PRICE, we saw insufficient sell volume come in to drive the price of oil lower and it climbed back higher. The same situation occurred with CWPC. My posted downside break of $4.74 with a target of $3.26 was hit, closing at $3.66. We required 9,965,414 sell side shares to come in and we received just over 7.0 million there the VOLUME DID NOT VALIDATE THE PRICE and the stock bounced higher and closed at $5.25 yesterday. By awaiting Volume Confirmation you did not go short despte the bearish sentiment and saved yourself the agony of having to take a stop on the trade.
Much the same happened with Suncor Energy. The entry of $79.15 was taken out with a close $76.00 even with 3,016,505 needed to go lower with only 2,245,464 coming in so once again the price held and we moved higher.


This is a good lesson in a number of ways. By plotting the sector, in this case oil and watching the crude price, we saw two stocks in that sector react to the rising price of crude and away from the downside targets. Had the price of one of those stocks continued lower or diverging from the sector trend you would then know the falling share price was due to a company specific event and not sector weakness. The best lesson is watching the volume. Although in three instances, Crude, CWPC and SU the charts looked bearish, the sentiment was bearish, all three rebounded and all three had one thing in common. The volume calculated was not enough to move the price lower. All three hit their entries but minus the volume.


It was good news for investors seeing the share prices climb higher but, it was done on less than stellar volume leading me to advise caution on the moves up. Until the volume pours back into these and supports the higher price moves they may in fact be setting themselves up for a new leg down. It is difficult at these pivotal points to know exactly which way the sentiment of the Big Money is going to swing so you do the prudent thing and wait it out. Fearing the big move is what gets many investors into trouble in the first place and buying too early especially when a stock is seemingly breaking out of a downtrend is the most common.
So far today looks like it is shaping up to be another Friday. Lower volume, tighter ranges and not a large degree of concensus one way or the other.

The chart for oil can be found on my website at www.entryandexitinvesting.com. Click on the green dot.

Remember, the amateurs open the market, the pro's close it.

www.entryandexitinvesting.com

LCD Researchers Still Optimistic About Second Half

By William Trent, CFA of Stock Market Beat

DigiTimes conducted an interview with Sweta Dash of industry research firm iSupply, which is still optimistic that prices for LCD panels will rebound in the second half of 2006.

Prices for 17- and 19-inch monitor panel prices have fallen significantly. Although prices for the two segments are not likely to stop dropping in July, the prices will eventually stabilize and even pick up by US$1-2 in August. In fact, we remain optimistic about demand in the second half. The panel industry will swing from an oversupply ratio of 6% in the second quarter to a balance point in the third quarter, with a tight supply ratio of 1% to occur in the fourth quarter.

In fact, this year will follow the same pattern as those in previous years. The large-size panel industry always worsens when demand is weak, but the industry will eventually bottom-out. After that, demand always picks up because of already-significant price drops and reduction of production.

For TV panel prices, however, we expect to see prices for the segment to keep falling throughout 2006.

The seasonal slowdown story doesn’t hold much water, because supposedly the Olympics and World Cup were going to drive unseasonably high demand for flat panel televisions this year. Hopes now rest on the fourth quarter holiday season, and fingers are crossed that the US consumer will carry the day.

That has been a safe bet in recent years. But someday it won’t. We have no idea whether this year will see “someday,” so we continue to be cautious as we wait for panel inventories to correct.

http://www.stockmarketbeat.com/

Reasons For Gold To Stay Strong

By Yaser Anwar, CSC of Equity Investment Ideas

I expect gold to remain strong through out the year because of:

Inflationary pressures in the US

Geopolitical risks associated with Iran and South America
The expectation of a decline in the US dollar

Continued de-hedging and

A decline in central bank sales are likely to exert upward pressure on gold prices.

That supply/demand balances across all commodities remain tight through at least next year

Analyst price estimates for 06, 07 and 08 have been raised from $525/oz to $650/oz, from $500/oz to $675/oz and from $500/oz to $600/oz, respectively.

The gold price estimate for the long term remains unchanged at $550/oz.

http://equityinvestmentideas.blogspot.com/

Stock Upgrades to Consider

Stocks: (GSK)(NSI)(ZOLT)(DIS)(NVDA)(TRLG)

By Yaser Anwar, CSC of Equity Investment Ideas

NutriSystem "buy" target price raised- Analyst Colin Sebastian of Lazard Capital reiterates his "buy" rating on NutriSystem Inc (NSI), while raising his estimates for the company. The target price has been raised from $70 to $75.In a research note published this morning, the analyst mentions that recent checks indicate that the company has witnessed healthy business trends so far in the current quarter. NutriSystem's new-customer additions have improved so far in June, after having remained modestly affected by seasonal trends in May, the analyst says. The EPS estimates for 2006 and 2007 have been raised from $1.85 to $1.87 and from $2.50 to $2.65, respectively.

Zoltek Companies "outperform"- Analysts at RBC Capital Markets maintain their "outperform" rating on Zoltek Companies Inc (ZOLT). The target price is set to $41.In a research note published this morning, the analysts mention that the company’s share price has recently declined partly due to investor concerns surrounding the US DoD's decision to halt 12 wind farm projects. According to RBC Capital Markets, Zoltek Companies is unlikely to be affected by the DoD's decision. Although Zoltek Companies' forced conversion of shares will dilute near-term EPS, the process would enable the company to reduce its debt, the analysts add.

Walt Disney downgraded to "hold"- Analysts at AG Edwards downgrade Walt Disney (DIS) from "buy" to "hold."In a research note published yesterday, the analysts mention that the downgrade in the company’s rating reflects the likelihood of a decline in the growth in its core businesses. Walt Disney’s total revenue growth is likely to decline from 4.7% in 2006 to 3.9% in 2007 due to the impact of the slowdown in the economy on Media Networks and Theme Parks, the analysts say. Revenue growth remains the key driver of the company’s share price, AG Edwards adds.

NVIDIA upgraded to "buy"- Analysts at UBS upgrade NVIDIA Corp (NVDA) to buy while reducing their estimates for the company. The target price is set to $30.In a research note published this morning, the analysts mention that although the company is witnessing near-term uncertainties, its long-term prospects are bright. NVIDIA’s performance is among the best in the graphics space, with more than 42% gross margins and 18% operating margins, the analysts say. While NVIDIA is likely to witness a downturn in MCP shipments, SNE's PS3, Microsoft’s new operating system and new notebook integrated MCPs are expected to offer longer-term upside to the company’s performance, UBS adds. The ex-options EPS estimate for FY07 has been reduced from $1.23 to $1.22.

True Religion Apparel "strong buy"- Analyst Eric M Beder of Brean Murray reiterates his "strong buy" rating on True Religion Apparel (TRLG). The target price is set to $30.In a research note published this morning, the analyst mentions that the company has made significant progress this year in terms of management maturity and growth as a lifestyle brand. True Religion Apparel is expected gain momentum, which would lend upside to revenues and profits in 2Q06 and beyond, the analyst says. The company is likely to continue to gain market share, Brean Murray adds.

GlaxoSmithKline "buy"- Analysts at Dresdner Kleinwort Wasserstein maintain their "buy" rating on GlaxoSmithKline (GSK). The target price is set to 1,640p.In a research note published this morning, the analysts mention that new prescriptions of the company's Avandia and Advair drugs have declined in May, following a similar trend in April. The analysts expect the disappointing prescription trends for both dugs to adversely affect GlaxoSmithKline's share price in the near term. The prescriptions for Avandia are unlikely to reaccelerate until the company restarts its promotional campaigns for Avandia and Avandamet in July, the analysts add.

http://equityinvestmentideas.blogspot.com/

Will Microsoft Build An iPod Killer

Word surfaced in the NY Post that Microsoft (MSFT) has been in discussions with the music industry to create a competitor to Apple (AAPL) iPod and ITunes.

It hardly matters. A look at the breakout of Microsoft's 10-Q indicates that the company makes it money from its old-line OS businesses. Attempts at starting up new businesses like search and web portals have fallen relatively flat. Microsofts share of the search business is a distant third to Google and Yahoo!.

Apple's lead counts. Industry reports indicate that the company may have sold as many as 8.2 million in May. Sony can take a run at this business. LG can. And, so can Microsoft. But, it is one business where although some small share may move to new competition, the lion's share will stay with Apple.

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com He does not own securities in companies he writes about.

News Oracle Investors Have Been Waiting For

By William Trent, CFA of Stock Market Beat

Oracle (ORCL) issued a press release Thursday announcing that next week’s earnings report will be better than expected. But it was not so much that they beat, but how they beat, that has investors excited.

New software license revenues increased 32% to $2.12 billion, exceeding previous guidance of 8% to 18% growth. Database technology license revenues grew 18%, while applications license revenues increased 83%. Organic applications license revenues, which exclude the Siebel and Retek acquisitions, increased 56%.

We analysts, being a cynical lot, were concerned that the major reason for Oracle’s recent acquisition spree was that its legacy database business could no longer grow. The 18 percent license growth in that segment lays those fears to rest, at least until next quarter. Furthermore, the 56 percent growth in applications (excluding recent acquisitions) shows that that segment is indeed the driver for future gains.

A slowing economy could put a damper on things, so it is too early to say for sure whether this is the turning point for Oracle shares. But if they can manage to string together two or three quarters that are even close to this performance, it will be.

http://www.stockmarketbeat.com/

Take the Semi Rally While it Lasts

Stocks :(AMD)(INTC)(AAPL)(NVDA)(SNDK)

By William Trent, CFA of Stock Market Beat

According to MarketWatch, “An upgrade to chip companies, such as Intel Corp., Advanced Micro Devices Inc., and SanDisk Corp., gave the broader tech sector a boost Wednesday. The Philadelphia Semiconductor Index extended that momentum Thursday, surging 18.25 points in the wake of more Wall Street upgrades for SanDisk Corp. and Nividia Corp.

According to data released Thursday night by Semiconductor Equipment and Materials International (SEMI), the North American trade organization for semiconductor equipment makers, the rally may be short lived.

The three-month average of worldwide bookings in May 2006 was $1.65 billion. The bookings figure is three percent higher than the final April 2006 level of $1.60 billion and over 62 percent higher than the $1.02 billion in orders posted in May 2005.

The growth is even faster than last month’s year/year gains of 60.4 percent, and although it may seem paradoxical this strength concerns us. As we explained before, semiconductor equipment orders eventually create new capacity to produce semiconductors. And with demand for semiconductors rising just 8.1 percent year/year, it looks like there will soon be too much capacity. Semiconductor makers Advanced Micro Devices (AMD) and Intel (INTC) are already fiercely cutting prices. When the new capacity comes on line, we fear it will only get worse.

http://stockmarketbeat.com/blog1/

Eating Crow

Stocks: (ADBE)(AAPL)

By William Trent, CFA of Stock Market Beat

ier in the week we were crowing about our seemingly timely move into Adobe (ADBE) call options. We neglected to recognize a fifth possibility: that the market would anticipate a less-than-expected guidance reduction, such that when the “expected” reduction was announced it was a disappointment after all. The endlessly recursive logic loops that are occasionally indulged (I think the market expects A, but I think it’s more likely to be B, but what if the market really expects B and it turns out to be A?) are probably best avoided altogether.
That said, it doesn’t change our original thesis a bit. We bought January 2007 calls, not June 2006, and there is no reason to pay an extra time premium unless, well, you aren’t sure of the timing. While it looked earlier this week to be fulfilling our expectations quickly, we are still willing to wait it out.

So what was our thesis?

The valuation was at the low end of its historic range.
An upgrade cycle is looming.

It didn’t hurt that expectations appeared to be bottoming (which was the bad call.)
Does last night’s report change anything?

Adobe also lowered its full-year 2006 profit and revenue forecasts due to weaker demand for its content-creation products such as Photoshop, as customers wait for new versions that work with new Apple computers. (Source: Money)

Like we said, the product cycle is looming. Not underway. Recent history (last five years) the stock has reached its peak valuation when a new product is launched, so the time to buy is usually ahead of that.

While he admitted the second quarter was “challenging,” Chizen expressed confidence in the company and said he was “excited about the future.” No doubt he was referring to more than just Adobe/Macromedia Creative Suite 3 bundles. (Source: Forbes)
And we are excited about it too. It is the first Creative Suite bundle that will run on the new Intel-based Macs, which are the instrument of choice for many of Adobe’s customers. The availability of Creative Suite could actually spur a massive upgrade cycle for both Adobe and Apple (AAPL).

The valuation has also not changed. In fact, the after-hours selloff has basically just erased some recursive-logical optimism from earlier in the week.

So we’re sticking to our guns.

Disclosure: The author is still long Adobe call options with a $30 strike price and January, 2007 expiration.

http://stockmarketbeat.com/blog1/

Market Using FedEx to Deliver News of Slowing Economy

By William Trent, CFA of Stock Market Beat

Well-respected analyst Ed Wolfe thinks investors are overly concerned about FedEx reducing guidance during next Wednesday’s conference call and have unduly driven down the share price as a result, according to an online Forbes magazine article.

FedEx (FDX) has a track record of delivering conservative guidance and then subsequently beating its forecasts, Wolfe said, and the fiscal year 2007 earnings guidance, which will be introduced during FedEx’s fourth-quarter earnings announcement June 21, shouldn’t be any different.

Maybe it’s because just today we were burned by one of those “expectations have gotten too low” arguments. Or maybe we just think Ed has been too busy obsessing over transportation stocks to realize that everything is down recently - it has nothing to do with expectations for FedEx, at least not specifically. Or maybe we’re just generally cranky today. Whatever the cause, we aren’t fully buying Ed’s story.

Wolfe estimated 2007 earnings of $6.76 per share and maintained an “outperform” rating and $126 price target on company stock.

The analyst said that both the domestic and international package markets remain very strong and pricing has recently firmed modestly.

As we noted before, FedEx has higher leverage than its closest competitor, UPS (UPS). This means the company does better in strong markets (as it has for the last four years) and worse in poor markets (as it did the three years before that.) To that effect, look at what has happened to UPS while FedEx was sputtering. By comparison, UPS has been steady as she goes.

The market has been looking toward rough times ahead, which would favor UPS. This prediction by the market is a call on the economy, not on either stock. And if the market prediction is correct, all the conservative guidance in the world won’t be enough to help FedEx.

We don’t know whether the market is right on this call. To us, it could go either way. But at least we know what the market is trying to tell us. Because without that, we can never make a true call on whether it is right or wrong.

http://stockmarketbeat.com/blog1/

Pre-Market Notes (June 16, 2006)

S&P Fair Value -$0.49.

(ADBE) Adobe $0.31/$635.5M vs $0.30/$644.9M(e); sees Q3 $0.25-0.27 vs 0.29 and R$580-610M vs $627M(e); stock down under 1%.
(AMGN) Amgen got FDA approval for new delivery device for Enbrel.
(BAX) Baxter received tentative FDA approval for Ondansetron Injection.
(BDK) Black & Decker positive in Business Week.
(BSX) Boston Scientific said a court ruling upheld its jury verdict against J&J saying that the Cypher stent infringed Boston's drug coating.
(CAMD) California Micro lowered Q1 revenue guidance by $2M to $15M-$16M range but EPS look in-line.
(DJ) Dow Jones reaffirmed mid-$0.30's EPS targets; est. is $0.34.
(DLLR) Dollar Financial 5M share secondary priced at $16.65.
(EDE) Empire District 3.3M share secondary priced at $20.25.
(F) Ford is considering opening a large plant in Mexico to cut costs in production.
(FMCN) Focus Media 6.7M share secondary priced ayt $54.00.
(FTG) Farmstead Telephone registered 5m shares for selling holders.
(GOOG) Google is reportedly going to get some search and ad-based competition from an NTT-led group sponsored by Japan.
(ICE) Intercontinental Exchange registered 8M shatres for selling holders.
(IFIN) Investor's Financial announced a $150M share buyback plan.
(KBH) KB Homes $2.46 EPS vs $2.43e.
(KYPH) Kyphon reitr Outperform at Wachovia.
(LUB) Luby's registered 6.8M shares for selling holders.
(MEDX) Medarex gets U.S. Attorney subpoena regarding stock options.
(MIK) Michaels was asked by the SEC to preserve its optiosn documents.
(MIR) Mirant may be believed as takeover candidate after it failed its attempt to buy NRG according to Business Week.
(NBIX) Neurocrine Bio stock down 9%; completes Indiplon action letters review and requests FDA meeting; it may need more FDA testing and therefore delays.
(NFLD) Northfield Labs signs purchase deal for Manufacturing facility for $6.7M in Illionois.
(ORCL) Oracle rose 5% after saying the quarter exceeded its targets.
(OVTI) Omnivision $0.39/R$131.8M vs $0.38/$125M(e).
(MERC) Mercer cancelled a planned share offering due to market conditions.
(MSFT) Microsoft announced that Bill Gates would begin a trasitioning out of his day to day role starting in July 2008; stock down 0.3%.
(RAE) RAE Systems positive article in Business Week.
(SGMO) Sangamo is selling 3.1M shares.
(SGY) Stone Energy gets a $51 buyout offer from Energy Partners (EPL).
(SWB) Smith & Wesson $0.10 EPS vs $0.08e.
(WGO) Winnebago $0.40 EPS vs $0.38e.
(WY) Weyerheueser boosted its dividend by 20%.

ANALYST CALLS:
ACL started as Outperform at Wachovia.
ADBE raised to Buy at Oppenheimer.
AGN started as Outperform at Wachovia.
BEE started as Buy at Deutsche Bank.
BK started as Equal Weight at Lehman.
BOL started as Mkt Perform at Wachovia.
BSC raised to Buy at Sandler Oneill.
CBH reitr Underweight at MSDW.
CCO started as Buy at Jefferies.
CERN reitr Outperform at FBR.
CIEN raised to Neutral at JPMorgan.
COCO reitr Sell at B of A.
EBAY started as Neutral at UBS.
EQ started as Outperform at Bear Stearns.
FLSH positive comments at Citigroup.
GLT started as Outperform at CSFB.
GVHR raised to Overweight at Lehman.
HET started as Hold at Deutsche Bank.
HLT started as Buy at Deutsche Bank.
IGT raised to Buy at Deutsche Bank.
ISLE started as Outperform at Wachovia.
INTC raised to Overweight at HSBC; reitr Buy at Citigroup; stock up 1%.
KIM started as Equal Weight at Lehman.
MAR started as Buy at Deutsche Bank.
MGM started as Buy at Deutsche Bank.
MNT started as Outperform at Wachovia.
NBIX cut to Underperform at baird.
NT raised to Mkt Perform at Sanford Bernstein.
OEH started as Buy at Deutsche Bank.
PEP raised to Buy at UBS.
PG reitr Overweight at MSDW.
PL started as Outperform at Wachovia.
PLA raised to Buy at B of A.
PNK started as Buy at Deutsche Bank.
PENN started as Buy at Deutsche Bank.
SHFL started as Buy at Deutsche Bank.
SHO started as Buy at Deutsche Bank.
SNDK positive comments at Citigroup.
TRZ cut to In-Line at Goldman Sachs.
VFC raised to Buy at UBS.
WEBX reitr Sell at ThinkEquity.
WYNN started as Buy at Deutsche Bank.

Cramer's "Mad Money" Recap from 6/15/06

Cramer's MAD MONEY Recap:

Cramer opened his show suggesting Nucor (NUE) and Freeport McMoran (FCX) as best values in commodities. He said CNOOC Ltd. (CEO) also pays dividends, but is up 13%, so Cramer did not recommend buying it.

Cramer then looked for poor house opportunities and recommends Dollar Tree (DLTR), Ralcorp (RAH), Perrigo (PRGO).

Cramer also said to avoid any company that borrows money to buyback stock or announces a convertible debt offering because these stocks drop after these announcements. One example is Symantec (SYMC). Check what we said on this on this LINK on June 12, 2006 that coincides exactly with what he said.

In the "Lightning Round," Cramer was POSITIVE on AutoZone (AZO), Anheuser-Busch (BUD), Boeing (BA), Genzyme (GENZ), Foster Wheeler (FWLT), Four Seasons Hotels (FS), Jacobs Engineering Group (JEC), Panera Bread (PNRA), Yum! Brands (YUM), Valero (VLO), Legg Mason (LM), Halliburton (HAL) and Network Appliance (NTAP). He was NEGATIVE on Sonic Automotive (SAH), Brookfield Asset Management (BAM), Bronco Drilling (BRNC), Chicago Bridge & Iron (CBI), Cheesecake Factory (CAKE), Millennium Pharma (MLNM), Intrawest (IDR) and Microsoft (MSFT).

Will Oracle Finally Break Out Of Its Range

Shares of Oracle (ORCL) have been range-bound for some time. Berhaps it was based on concerns that the company could not digest all the software firms it had bought. Perhaps results were too lackluster.

But, now the company has announced that Oracle's revenue for the quarter ending May 31, will be up 25% from last year to $4.85 billion. Oracle's EPS in the quarter a year ago was $.20. This year it was $.24 for the quarter and $.29 if one-time costs are taken out.

A few of the recent quarters have been choppy. The February 28. 2006 quarter was down from the immediately previous quarter, and opearting income also dropped a few percentage points to $1.051 billion. The August 31, 2005 quarter was an even bigger red flag. Revenue fell from $3.878 billion in the May 31, 2005 quarter to $2.768 in the August period. Operating income fell from $1.047 billion to $712 million.

As recently as April, Forbes reported that Morgan Stanley was a bit down on Oracle: "Longer term, a recent Morgan Stanley survey of Oracle applications customers does not bode well for Oracle’s organic revenue growth outlook. Nearly 80% expect flat spending on Oracle’s e-business suite, while 71% see flat database spending."

But, it would appear that the numbers have proved the company's strategy is a good one.

Oracle's stock has been stuck between just below $12 and $15 since late 2004.

Now, it looks like it might break out.

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com He does not own securities in the companies he writes about.

Europe Market Report 6./16/2006

Stocks: (BCS)(BP(BT)(BAB)(GSK)(PUK)(RTRSY)(UN(UL)(VOD)(BAY)(DCX)(DB)(DT)(SAP)(SI)(TMS)(AXA)(FTE)(V)

Europe market were up at 6:15 AM New York time.

The FTSE was up .5% at 5,650. Barclays was up 1.7% to 607. BP was up .7% to 604. BT was off .4% to 225.75. British Air was down .1% to 358.25. GlaxoSmithKline was off .2% to 1455. Prudential was up .1% to 562.5. Reuters was 1% to 366.5. Unilver was up .7% to 1145. Vodafone was up .2% to 166.25

The DAXX was up .7% to 5,462. Bayer was up .2% to 33.39. DaimlerChrysler was up 1.2% to 37.98. Deutsche Bank was up .8% to 84.47. Deutsche Telekom was off .2% to 12.64. SAP was up 2.3% to 162.7. Siemens was up 1.1% to 63.87.

The CAC 40 was up .9% to 4.765. AXA was up 1.5% to 25.09. France Telecom was up .2% to 17.13. L'Oreal was up .8% to 69.75. ST Micro was up .7% to 12.46. Vivendi was up .4% to 26.91. Thomson was up 1.2% to 13.52.

Douglas A. McIntyre

Truisms (what your mom never told you)

Stocks: CLL CWPC ECA NKO PDP SU TSK UTS

By Don Rodgersand of Price and Volume Analysis and Market Information


More often than not most are looking for the "easy ride". They are trying to find the site, the method, the post, the blog and so on, which will secure their future. The Holy Grail of Trading is the elusive but so close I can almost feel it method of trading the markets that will make you a god. I know this to be true because believe me, I spent days, months, and years trying to find it. What I did find is this. There is no quick and easy way to making a living from the markets. There is no quick and easy way to secure your future through your fortune. What there is however is a gradual learning process, supplemented by experience, and a realistic approach that will help you to understand that you will have a combination of winners and losers that should lead you to become comfortable trading and investing in almost any environment. The latest downturn we have been through is nothing compared to previous downturns with the most recent being the tech bubble meltdown in which we saw hundreds of dot com companies secure their IPO only to be cast upon the heaps of failed ideas with hundreds of millions of dollars attached to their downfall. We have seen a leveling of the run up and take your pick as to the reasons for the sell off. Is it Greenspans successor (old buddy whats his name)? or is it the easing of the hurricane threat coupled with the ongoing dialogue with the Iranian theocracy, or just a realisation that prices of crude may have just become a little out of hand and needed to be trimmed. Whatever the reason it has been a stomach churing turn of events for many who celebrated each new day like a kid on Christmas morning. I don't often agree with Jim Cramer but his recent comments regarding this market do have a ring of truth to them and one which I touched upon last week. Now, I don't know if he reads my blog or not but I think it only fair since I read his book after frequent visits to Indigo (it took about 27 visits to get through the entire book and after all the coffee at Starbucks it probably would have been cheaper to buy it) to mention his name. The run up and promises of quick doubles and triples (pick your energy stock) caused many to over-extend themselves financially and when the markets fell, caused a great deal of consternation when margin calls were made and forced selling accelerated the downturns. Now think for a moment. The big boys in the US for example know the level of margin that exists in their brokerage firms and how beneficial is it to not only charge the margin fees but to force the selling, grab all those commissions and drive prices down even further and create wonderful buying opportunties for them. That is my theory and me and Columbo, as Dennis Leary would say, are sticking to it. Below are a list of my truisms and feel free to add your own.
1). Protecting your capital is the number one rule of investing.
2). Averaging down or up on a losing position is like making love for chastity. It don't work.
3). An un-aimed arrow never misses-you have to have a target to be great.
4). The only sure way to win in the market all the time is to get tomorrow's closing prices today.
5). There are no guarantee's in the stock market-the only gurantee is there is no gurantee.
6). Pixel Picasso-the art of placing so many technical studies on a chart that two people get two different meanings.
7). Believe it or not, investing and trading should be profitable, but boring.
8). There are plenty of risk taking investors-there just aren't that many rich ones.
9). If someone gives you a hot tip no one else knows about, ask them why they don't like you.
10). Message boards can be great fun. However, rhetoric is the currency of fools.
11). It is easier to fall out of tree than to climb one. (I never liked Top Ten lists so mine is an 11 list)
Remember, the amateurs open the market, the pro's close it. Tomorrow is a new day.

Media Digest 6/16/2006 Wall Steet Journal, New York Times, Reuters

Stocks: (MSFT)(DD)(GM)(F)(GS)(ORCL)(VE)(CAT)(BCS)(HEW)(GIS)(CC)(BSX)(UAUA)(AMR)(CAL)(LCC)

According to Reuters, the EADS management first knew of the problems with the Airbus A380 superjet in April.

Reuters writes that Microsoft Chairman Bill Gates will reduce his role at the company over the next two years to focus on charity.

Reuters writes that DuPont's double digit growth in China will lead to increased investment and staff in the country. Dupont will more than double its $700 million investment in China by 2010.

Reuters also writes that over 33,000 workers at GM and parts supplier Delphi have already taken the buy-out offers from the two companies.

Goldman Sachs is trying to complete its acquisition of Associated British Ports but Australian bank Macquaire is also trying to buy the company.

The Wall Street Journal reports that Oracle has announced forecasts of better profit and revenue growth for the quarter ending May 31. Oracle expects revenue to rise 25% to $4.85 billion.

WSJ also writes that Ford is looking at building a new plant in Mexico, another blow to the UAW.

WSJ also reports that Vinci, the French contruction company has rejected a buyout offer from water utility Veolia.

WSJ writes that during the 1990s, Microsoft used a variation of options back-dating at low prices.

WSJ also reports that Caterpillar stock rose 5% to $70.85 when it reaffirmed its financial goals. Shares in Bear Stearns rose 5.9% to $131.56 on strong earnings. Shares of Hewitt fell 7.7% as the human resources company said its chairman was retiring and that it was reviewing its forecasts for the current quarter. The stock closed at $23.19. Shares of General Mills fell as it tempered forecasts for its next fiscal year. They were down 1.2% to $50.83. Share in Circuit Cities rose 6.3% to $30.01 on assumptions that the turnaround effort at the company is going well.

The New York Times reports that Boston Scientific say that a judge has upheld that a division of Johnson & Johnson infringed on stent patents that the company holds.

The NYT also writes that several large airlines are increasing fares including American, United, Northwest Air, Continental and U.S. Air followed a fare hike by Delta.

Douglas A. McIntyre

Joe's Quick Takes: APH

By The Average Joe Investor

In the parlance of Malcolm Gladwell, Amphenol Corp (NYSE: APH) is a connector. Well, at least they sell them. Amphenol sells the mini data highways that connect all sorts of high tech equipmentein the communications, industrial, automotive, aerospace and military industries. Don't think long connections or cables, though, Amphenol's connectors are largely interconnects used to create connections between circuit boards and other parts within devices like wireless handsets, cable set-top boxes, routers, switches, oil exploration equipment, satellite radio systems, medical equipment, aerospace engine controls, radar systems and military vehicles (among others).

Of course I wouldn't suggest gross abuse to any piece of technology (think Office Space), but if you were to pop open your cell phone or your laptop or cable modem, you'll see wires connecting various areas of the machine's guts. These allow information to be passed within the device.

I would consider Amphenol a solid, mature tech business. Certainly working in sexy market areas like cellular equipment and satellite radio, but selling mostly high volume, lower margin parts. They have been growing at a steady 15-20% clip since the bubble burst and their sales declined in 2002 and they even have a dividend - yes, that's right a dividend. It's small, but I think it's the right direction for a business at this stage. They have a nice 30%+ return on equity and besides a blip last September, they've been beating analyst projections (most recently by $0.04 in March).

The valuation of the stock pretty much reflects what I think is the full value here. Using an 18% projected growth rate, it's trading at a PEG of around 1.3x on trailing EPS and 1.1x on forward EPS projections.

According to Yahoo!Finance, price to sales is around 2x and price to book value is around 6x, maybe a little high. I think this should continue to trade on a 22 to 23x P/E on trailing EPS, so, if they hit their numbers you're looking at upside to $61.50, or 14% over what they're trading at right now. A 14% upside isn't bad, but given risk in their end markets - communications in a slowing economy and military in an Iraq wind-down - I'm not rushing out to buy this stock right here.

http://theaveragejoeinvestor.blogspot.com/

Home Loan, Refinancing Demand Up

By Yaser Anwas, CSC of Equity Investment Ideas

It seems that U.S. home loan demand is up for the first time in a month, as the Mortgage Bankers Association has announced that its seasonally adjusted index of home-refinancing applications jumped 10.6% to 1,499.4 for the week ended June 9, according to a report from Reuters.

The index - which stood at 2.967.4 just last year - factors in home purchases and refinancing of existing loans, and this rise implies that while the housing market will decline, the downturn will be gradual.

"Higher borrowing costs are likely to cause sales to fall after five record years, according to forecasts by the National Association of Realtors," Bloomberg News reports. "Purchases this year may still be the third-highest ever as job gains and income growth keep the market from a more pronounced slowdown, economists said."

Meanwhile, experts insist that a spike in refinancing is to be expected in the lead-up to a Federal Reserve interest-rate meeting. "An increase in applications is typical ahead of a Fed meeting," MBA chief economist Douglas Duncan told Reuters. "There is a widespread belief that the Fed is going to raise rates again and that awareness had consumers looking to lock in a rate."

Economists at Merrill Lynch claim that housing has comprised as much as 50% of U.S. economic growth since 2001, but "housing will weigh on the economy this year as smaller price gains and higher interest rates curb refinancing, homebuilding and housing-related purchases and services," according to Bloomberg.The news service conducted a survey and found that as refinancing wanes - generating less cash - consumer spending will take a hit, slowing to an average yearly rate of 3.2% for this year.

"Fed officials have gone out their way over the past two weeks to make clear that they will react to any sign of rising inflation with tighter monetary policy," Reuters reports. "And the latest report offered just the sort of signal that the central bank would like to avoid."

http://www.equityinvestmentideas.blogspot.com/

Investor Ask, Do You Deliver In New Delhi?

Stocks: (MOT)(NOK)(IBM)(INTC)(CSCO)(MFST)

By Yaser Anwar, CSC of Equity Investment Ideas

Millions of Indians may be asking that of Papa John's pizza restaurant in the coming years. The company announced on Thursday that it intends to open 500 pizza joints across the country over the next 10 years.

The company already has two pizza restaurants in Noida, a suburb of New Delhi. Papa John's says that the growing middle class in India makes it a great market.
Papa John's Chief Executive Nigel Travis tells the Associated Press that rising incomes and dual-income families will make takeout and packaged foods more prevalent in India.
"Growing affluence in India is already evident with families eating out four to five times a week," says Travis.

The company says Om Pizza and Eats India are the its franchise partners in India, and it will start with opening 100 stores in northern India.

Other international "high-potential" markets for Papa John's pizza are Mexico, Britain, South Korea, China, and Russia.

India's growing and well-educated middle class is attracting lots of businesses from the U.S. to its soil. However, most look to take advantage of India's lower-priced workforce rather than focusing on its consumer demand.

Telecom companies Motorola and Nokia just announced that they are investing great sums of money in the country. Motorola will invest $100 million to build a factory in India. Nokia will invest $150 million on a manufacturing plant. Both plants will be built in the Madras region.
IBM is investing $6 billion in India over the next three years. The company plans to build service delivery centers and in Bangalore and a telecommunications research and innovation center.

Last year, Microsoft said it is doubling its workforce in India over the next four years. Intel said it would invest in India, and Cisco Systems is sinking $1.1 billion into India over the next three years.

http://www.equityinvestmentideas.blogspot.com/

Amazon Adds Groceries

By Yaser Anwar of Equity Investment Ideas

WSJ reports: Amazon.com Inc. (AMZN) has begun selling groceries on its Web site, a careful step by the company into what has been a challenging space for online retailers.

Amazon's new grocery store offers nonperishable items, such as microwave popcorn, breakfast cereals and diapers, from a range of brands that include Kellog's, Lipton and Jell-O, among others. In a notice on its site, Amazon said it doesn't currently offer perishable items because "we can't ship these for free."

Most products are available for bulk purchase only, rather than as single items. All items qualify for Amazon's free-shipping offer on orders of $25 or more, as well as the company's "Amazon Prime" free-shipping program.

Selling groceries is a bold move for Amazon, as similar attempts by other companies in the past have met with mixed results. Dot-com darling Webvan filed for bankruptcy in 2001, but New York online specialty-food retailer FreshDirect.com, launched in 2002, continues to deliver to the metropolitan area.

Like other product categories Amazon has added over the year, the grocery store is currently in "beta" form, a term Web companies often use for new features that are still being tested.

http://www.equityinvestmentideas.blogspot.com/

Asia Markets 6/16/2006

Stocks: (CAJ)(FUJIY)(HMC)(NIPNY)(NTT)(DCM)(TM)(CHL)(CN)(PCW)(HBC)

Asia markets were up sharply.

The Nikkei was up 2.8% to 14,879. Canon was up 3% to 7740. Daiwa Securities was up 5.5% to 1360. Fuji Photo was up 3% to 3740. Honda was up 3.6% to 7150. Japan Airlines was up .7% to 300. Mazda was up 2.8% to 654. NEC was up 3.8% to 607. NTT was up 3% to 527000. Docomo was up 1.7% to 167000. Sharp was up 3.6% to 1729. Toshiba was up 6.5% to 724. Toyoto was up 3.8% to 5840

The Hang Seng was up 2.6% to 15,839. China Mobile was up 4.1% to 41.85. Chine Netcom was up 3.2% to 12.75. HSBC was up 1.6% to 135.4. Lenovo was up 3.2% to 2.45. PCCW was up 2.7% to 4.775. Swire Pacific was up 1.1% to 74.8.

The KOPSI was up 3.5% to 1,262.

The Straits Times Index was up 3.3% to 2,377.

The Shanghai Composite was up 2.6% to 1,574.

Douglas A. McIntyre

Bill Gates Bowing Out

Bill Gates, not Steve Ballmer, is going to leave Microsoft (MSFT).

Effective in July 2008, Bill Gates will transition out of the day-to-day role inside Microsoft to focus on his global health and education work for the Bill & Melinda Gates Foundation. After July 2008 Gates would continue to serve as the company's chairman and an advisor on key development projects.

While the company is saying it will be July of 2008, you can probably bet that with such a far lead time that this date will come sooner than that date. When people give a 2 year timeline, it is usually only half of that time.

The company announced that Chief Technical Officer Ray Ozzie will immediately assume the title of chief software architect and begin working side by side with Gates on all technical architecture and product oversight responsibilities to ensure a smooth transition.

I can recall being with some friends after work one hot day in 1998 when I was the news broadcaster for a large day trading firm discussing the day this would come. We basically came to the conclusion that MSFT would trade down 5% on the news if it was this, or even worse if it was a death or incapacitation that instantly rendered the company into a stagnant position. That was back when Gates' stake was even higher and back when Gates was the man the world watched. Microsoft was then the greatest growth story of all time and making new millionaires each day and when the company was announcing stock splits and massive growth initiatives on a regular basis. Now it is the most dominant fixed software company that has been snared into mature markets hindered with product delays that has diversified into many areas, and a cash rich and slow moving behemoth that has too many characteristics similar to old fashioned utilities back in the day. As a friend of mine who works for the Federal Reserve in Chicago said the afternoon Microsoft announced its special $3.00 dividend that changed the company: "Microsoft isn't a growth company anymore; It's a Utility stock!".

MSFT traded up 0.87% today during the normal trading hours and the shares, while they dropped over 1% initially, are actually up a few pennies in after-hours trading. What do you think the market thinks of him now? It may not be fair to take the attitude that even Mr. gates is deemed largely irrelevant to the company, but the market sometimes is not kind to individuals.

As of the last date posted, Bill Gates owned 977 Million shares of Microsoft. You can bet that there will be dozens of analyst reports tomorrow morning with mixed messages, and speculation of when more stock sales will come out. He did signal in the past that he intended to retire when he was 55, and this looks like it will put him 2 years short of that age. He has already been out of the CEO position for some time, so you can bet that while some will miss him many calls tomorrow will say SO WHAT.

In his exit announcement he said, "I've decided that two years from today, I will reorganize my personal priorities. I believe with great wealth comes great responsibility, the responsibility to give back to soicety and make sure those resources are given back in the best possible way, to those in need."

This has oddly enough not had much impact on key competitors in after-hours trading. Google (GOOG) is up 0.10%, Yahoo! (YHOO) is down 0.25%, RealNetworks (RNWK) is up 0.5%, Sun Micro (SUNW) is only up 0.2%, and WebEx Communications (WEBX) is flat. Oracle (ORCL) is the stand-out up 5% in after-hours trading, but that is after the company gave positive guidance for the quarter.

Jon C. Ogg
June 15, 2006

Market Wrap for June 15, 2006

DJIA 11,015.19; Up 198.27 (1.83%)
NASDAQ 2,144.15; Up 58.15 (2.79%)
S&P500 1,256.16; Up 26.12 (2.12%)
VIX 15.75; down -5.71

The bulls got another great day. The "Short the market, Bernanke's speaking" trade was not the way to go today as Bernanke's key comments to take were 1) market based infaltion expectations have come down somewhat and 2) that high energy prices will remain relatively high, but he noted that Current energy prices are manageable.

The DJIA is now up almost 400 points from its lows over the last 48 hours. When was the last 58 point rally on the NASDAQ? Japan also maintained its Interest rates to keep further blood-letting from ocurring in its market and economy that look like they have finally gotten off the mat.

Bear Stearns (BSC) was one of the larger winners posting a 5.9% gain to close at $131.56 after beating earnings expectations and actually having an upbeat tone to its conference call.

Apple (AAPL) did manage to post gains to close up 3% at $59.38, despite two analysts (Merrill Lynch and American Technology Research) trimming estimates on iPod sales and Citigroup cutting the price target from $85 down to $74.

SanDisk (SNDK) closed up 5.7% at $54.45 after UBS issued a BUY rating on an upgrade, and NVIDIA (NVDA) rose 8.7% to close at $22.23 after the same analyst raised it to a BUY rating.

Millennium Pharma (MLNM) managed to close up 7.6% at $10.09 after CNBC's David Faber noted that the company has been in talks to be sold, but the company killed that notion. They said that they were recently approached about a deal, but that has ended and they will focus on their own growth.

Shares of Caterpillar (CAT) closed up 4.99% at $70.85 after maintaining what was deemed very reasonable long-term targets.

Tribune (TRB) managed to close up 1.78% at $32.51 after its main shareholder is trying to demand that the company splits up or sells itself. Today Credit Suisse raised it from a Neutral to Outperform rating; but Moody's tanked its debtrating to Junk status, making its debt unattractive for many debt holders and potentially increasing its borrowing costs down the road.

Shares of CNOOC Ltd. (CEO) in China rose a hefty 9.1% at $75.85 after it found what may be a huge natural gas field in the South China Sea that may hold as much as 4 trillion to 6 trillion cubic feet of gas.

Google (GOOG) closed up $6.61 (1.7%) at $391.00 after launching a new government search service and claiming that their display ads have only just begun.

Encysive Pharma (ENCY) rose a monster 38% to $7.01 after the FDA accepted the company's Thelin response and will give a speedy review of its arterial hypertension treatment. Herley (HRLY) closed up 19% at $11.05 after strong earnings and Steven Madden (SHOO) closed up 18.2% after its earnings.

Some key foreign ETF's and funds posted enormous gains on today's strength and indicate a market that is acting like it may have found a bottom, even if it is only temporary. The iShares Japan (EWJ) closed up 3.7% at $13.07. The Templeton Russia Fund (TRF) closed up 12% at $62.83, the India Fund (IFN) closed up 11.3% at $44.50, and the Turkish Investment Fund (TKF) closed up 10.5% at $17.00.

We even had 4 different IPO's launch today. Volcano (VOLC), Sychronoss Technologies (SNCR), Houston Wire & Cable (HWCC) and Golfsmith (GOLF) all debuted on the market.

Tomorrow is Triple Witching day where all options and most futures expire at the close of the markets tomorrow. Remember that Sunday is also Fathers Day, so don't forget your dad if you know what is good for you.

Jon C. Ogg
June 15, 2006

Bernanke Wasn't Cranky (So Far)

DJIA 10,938.50; Up 121.58 (1.12%)
NASDAQ 2,129.60; Up 43.60 (2.09%)
S&P500 1,247.32; Up 17.28 (1.40%)

Today even with the market up, there were probably some concerns that Bernanke would somehow talk down the markets again with his inflation worries. The "Short the market, Bernanke's speaking" trade was not the way to go today. During his speech the DJIA actully rose 70 points from before the speech was available.

Bernanke was discussing energy prices and the economic impacts. One key sentence that helped was Bernanke's comment that market based inflation expectations have come down somewhat. He did also say that high energy prices will remain relatively high, but he noted that Current energy prices are manageable. He also noted that energy prices would likely remain volatile, so traders will still have this to look forward to.

Bernanke probably doesn't like being day in and day out the largest blame for the stock market sell-offs and this is the first time he hasn't talked down the market during a live speech.

Bernanke did comment that more refining capacity is needed, which is music to refiners and oil service companies' ears.

Jon C. Ogg
June 15, 2006


Below is the transcript:

Remarks by Chairman Ben S. Bernanke
Before the Economic Club of Chicago, Chicago, Illinois
June 15, 2006

Energy and the Economy

In my remarks today, I would like to discuss the relationship between energy markets and the economy. As I am certain all of you are aware, the steep increases in energy prices over the past several years have had significant consequences for households, businesses, and economic policy. At least since the time of the first oil shock in October 1973, economists have struggled to understand the ways that disturbances to the supply and demand balance in energy markets influence economic growth and inflation. At the most basic level, oil and natural gas are just primary commodities, like tin, rubber, or iron ore. Yet energy commodities are special, in part because they are critical inputs to a very wide variety of production processes of modern economies. They provide the fuel that drives our transportation system, heats our homes and offices, and powers our factories. Moreover, energy has an influence that is disproportionate to its share in real gross domestic product (GDP) largely because of our limited ability to adjust the amount of energy we use per unit of output over short periods of time. Over longer periods, energy consumption can be altered more easily by, for example, adjusting the types of vehicles that we drive, the kind of homes that we build, and the variety of machines that we buy. Those decisions, in turn, influence the growth and composition of the stock of capital and the productive capacity of the economy.

Over the past thirty-five years, the U.S. economy has experienced some wide swings in energy prices. The oil price increases of the 1970s were followed by price declines in the mid-1980s and then a price spike in 1990, with numerous fluctuations since then. From the mid-1980s until fairly recently, market participants tended to look through these price cycles and did not allow their longer-term expectations for oil prices to be greatly affected by short-run swings in spot prices. But beginning around 2003, futures prices began moving up roughly in line with the rise in spot prices. Thus, unlike in earlier episodes, the significantly higher relative price of energy that we are now experiencing is expected to be relatively long lasting and thus will likely prompt more-significant adjustments by households and businesses over time.

This higher relative price of energy poses many important questions for economists and policymakers. Why have the prices of oil and natural gas risen so much? What is the outlook for energy supplies and prices in the medium term and in the long term? And what implications does the behavior of energy prices have for the ongoing economic expansion and inflation? I will touch briefly on each of these questions.

Developments in Oil Markets
Let me begin with the market for crude oil. What accounts for the behavior of the current and expected future prices of petroleum? Supply and demand are among the most valuable concepts in the economist's toolkit, and I believe they are the key to understanding recent and prospective developments in oil markets. For the most part, high oil prices reflect high and growing demand for oil and limited and uncertain supplies.

On the demand side, world oil consumption surged 4 percent in 2004 after rising a solid 2 percent in 2003. The rise in 2004 was much larger than had been expected and was, in fact, the largest yearly increase in a quarter-century. A significant part of the unexpected increase in oil consumption that year reflected rapidly growing oil use in the United States and East Asia, notably China. In 2005, growth of world oil consumption slowed to 1.3 percent, partly reflecting the restraining effects of higher prices. Nonetheless, the level of oil consumption was still high relative to earlier expectations. Thus far this year, underlying demand pressures have remained strong in the context of a global economy that has continued to expand robustly.

On the supply side, the production of oil has been constrained by available capacity, hurricanes, and geopolitical developments. In 2003 and 2004, as oil consumption and prices rose briskly, Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries (OPEC) pumped more oil. OPEC was able to boost production relatively quickly in response to changing market conditions by utilizing productive capacity that had been idle. By the end of 2004, however, OPEC's spare production capacity was greatly diminished. As a consequence, OPEC's oil production flattened out over the past year even as oil prices continued to soar.

Oil production outside OPEC also leveled off last year, contrary to earlier expectations for continued growth. This development in part reflected the devastating effects of last year's hurricanes. Katrina and Rita were enormously disruptive for our nation's production of energy. At the worst point, 1.5 million barrels per day of crude oil were shut in, virtually all of the U.S. production in the Gulf of Mexico and nearly 2 percent of global oil production. Recovery of oil production in the Gulf has been slow, and the disruptions from last year's storms linger even as we enter this year's hurricane season. The cumulative loss in oil production attributable to Katrina and Rita amounts to more than 160 million barrels of oil, a figure equivalent to nearly half the present level of commercial crude oil inventories in the United States.

With the background of strong demand and limited spare capacity, both actual production disruptions and concerns about the reliability and security of future oil supplies have contributed to the volatility in oil prices. The oil-rich Middle East remains an especially unsettled region of the world, but political risks to the oil supply have also emerged in nations outside the Middle East, including Russia, Venezuela, and Nigeria.

Compounding these difficulties in markets for crude oil have been constraints and disruptions in the refining sector of the energy industry. In the wake of Hurricane Rita, one-quarter of domestic refining capacity was offline, and here, too, the period of recovery has been protracted. Even before last year's hurricanes, however, a mismatch appeared to be emerging between the incremental supply of crude oil, which tended to be heavy and sulfurous, and the demand by refiners for light, sweet crude, which can be converted more easily into clean-burning transportation fuels. These developments have highlighted the need for additional investments in refining capacity to bridge the gap between upstream supply and final demand.

What about the longer term? We can safely assume that world economic growth, together with the rapid pace of industrialization in China, India, and other emerging-market economies, will generate increasing demand for oil and other forms of energy. In all likelihood, growth in the demand for energy will be tempered to some extent by continued improvements in energy efficiency which, in turn, will be stimulated by higher prices and ongoing concerns about the security of oil supplies. Such improvements are possible even without technological breakthroughs. For example, Japan is an advanced industrial nation that uses only about one-half as much energy to produce a dollar's worth of real output as the United States does. Of course, the Japanese and U.S. economies differ in important ways, but the comparison nevertheless suggests that there is scope to boost energy efficiency in the United States and other parts of the industrialized world. Newly industrializing economies such as China appear to be quite inefficient in their use of energy; but as they modernize, they can adopt energy-saving techniques already in use elsewhere, and their energy efficiency will presumably improve as well.

Still, as the global economic expansion continues, substantial growth in the use of oil and other energy sources appears to be inevitable. How readily the supply side of the oil market will respond is difficult to predict. In a physical sense, the world is not in imminent danger of running out of oil. At the end of 2005, the world's proved reserves of conventional oil--that is, oil in the ground that is viewed as recoverable using existing technologies and under current economic conditions--stood at more than 1.2 trillion barrels, about 15 percent higher than the world's proved reserves a decade earlier and equal to about four decades of global consumption at current rates. These figures do not include Canada's vast deposits of oil sands, which are estimated to contain an additional 174 billion barrels of proved reserves. In addition, today's proved reserve figures ignore not only the potential for new discoveries but also the likelihood that improved technologies and higher oil prices will increase the amount of oil that can be economically recovered.

The oil is there, but whether substantial new sources of production can be made available over the next five years or so is in some doubt. Some important fields are in locations that are technically difficult and time-consuming to develop, such as deep-water fields off the coast of West Africa, in the Gulf of Mexico, or off the east coast of South America. In many cases, the development of new fields also faces the challenge of recovering the oil without damaging delicate ecosystems. Perhaps most troubling are the significant uncertainties generated by geopolitical instability, as I have already noted. Much of the world's oil reserves are located in areas where political turmoil and violence have restrained both production and investment.

In both the developed and the developing world, another factor holding back investment in oil infrastructure has been concern on the part of producers that oil prices might fall back as they did in the 1980s and 1990s. In light of that recognition, some oil producers have been reluctant to launch exploration projects even with today's high prices. Such concerns have been reinforced by the huge reserves of oil in several OPEC countries that could be extracted at very low cost if sufficient resources and expertise were directed toward doing so.

Developments in the Natural Gas Market
The story for natural gas shares some similarities with the story for oil, but there are important differences as well. In the 1990s, the U.S. spot price of natural gas at the Henry Hub averaged about $2 per million Btu. However, in recent years, the United States has seen a marked increase in the price of natural gas. The average spot price climbed to nearly $9 per million Btu in 2005, with the price spiking to $15 per million Btu following hurricanes Katrina and Rita. So far this year, natural gas prices have fallen back to around $7 per million Btu as an unusually warm winter curtailed consumption and boosted natural gas in storage to record levels. Futures markets currently anticipate that the price of natural gas will be about $9 per million Btu next year.

Why have natural gas prices risen so sharply over the past few years, and why are they expected to remain elevated? As with oil, high prices of natural gas reflect strong demand and diminished supplies. Unlike the globally integrated market for oil, however, natural gas markets are regional, primarily because of the difficulty in transporting gas by means other than pipelines. Although the world's capacity to trade liquefied natural gas, which is transported by ships, is growing, it is still a small fraction of world supply and is not yet sufficient to fully integrate natural gas markets across continents. Demand for natural gas in North America has remained strong in recent years, particularly as environmental concerns have led clean-burning natural gas to become the fuel of choice for new electricity generation. Moreover, increases in oil prices have boosted the demand for energy substitutes such as natural gas. However, domestic production of natural gas has not kept up. Last year, U.S. production was 7 percent below its 2001 level, with less than half of that decline reflecting the impact of hurricanes Katrina and Rita.

Increased trade can often mitigate price increases, but net imports of natural gas from Canada, which currently account for around 16 percent of U.S. consumption, have failed to increase in response to higher prices. Between 1988 and 2001, net imports from Canada tripled, but they have since flattened out. Both U.S. and Canadian gas fields have matured and are yielding smaller increases in output, despite the incentive of high prices and a substantial increase in the number of drilling rigs in operation.

Trade in liquefied natural gas, or LNG, is also likely to increase over time, but perhaps at a slower pace than once envisioned. LNG imports into the United States nearly tripled from 2002 to 2004, but they actually fell a bit last year as production disruptions in a number of countries limited supply and as consumers in other countries competed for available cargoes.

Thus, natural gas prices are likely to remain elevated for at least the coming few years. It is possible, however, that within a decade new supplies from previously untapped areas of North America could boost available output here, while imports of LNG will increase to more substantial levels as countries seek to bring their isolated natural gas reserves to market. Given time, these developments could serve to lower natural gas prices in the United States significantly. Nonetheless, because of the higher costs of producing these supplies relative to the traditional sources of natural gas, as well as the elevated cost of other energy sources such as oil, natural gas prices seem unlikely to return to the level of the 1990s.

Thus, the supply-demand fundamentals seem consistent with the view now taken by market participants that the days of persistently cheap oil and natural gas are likely behind us. The good news is that, in the longer run, we have options. I have already noted the scope for improvements in energy efficiency and increased conservation. Considerable potential exists as well for substituting other energy sources for oil and natural gas, including coal, nuclear energy, and renewable sources such as bio-fuels and wind power. Given enough time, market mechanisms are likely to increase energy supplies, including alternative energy sources, while simultaneously encouraging conservation and substitution away from oil and natural gas to other types of energy.

Economic and Policy Implications of Increased Energy Prices
What are the economic implications of the higher energy prices that we are experiencing? In the long run, higher energy prices are likely to reduce somewhat the productive capacity of the U.S. economy. That outcome would occur, for example, if high energy costs make businesses less willing to invest in new capital or cause some existing capital to become economically obsolete. All else being equal, these effects tend to restrain the growth of labor productivity, which in turn implies that real wages and profits will be lower than they otherwise would have been. Also, the higher cost of imported oil is likely to adversely affect our terms of trade; that is, Americans will have to sell more goods and services abroad to pay for a given quantity of oil and other imports. For the medium term at least, the higher bill for oil imports will increase the U.S. current account deficit, implying a greater need for foreign financing.

Under the assumption that energy prices do not move sharply higher from their already high levels, these long-run effects, though clearly negative, appear to be manageable. The U.S. economy is remarkably flexible, and it seems to have absorbed the cost shocks of the past few years with only a few dislocations. And conservation and the development of alternative energy sources will, over the long term, ameliorate some of the effects of higher energy prices. Moreover, ongoing productivity gains arising from sources such as technological improvements are likely to exceed by a significant margin the productivity losses created by high energy prices.

In the short run, sharply higher energy prices create a rather different and, in some ways, a more difficult set of economic challenges. Indeed, a significant increase in energy prices can simultaneously slow economic growth while raising inflation.

An increase in oil prices slows economic growth in the short run primarily through its effects on consumer spending. Because the United States imports much of the oil that it consumes, an increase in oil prices is, as many economists have noted, broadly analogous to the imposition of a tax on U.S. residents, with the revenue from the tax going to oil producers abroad. In 2004 as a whole, the total cost of imported oil increased almost $50 billion relative to 2003. The imported oil bill jumped again last year by an additional $70 billion, and given the price increases we have experienced in 2006, it appears on track to increase $50 billion further at an annual rate in the first half of this year. Coupled with the rising cost of imported natural gas, the cumulative increase in imported energy costs since the end of 2003 is shaping up to be $185 billion--equal to almost 1-1/2 percent of GDP. All else being equal, this constitutes a noticeable drag on real household incomes and spending. It is a tribute to the underlying strength and resiliency of the U.S. economy that it has been able to perform well despite the drag from increased energy prices.

At the same time that higher oil prices slow economic growth, they also create inflationary pressures. Higher prices for crude oil are passed through to increased prices for the refined products used by consumers, such as gasoline and heating oil. When oil prices rise, people may try to substitute other forms of energy, such as natural gas, leading to price increases in those alternatives as well. The rise in prices paid by households for energy--for example for gasoline, heating oil, and natural gas--represent, of course, an increase in the cost of living and in price inflation. This direct effect of higher energy prices on the cost of living is sometimes called the first-round effect on inflation. In addition, higher energy costs may have indirect effects on the inflation rate--if, for example, firms pass on their increased costs of production in the form of higher consumer prices for non-energy goods or services or if workers respond to the increase in the cost of living by demanding higher nominal wages. A jump in energy costs could also increase the public's longer-term inflation expectations, a factor that would put additional upward pressure on inflation. These indirect effects of higher energy prices on the overall rate of inflation are called second-round effects.

The overall inflation rate reflects both first-round and second-round effects. Economists and policymakers also pay attention to the so-called core inflation rate, which excludes the direct effects of increases in the prices of energy (as well as of food). By stripping out the first-round inflation effects, core inflation provides a useful indicator of the second-round effects of increases in the price of energy.

In the past, notably during the 1970s and early 1980s, both the first-round and second-round effects of oil-price increases on inflation tended to be large, as firms freely passed on rising energy costs to consumers, workers reacted to the surging cost of living by ratcheting up their wage demands, and longer-run expectations of inflation moved up quickly. In this situation, monetary policymaking was extremely difficult because oil-price increases threatened to result in a large and persistent increase in the overall inflation rate. The Federal Reserve attempted to contain the inflationary effects of the oil-price shocks by engineering sharp increases in interest rates, actions which had the consequence of sharply slowing growth and raising unemployment, as in the recessions that began in 1973 and 1981.

Since about 1980, however, the Federal Reserve and most other central banks have worked hard to bring inflation and expectations of inflation down. An important benefit of these efforts is that the second-round inflation effect of a given increase in energy prices has been much reduced. To the extent that households and business owners expect that the Fed will keep inflation low, firms have both less incentive and less ability to pass on increased energy costs in the form of higher prices, and likewise workers have less incentive to demand compensating increases in their nominal wages.

As I noted in remarks last week, although the rate of pass-through of higher energy and other commodity prices to core consumer price inflation appears to have remained relatively low in the current episode--reflecting the inflation-fighting credibility built by the Fed in recent decades the cumulative increases in energy and commodity prices have been large enough that they could account for some of the recent pickup in core inflation. In addition, some survey-based measures of longer-term inflation expectations have edged up, on net, in recent months, as has the compensation for inflation and inflation risk implied by yields on nominal and inflation-indexed government debt. As yet, these expectations measures have remained within the ranges in which they have fluctuated in recent years and inflation compensation implied by yields on government debt has fallen back somewhat in the past month. Nevertheless, these developments bear watching.

In conclusion, energy prices have moved up considerably since the end of 2002, reflecting supply and demand factors. In the short run, prices are likely to remain high in an environment of strong world economic growth and a limited ability to increase energy supplies. Moreover, prices are likely to be volatile in the near term, given the small margins of excess capacity to produce crude oil or natural gas that traditionally have buffered short-run shifts in supply and demand.

However, in the long run, market forces will respond. The higher relative prices of energy will create incentives for businesses to create new, energy-saving technologies and for energy consumers to adopt them. The market for alternative fuels is growing rapidly and will help to shift consumption away from petroleum-based fuels. Government can contribute to these conservation efforts by working to create a regulatory environment that encourages the growth in energy supplies in a manner that is consistent with our nation's environmental and other objectives. Given the extraordinary resilience of the U.S. economy, I am confident our nation will be up to this challenge.

New York Times DealBook Digest 6/15/2006

Stocks: (PVH)(WRNC)(V)(INTL)(HBC)(TWPG)(GHL)(JEF)

According to New York Times DealBook, Phillips-Van Heusen may be considering a takeover bid for Warnaco.

DealBook also reports that the head of global research at HSBC has said to his analysts that most do not deserve to be paid because their reports are "worthless flashnotes".

DealBook writes that Vivendi's plans to buy French phonebook company PagesJaunes has drawn fire from Sebastian Holdings, which owns a stack in Vivendi and has been pressuring to company to break itself up.

DealBook also reports that the founder of Inter-tel is offering to take the company private. His offer is 14% above the June 24 closing price of $20.03. Vector Capital is his partner in the buy-out plan.

DealBook also writes that poor market conditions have hurt the stock prices of investment banks. Shares of Thomas Weisel, Greenhill, and Jefferies are all down over 25% in since May 10. The drop also hurts the chances for an IPO of Cowen, which the firm has planned.

Douglas A. McIntyre

Can Sirius Recover?

Stocks: (SIRI)(XMSR)(F)DCX)(AAPL)

News has come across the wire twice in as many days that XM Satellite Radio is in for a soft second and, perhaps, third quarter. Banc of America said they it expects the XM new subscriber count to be flat with last year. And, Bear Stearns reduced its target for new subribers from 450,000 to 295,000 for second quarter period. The investment bank was quick to point out that, with football season beginning in Q3, Sirius should have a wind at its back. It carries the NFL games and XM does not.

So, why is the Sirius stock trading precariously close to $4? With the exception of a brief dip two weeks ago, the shares in Sirius have not been this low since late 2004.

Use of radio in cars may be dropping. Gasoline prices are bound to change the amount of time people spend in cars. And, as The Motley Fool pointed out recently, Sirius has its major alliances with Ford and Chrysler, both of them now losing market share in the North American market.

But, the biggest threat to Sirius is still the fragmentation of the portable music and video player model. With Apple's huge footprint and new products coming from Sony, and even companies like LG, the need for getting music via satellite is not the same as it was when Sirius began marketing its answer to over-the-air radio.

There are too many places to get multimedia content now, and they are, for the most part, less expensive than the satellite radio product.

Sirius once traded above $60 . Now it will be lucky to stay above $4.

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in the companies he writes about.

Why Buffet does so well how you can too

By Yaser Anwar, CSC of Equity Investment Ideas

One reason Buffett (BRK-A) does so well is 'cause he only buys certain types of stocks. He only buys stock in companies that have certain characteristics. We’ll call them the “won’t keep you up at night characteristics.”

The man only buys stock in companies that:
1. Have businesses that are simple and understandable
2. Have little to no debt
3. Have a strong brand name
4. Are leaders in their industry
5. And throw off a lot of free cash flow

Companies that have these characteristics run very little risk of going out of business, running into any regulatory issues, or having a new competitor come along and steal the market away from them.The biggest point to take away from this is that Buffett goes out of his way to avoid investments that require him to jump over “9 foot hurdles.” He waits for opportunities where he can walk over “1 foot hurdles.”Now what if you had a portfolio full of businesses like this?

Regardless of which way the stocks were going, you would know, in your gut, that you still owned a piece of a great company.It’s at times like this when you can truly appreciate this approach to investing.

So What Would Buffett Do?Well, I’ll tell you what he wouldn’t do.He wouldn’t be nervous. He wouldn’t lose sleep.And he certainly wouldn’t be taking any unnecessary risks.That means stay away from any speculative plays. There’s no need to take extra risk at times like these – regardless of your risk tolerance.Companies that are losing money, but on a “path to profitability,” are a big “NO, NO.”You need to find companies that are leaders in their markets, have strong financial characteristics, and are trading near their lows.Buying companies like that will allow you to sleep at night. It’s like having an airbag in your car when it crashes.

Even if this market goes lower, holding onto stocks like these will put you in a great position when the market turns positive again. The strongest companies are always the first to turn.

Remember: In the short term, the stock market is a voting machine – over the long term, it’s a weighing machine. The stronger companies will ALWAYS outweigh the weaker ones.And just so you know, I’m speaking from experience here.Any advice I ever give you is straight form my own personal experiences in the market, and from professionally managing money for others.

This advice has all been what we like to call it around here, “Battle Tested.” So you can bet your bottom dollar that it works.Stay cool and stick to the game plan for now, my friend, and the market will take care of itself.

http://www.equityinvestmentideas.blogspot.com/

Google's New Site Launch: Government Search

Google (GOOG) has launched a new service to allow Web users to search U.S. government Internet sites. The launch of Google U.S. Government Search at http://usgov.google.com that is meant to help government workers who need information from multiple agencies, but this will also allow "we the people" to more easily get info from all of these sites and should allow an easier mechanism for monitoring multiple news releases and changes within each agency. Google U.S. Government Search will compete with FirstGov.gov, a government-sponsored site powered by Microsoft (MSFT) and other search engines specialized in government-related searches.

The new Google site does need quite a bit of expansion if you look at it right now, but this is going to be a great start for those who need to be able to more easily index and search the hundreds of government sites that are often elusive and difficult to find. Unfortunately when you type in NET NEUTRALITY in the search bar there, it does not have the latest news and developments but you may want to blame the government sites for this as they tend to be slow to update.

Yesterday there was also news that Google had launched a site Shakespearean search that allows users to search full texts of Mr. Iambic Pentameter's 37 plays. Despite Google's past issues fighting copyright issues in other books and text searches, they are in the clear here as Shakespeare's copyright protection probably expired several generations ago. This is still part of the Google Book Search that is still in the Beta stage.

google.com/shakespeare

Oh government, oh government, come hither.

Jon C. Ogg
June 15, 2006

Caterpillar Sets Growth Goals

By Chad Brand of The Peridot Capitalist

Yesterday at their annual meeting Caterpillar (CAT) executives laid out a growth outlook for the next five years. The headline peaked my interest because it seemed aggressive. Cat CEO James Owens announced that sales will grow to $50 billion in 2010 and earnings per share will grow at a compund annual rate of 15%-20% between 2005 and 2010.For a fairly large, mature business like Caterpillar, as much as 20% annual EPS growth over a five year period sounded very optimistic to me, but upon doing a little further number crunching I realized that the plan really wasn't all that aggressive after all.

Current estimates for 2006 and 2007 imply earnings growth of 31% this year and 13% next year. This comes on the heals of a 40% surge in 2005, the first year of the period in question.So, from 2005 through 2007, earnings are expected to grow 28% per year on average. In order to hit the midpoint of the 15-20% annual goal for the entire six year period, profits in 2008-2010 will only have to average about 7% annually.Given this outlook, are Cat shares a buy at the current $68 per share price tag?

Let's assume the midpoint of the growth plan is achieved (17.5%). That puts 2010 earnings at about $7.30 per share. Let's assume a modest 12 P/E on those profits, given that we are talking about a cyclical heavy machinery company. We get an implied share price of $87 four years from now, about a 30% gain from current levels.

Not a horrible return, but not as good as you might expect based on the headlines we saw yesterday. This also assume that the global economy remains strong for many more years. A global recession will likely hurt very cyclical businesses like the one Caterpillar dominates.

http://peridotcapital.blogspot.com/

Four IPO's for June 15, 2006

Main Stock Tickers: GOLF, HWCC, SNCR, VOLC

When was the last day there were 4 IPO's crammed into one morning? With the way the markets have acted prior to yesterday it seems like years, but there are 4 IPO's on deck this morning.

Golfsmith (GOLF) priced 6M shares at $11.50. The price was under the $13.00 to $14.00 range, and thatrange had been trimmed from a $14.00 to $16.00 original range. As you can probably tell by the name, the company is a golfing retailer. it sells golf equipment, apparel, and accessories in over 50 stores in the US. Joint book-runners were Merrill Lynch and JPMorgan, with Lazard acting as co-manager. The company did squeeze a profit in 2005 with sales of $324M and net income of almost $3M.

Houston Wire & Cable (HWCC) priced 8.5M shares at $13.00,in the mid-point of the $12.00 to $14.00 range. The company is a specialty wire and cable distributor to the U.S. and international maintenance & repair markets alongside construction and manufacturing markets, based in....you guessed it, Houston. William Blair and Robert W. Baird acted as the joint book-runners with BB&T Capital Markets as a co-manager. The company is profitable with 2005 revenues of $214M and net income of almost $13M.

Synchronoss Technologies (SNCR) priced its 7.07M share IPO at $8.00, which was lower than the 7.6M shares indicated and under the $9.00 to $11.00 range. The company is a supplier of online transaction management software for wireless/VoIP providers. The joint book-runners were Deutsche Bank and Goldman Sachs, with Thomas Weisel as co-manager in the deal. Synchronoss is a profitable company with 2005 revenues of $54M and net income of $12M (rounded up).

Volcano Corp. (VOLC) priced 6.8M shares at $8.00, under the $10.00 to $12.00 range. Volcano develops intra-vascular ultrasound and related products for diagnosing heart disease. JPMorgan and Piper Jaffray acted as joint book-runners with Bear Stearns and Cowen & Co. as co-managers. The company is not yet profitable, although it posted about $91.9M in revenues last year.

Jon C. Ogg
June 15, 2006

They Doth Protest Too Much

Stocks: (ALTR)(AMD)(INTC)(BRCM)(NVDA)(QCOM)

By William Trent, CFA of Stock Market Beat

We have written about rising inventories of semiconductors and LCD panels for some time. Now that the market has taken notice, driving down the shares of related companies like Corning (GLW) and the entire SOX index, company management is beginning the next stage of a play we’ve seen before: denial.

Although leading TFT LCD panel makers including AU Optronics (AUO) and LG. Philips LCD (LPL) have trimmed their shipment outlook for the second quarter, LCD driver IC design house Novatek Microelectronics stressed that its inventory is at reasonable levels and the company’s margins should remain flat on quarter, the company stated at a June 12 investors conference.
Novatek indicated that present inventory levels are at 40-50 days, which is a reasonable level for the company. Although admitting the inventory value is higher than the first quarter’s NT$3 billion, Novatek anticipates that once panel demand resumes, inventory concerns will ease immediately. Source: DigiTimes.

You don’t say - stronger demand will reduce inventory? We guess so - as long as you don’t make more in the meantime.

Or how about this one:
While noises circulate about the high levels of inventory that the semiconductor industry is encountering, actual inventory is still being managed at reasonable levels, according to executives from both the Taiwan-based Industrial Economics and Knowledge Center (IEK) and World Semiconductor Trade Statistics (WSTS), headquartered in San Jose.
In Taiwan, semiconductor production value should continue to pick up in the second quarter, with average growth of 9.1%, and outstrip growth of 2.4% in global production value in the second quarter, said IEK analyst Jerry Peng.

Although he admitted seeing a rise in inventory levels at leading chipmakers, including Altera, AMD, ATI, Intel, Broadcom, Nvidia and Qualcomm in the first quarter, Peng said the overall inventory index was still being maintained at a sub 1.1 level. He added that industry makers should only worry about the inventory level if the index exceeded 1.2.

Love that second paragraph. First of all, higher production will only exacerbate any inventory issues there may be. We think they are saying they will have growing market share of excess inventory. And the third paragraph: “Well, sure, inventory levels are up at the chipmakers that make up about 80 percent of the business, but the rest are fine.”

After denial comes anger. We think that means cancellation of semiconductor equipment orders. Then bargaining (price cuts.) Finally there is depression (of stock prices) followed by acceptance. We’ll be buyers at about stage four.

http://stockmarketbeat.com/blog1/

Cramer's MAD MONEY Recap from 6/14/06

Jim Cramer's "Mad Money": Cramer opened his show saying its time to Sell ethanol stocks as a fad has come to an end as the market will be flooded with ethanol stocks because of today's IPO of Verasun Energy (VSE) and the other upcoming IPOs. Cramer's prior ethanol recommendations include Archer Daniels Midland (ADM), The Andersons (ANDE) and MGP Ingredients (MGPI).

Cramer answered a viewer's mail question who asked if it looks like Microsoft (MSFT) has bottomed but said he does not recommend buying it.

In the "Lightning Round":
Cramer was POSITIVE on Broadcom (BRCM), Goldman Sachs (GS), Chesapeake Energy (CHK), Yamana Gold (AUY), Yahoo! (YHOO); and was NEGATIVE on Conexant (CNXT), Energy Conversion Devices (ENER), Harmony Gold Mining (HMY), Hansen Natural (HANS), GSI Commerce (GSIC), Tellabs (TLAB) and Waste Management (WMI).

Pre-Market Notes for June 15, 2006

S&P FAIR VALUE -$0.06.

(AAPL) Apple is still facing pressure to open up iTunes from EU countries according to NYTimes, although this has been out.
(AMIS) AMIS Hldgs $0.16 EPS vs $0.15e.
(ARO) Aeropostale announced an additional $100M for share buybacks.
(ARQL) ArQule says Phase I Trials of ARQ-501 show promising signs in tumor studies.
(ATAR) Atari -$0.03 EPS vs -$0.05e; Revenues lower than plan though.
(BSC) Bear Stearns $3.72 EPS vs $3.11e.
(CAT) Caterpillar reiterated its long term goals.
(CEO) CNOOC found its first gas find in the deep waters of the South China Sea.
(CPA) Copa Hldgs filed to sell 6.5M shares for selling holders.
(DSCO) Discovery Labs said its Surfaxin was granted Orphan Drug Designation for the prevention of Bronchopulmonary Dysplasia in premature infants.
(FVRL) Favrille said the FDA allows Investigational NDA for FAV-201 for the treatment of T-cell lymphoma.
(GIS) General Mills raised 2006 guidance by 3%.
(GOOG) Google is launching a government search site; also agrees to buy California property for $319M.
(GOLF) Golfsmith 6M share IPO priced at $11.50.
(HEW) Hewitt CEO will retire at year end.
(HRLY) Herley $0.11 EPS vs $0.11e.
(HWCC) Houston Wire & Cable 8.5M share IPO priced at $13.00.
(IDEV) Indevus Pharma-IDEV positive Phase III data on Sanctura for overactive bladder.
(IDT) IDT authorized 25M share repurchase program.
(IDWK) Int'l Display Works awarded two satellite radio purchase orders.
(IMGC) Intermagnetics gets $27.50 Buyout from Phillips. Stock up 25%.
(INT) World Fuel CFO is leaving the company.
(INTL) Inter-Tel CEO Steven Mihaylo and Vector Capital offer to acquire the company for $22.50.
(IOTN) Ionatron signed development agreement with Anteon.
(LGF) Lions Gate $0.06 EPS vs $0.04e.
(LSCC) Lattice Semi Q2 update expects Q2 revenue to grow 5%-7% sequentially compared to previous guidance of 3%-6%.
(MEDI) Medimmune begins testing of vaccine against the H5N1 avian flu.
(PIR) Pier 1 -$0.26 EPS vs -$0.26e.
(SMTC) Semtech issued subpoena from SEC over stock options.
(SNCR) Synchronos Tech priced its 8M share IPO at $8.00, lower shares and lower price.
(SPPI) Spectrum Pharma registers to sell 1.55M shares For Holders.
(SQNM) Sequenom filed to sell 32+M shares.
(VOLC) Volcano 6.8M share IPO priced at $8.00.
(ZUMZ) Zumiez sold 1.6M shares.

Analyst Calls:
AAPL maintain Buy but cut tgt to $75 and cut estimates at Citigroup; stock down 1%.
AAUK raised to Buy at Merrill Lynch.
ACE raised to Outperform at KBW.
AMD tgt cut from $37 to $26 at Jefferies.
ANDW started as Hold at Jefferies.
BDK raised to buy at Citigroup.
BRL raised to Overweight at Prudential.
CC raised to Buy at UBS.
CEO raised to Outperform at Bear Stearns.
CMCSA started as Outperform at Bear Stearns.
COMS raised to Equal Weight at MSDW.
CVTX cut to Mkt Perform at Piper Jaffray.
DHI cut to Outperform at JMP.
EIX raised to Buy at Merrill Lynch.
FITB raised to Buy at UBS.
FLIR started as Buy at BB&T.
GFIG raised to Buy at Citigroup.
IFLO started as Buy at Oppenheimer.
INTC maintained buy, but tgt cut to $22 from $23 at Jefferies.
KBH cut to Mkt Perform at JMP, cut to Equal Weight at MSDW.
LEN cut to Equal Weight at MSDW.
LUX raised to Buy at Deutsche bank.
MGLN cut to Neutral at Merrill Lynch.
MO reitr Buy at AGEdwards.
MTH cut to Outperform at JMP.
NVDA raised to Buy at UBS.
OSI raised to Mkt Perform at Wachovia.
PHM cut to Equal Weight at MSDW.
PL raised to Buy at Robinson Humphreys.
PWAV started as Hold at Jefferies.
RNAI started as Mkt Perform at CE Unt. Towbin.
RUTH raised to Outperform at Wachovia.
SII raised to Overweight at MSDW.
SLR raised to Peer Perform at Bear Stearns.
SNDK raised to Buy at UBS; stock up 2%.
SPLS raised to Outperform at Sanford Bernstein.
SZE raised to Buyat Deutsche Bank.
TDY started as Buy at BB&T.
UTSI started as Hold at Jefferies.
VIA started as Outperform at BearStearns.
WPSC raised to Neutral at UBS.
XMSR subscriber estimates trimmed at JPMorgan.
XXIA reitr Outperform at Thomas Weisel.

Friedman Billings has initiated coverage of PSPT, CVG, TTEC, & SYKE with Outperform ratings. Homebuilder sector downgraded at both MSDW and JMP Securities.

8:30 AM EST Weekly Jobless Claims.
8:30 AM EST June Empire Manufacturing.
10:30 AM EST Weekly Natural Gas Inventories.

Will Bear Stearns Ever Hibernate?

Bear Stearns had more good news this morning. Earnings were up again, with profits rising 81%. And, based on its run up in the pre-market, it will not be plagued by the same doubts that hurt Lehman Brothers when it announced good results recently, or Goldman Brothers, which seemed to suffer from the same doubts on Wall Street.

But, Bear Stearns my have run a bit too far.

Total revenue rose 33.4% over last year's quarter and 14.4% over the immediately previous quarter, to $2.5 billion. Most of the rise was fueled by improvements in fixed income and the institutional equities businesses, which were both up over 40%. Pretax income rose to $834 million.

With pre-market gains, the stock is now near $130 on a 52-week high/low of $147.77/$98.50. But, the company's price to sales ratio is 2.33. Lehman's is 2.13. And, Goldman Sachs, which one would think would carry a premium, is at 2.05. Merrill Lynch is at 2.18.

All of this may be an indicator that, trading near its high, Bear Stearns may not have much further to rise. It is a great company, but it could be difficult to hold a valuation above its competitors.

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in companies he writes about.

General Mills Glides Higher

Stocks: (GIS)(K)

General Mills (GIS) yesterday raised guidance for the 2006 fiscal year. The company's fiscal ended on May 28, 2006. Diluted EPS is now expected to be $2.90 instead of the $2.80 to $2.85 previously forecast.

The company also said in talking about 2007 that its plans for the next year " include targets of low single-digit growth in net sales and mid single-digit growth in segment operating profits". Hardly awe-inspiring.

Even with the slight bump in EPS estimate, General Mills has hardsly been on fire. The topline growth in the last three fiscal years has been tepid. From 2004 to 2005, revenue grew from $11.1 billion to a little over $11.2 billion. Operating income dropped from $2 billion to under $1.8 billion over the same period. The last two quarters, ending November 27, 2005 and February 26, 2006, showed a sharp sequential decline. Revenue in the November period was $3.4 billion, and dropped to under $2.9 billion in the February period. Operating income also dropped from $643 million to $455 million.

Marketing costs at General Mills have also been going up recently, cutting into the company's margins. If commodity prices remain high, it could also hurt the company.

Kellogg continues to have a large portion of the cereal business, and this could keep the pricing pressure on the General Mills product line.

After a sharp drop in the stock price a little less than a year ago from around $51 to under $46, the stock has recovered to $51.46, near its 52-week high of $52.29, setting it forward PE at 16.
With Kellogg's forward PE at 17, and General Mills modest guidance, it appears that the stock may have run as far as it can.

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does now own securities in companies that he writes about.

iPod's IP Issues

The decline in Apple's (AAPL) stock recently may be at least in part due to intellectual property issues with the iPod and other devices. As Microsoft (MSFT) has found out in the past, having the hot hand in tech often bring patent probes from less fortunate companies.

The bad news yesterday for Apple was that the U.S. International Trade Commission will review the claims of Singapore-based Creative Technology Ltd. that it has patents on several of the interfaces used in the Apple device. Creative has a line of Zen products that compete with the Apple portable media player, although not very well based on Zen media player sales.

Apple has filed a suit of its own against Creative, but, if Apple loses the was, it could cost the company plenty.

Apple is also being sued by Burst.com which has a patent on buffering technology used in video servers. Burst has had some success in these actions including a victory over Microsoft which cost the software giant $60 million. The Apple streaming architecture is not so different from the Windows Media Server and Windows Media Player that Microsoft uses.

Apple may become the target of an ever-increasing rash of these claims. The hurt Microsoft by taking management time and legal resource and Apple shareholders should not be surprised it the same holds true again.

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does now own securities in any of the companies he writes about.

Europe Market Report 6./15/2006

Stocks: (BEAS)(BP)(BT)(BCS)(DEO)(GSK)(PUK)(RTRSY)(UN)(UL)(VOD)(AZ)(BF)(BAY)(DCX)(DB)(DT)(SAP)(SI)(ALA)(AXA)(FTE)(TMS)(V)

Markets in Europe are higher at 6 AM New York time.

The FTSE is up 1.6% to 5,593. BEA is up 2.8% to 354.5. BP is up 1.6% to 585.5. BT is up .8% to 230.5. Barclays is up 1.5% to 596.5. British Air is up 3.8% to 351. Diageo is up .1% to 896. GlaxoSmithKline is up .1% to 1476. Prudential is up 3.2% to 557.5. Reuters is up 2.5% to 363. Unilever is up .4% to 1135. Vodafone is up 2% to 115.75.

The DAXX is up 1.6% to 5,393. Allianz is up 2.3% to 114.22. BASF is up 1.5% to 60.06. Bayer is up 1.8% to 33.25. BMW is up 1.9% to 37.26. DaimlerChrysler is up 1% to 37.42. DeutscheBank is up 1.6% to 83.46. Deutsche Telekom is up .2% to 12.68. SAP is up 1.6% to 156.42. Siemens is up 2.4% to 62.87.

The CAC 40 is up 1.6% to 4,687. Alcatel is up 2.7% to 9.53. AXA is up 2.4% to 24.45. France Telecom is up .4% to 16.96. ST Micro is up 1.7% to 12.29. Thomson is up .2% to 13.37. Vivendi is down .2% to 26.68.

Douglas A. McIntyre

Japan's ZIRP in '98-'00 linked to US market crash in '00 & its happening again

By Yaser Anwar CSC of Equity Investment Ideas

An interesting thing I found today was, when the Bank of Japan has a ZIRP (zero interest rate policy) it leads to alot of hedge funds/private equities etc to commit alot of capital to the markets through "carry trade".

During '98-2000 when the BoJ said that it will be ending its ZIRP the markets crashed due to lack of liquidity & higher interest rates.

We are witnessing a similar situation now. The BoJ meets in July, they are expected to raise rates some economists believe, thus ending their ZIRP which could be a negative for the markets.

As much as I hate interest rate hikes, I think Bernanke needs to raise rates 'cause of the US deficits, he needs to make the US$ attractive to our debt buyers.

On June 10, Russia announced that it will be converting its 715 billion$ reserves, mostly from oil royalties, to 45% US$ and 45% Euro from a previous 25% Euro. This is one of the characteristics that will lead to the US$ demise. Maybe not in a couple of months but a year or two from now, especially since Middle Eastern countries are thinking to do the same.

And when it happens Bernanke will have no choice but to raise rates, as much people hate him for doing it, US deficits will leave him with no choice, thus sending the markets and the economy into recession.

Thats why its even more important now than ever to have at least 20-25% exposure to international stocks.

http://www.equityinvestmentideas.blogspot.com/

Qualcomm (QCOM) raises 3Q forecasts

By Yaser Anwar, CSC of Equity Investment Ideas

Qualcomm (QCOM) has been having good days after the second-largest maker of chips for mobile phones raised its fiscal third-quarter forecasts above Wall Street expectations on strong consumer demand.

QCOM said revenues for the quarter ending June 25 would come in at $1.91-$1.96 billion, as compared to the earlier guidance of $1.77-$1.87 billion.
Qualcomm has also raised its pro forma earnings forecast for the fiscal third quarter from 38¢-40¢ per share to 41¢-42¢ per share. The company raised its forecasts for the second time during the quarter, citing robust consumer demand for devices using third-generation WCDMA technology.

Qualcomm said that its fiscal third-quarter forecasts were based on a quarterly shipment of MSM chips, or modem chips for mobile phones, which is expected to increase to 55 million, as compared to 36 million in the year-ago quarter, aided by network upgrades by wireless operators for high-speed Internet access.

The hike in Qualcomm's forecasts follows a similar move by the company's larger competitor, Texas Instruments a few days ago.

http://www.equityinvestmentideas.blogspot.com/

Technical Analysis on SNDK

By Yaser Anwar, CSC of Equity Investment Ideas

The market has been absolutely brutal of late & Nasdaq is feeling the most pain, but SNDK looks attractive.

The fundamental reasons for being bullish on SNDK are: 1) The growth in demand for SNDK's productives 2) Increasing margins

Technically Speaking: The stock recently formed an ascending triangle, and broke through the bearish side of the triangle. The stock has since moved lower and completed the expected move, $11, after breaking out of the triangle. The RSI is extremely low levels, and support coming up at 48.

http://www.equityinvestmentideas.blogspot.com/

Media Digest 6/15/2006

Stocks: (PFE)(TWX)(GS)(FAL)(GIS)(F)(FNM)(MIK)(UAUA)(BA)(INTC)(AMD)(SNDK)(VSE)

Reuters says that the CEO of Pfizer is still making a decision on what to do with the company's comsumer products division. It could be spun off or sold.

According to Reuters, the head of the Bank of Japan is involved in a scandal for having invested in a fund run by an ex-bureaucrat accused of insider trading.

Reuters writes that Goldman Sachs has raised its bid for Associate British ports to $4.75 billion after another group said it might make a bid.

Reuters writes that Xstrada has received approval from the Canadian government to buy mining company Falconbridge.

Reuters say that General Mills raised its profit target for 2006 to $2.90 a share. The previous forecast was for $2.80 to $2.85.

Reuters reports that executives at Ford said that progress to cut costs and reduce payroll are going faster than expected.

According to the Wall Street Journal, Michaels Stores said it underestimated compensation expense by about $60 million from 1990 to 2001 due to options dating.

WSJ says that Fannie Mae has pledged to complete its restatment of earnings by year-end.

WSJ writes that United Airlines will cut about 1.000 management jobs or 11% of that part of its workforce.

Accroding to WSJ, Boeing rose 6.5% yesterday to $82.01. Intel rose 3.6% to$17.73. SanDisk gained 3.2% to $51.50. AMD gained 3% to $25.11. IPO VeraSun rose 30% to $30. optionsExpress fell 15% to $22.23 due to a slowdown in its business.

The New York Times reports that Dell is trying to regain its footing with investors. One of the issues that the company has to address is its customer service. Another is that it does not have a cost advantage in low-price notebook computers.

NYT writes that TimeWarner unit AOL will turn its Netscape site into a quasi-online newspaper. The site will link to news articles submitted by users and also have a collection of blogs.

Douglas A. McIntyre

Asia Markets 6/15/2006

Stocks: (CAJ)(FUJIY)(HIT)(HMC)(TM)(NIPNY)(NTT)(DCM)(SNE)(CHL)(CN)(CHU)(HBC)(PCW)

Most Asian markets staged a recovery.

The Nikkei was up 1.2% to 14,471. Canon wsa up 1.1% to 7520. DaiwaSecurities was up 2.1% to 1289. Fuji Photo was up .6& to 3630. Hitachi was up .7% to 730. Honda was up 1.6% to 6900. Mitsubishi Corp was up 1.4% to 2115. NEC was down .7% to 584. NTT was down 1% to 522000. Docomo was down 1.8% to 164000. Sharp was up 3% to 1669. Sony was off .2% to 4720. Toshiba was up 1.6% to 680. Toyota was up .7% to 5630.

The Hang Seng was up 1% to 15,401. China Mobile was up .6% to 40.1. China Netcom was up 2.1$ to 12.4. China Unicom was up 3.1% to 6.6. HSBC was up .9% to 133.5. Lenovo was up 4.4% to 2.35. And, PCCW was flat at 465.

The KOPSI was down .2% to 1,219,

The Straits Times Index was up 1.1% to 2,306.

The Shanghai Composite was up .2% to 1,534.

Douglas A. McIntyre

New York Times DealBook Digest 6/14/2005

Stocks: (VSE)(GS)(TRB)(AXA)(CSR)(MIK)(XRX)

DealBooks says that double-digit gains in VeraSun may be good news for other ethanol IPOs in the future.

DealBook also writes that Goldman Sachs is leading the group taking over Associated British Ports but other bids may emerge.

DealBook notes that the Chandler family, one of the large owners of the Tribune company wants to split the company in two with broadcasting and newspapers becoming separate entities.

DealBook writes that AXA will buy the insurance unit of Credit Suisse, Winterthur. Some analysts were skeptical that the deal would go through.

DealBook also writes that Japanese silicon wafer maker SUMCO will buy competitor Komatsu Electric Metals for $320 million. The combined company will be a larger challenger to industry leader Shin-Etsu Chemical.

DealBook writes that Michaels Stores has announced that it is looking into whether it has an options back-dating problem and its 10-Q will be delayed due to the matter.

DealBook also reports that Xerox is buying Amici LLC, a company that helps customers search legal and other documents. The price is $174 million.

DealBook also writes that British oil services company Expro International is buying U.S. firm Power Well Services for$674.5 million.

DealBook also reports that J Crew has set its public offering at 18.8 million shares priced between $15 and $17.

Douglas A. McIntyre

Another of the Risks for Cognizant

By Willian Trent, CFA of Stock Market Beat

We have written in the past about some of the risks faced by Indian IT outsourcing firm Cognizant Technology Systems (CTSH) and its peers such as Infosys (INFY.) We also noted recently that the legal limit for 2007 H-1b visas was met before 2006 was halfway finished. Cognizant relies on such visa-holders to work on-site at US firms and oversee the work done by the Indian employees abroad.

Then we came across this article, published in Mass High Tech: The Journal of New England Technology, which illustrates another risk: political backlash in the US. We last saw it during the 2004 Presidential campaigns, when John Kerry spoke out against offshoring. It appears we may be seeing it again.

One of the intents of the H-1B visa program is to give U.S. companies access to foreign high-tech workers when qualified U.S. citizens cannot be found. Too often, however, our citizens don’t even know of job openings filled by H-1B workers because the law doesn’t require their availability to be posted.

(David) Huber is one of thousands of qualified Americans who were hurt by the H-1B program, which currently allows U.S. employers to hire more than 100,000 non-U.S. citizens annually.
Huber’s experience is not unique. Thousands of U.S. citizens have been replaced by H-1B holders, often at lower wages. In the first quarter of 2005, despite persistent unemployment among New England’s high-tech workforce, companies in the six New England states received permission to hire 19,197 H-1B workers.

The administration’s Office of Management and Budget concluded in a 2005 report that the H-1B program is “vulnerable to fraud or abuse.” Nevertheless, Congress is considering granting more than 50,000 additional H-1B visas per year.

The problem is one of perception more than reality. If 50,000 new visas are issued Cognizant and others will take eight weeks rather than six to use up the quota. If they are cut in half, Cognizant will just have to find alternatives - just as they have done since the H-1B program declined from a peak of 165,000 in 2000. Further, the number of such visas, even if risen by 50,000, would barely exceed one tenth of one percent of the total US workforce. So it really isn’t a big deal.

But it is bad publicity. And in a market like we have had recently, nobody needs bad publicity.

http://stockmarketbeat.com/blog1/

Market Wrap for Wednesday, June 14, 2006

DJIA 10,816.92; Up 110.78 (1.03%)
NASDAQ 2,086.00; Up 13.53 (0.65%)
S&P500 1,230.04; Up 6.35 (0.52%)
VIX 21.65; down 2.16 (9.07%)
10YR 5.05%

This morning pre-market everything looked like we may have a good day for the bulls. After a rough day that seemed poised to end negative, the Bulls finally posted a winning day. The markets were looking for a tamer CPI, we had a solid analyst upgrade from Goldman Sachs on chip stocks, and even home builder stocks had a favorable sector call from Citigroup. At 8:30 AM EST that all changed after the CPI data was 0.1% higher on the core CPI than the street was looking for. Fed Governor Fisher's comments and a Beige Book didn't deter the bulls.

The Federal Reserve's Beige Book also showed an economy that was slowing, but one that has inflation starting to be passed through. If the market needed a Beige book report to discover this, then the market is no longer a discounting mechanism even if we have a data dependent market that reacts to a data dependent Fed. Fed Governor Fisher basically said the Fed would rather overshoot than allow inflation to build too much.

Tech stocks looked like they were about to falter again for the NINTH consecutive day, but managed to close up at the end of the day. The Semiconductors were winners on the day after Goldman Sachs upgraded the sector. Intel (INTC) closed up 3.5% at $17.73; National Semi (NSM) closed at $24.04, up 2.3%; and Advanced Micro Devices (AMD) closed at $25.11, up 2.9%.

The AMEX Biotech Index (*BTK) closed up 0.7& at $639.51 and the Biotech HOLDR's (BBH) managed to claw their way into positive territory at the close to end up $0.07 at $172.39..

Boeing closed up 5.03% at $82.01 after securing a multi-Billion dollar order from Singapore and after Airbus' parent EADS was crushed overseas on an additional 6 to 7 month delays losing some -26.3% for the day.

American Eagle Outfitters (AEOS) closed up 3.3% at $32.06 after boosting its dividend by 50%.

The second largest ethanol pure-play VeraSun (VSE) debuted strongly in the market closing at $30.00 after pricing its 18.25M share IPO at $23.00, above the share estimate and above the already raised price range.

Phillip Morris, sorry Altria (MO) now, closed up 0.5% at $69.96 after an Ohio court decertified a class action suit over light cigarettes.

Carrizo Oil & Gas closed up 6.8% at $28.38 after Cramer gave a very bullish scenario last night on "Mad Money."

Qiao Xing Universal Telephone Inc (XING) closed up $0.97 (13.45%) at $8.18 after saying it sees higher 2005 basic earnings to over $1.00 per share.

Some key foreign ETF's and funds finally recovered after some nasty days as well. The iShares Japan (EWJ) closed up 2.5% at $12.60, just one day after teh NIKKEI closed down over 4%. The Templeton Russia Fund (TRF) closed up 11.7% at $56.00, the India Fund (IFN) closed up 6.3% at $39.95, and the Turkish Investment Fund (TKF) closed up 5% at $15.38.

All major banking stocks closed down again today. Citigroup closed down at $47.80, Down $0.41 (0.85%). Bank of America (BAC) closed down again at $46.64, down $0.43 (0.91%).

Conversely the homebuilders fared out pretty well after Citigroup issued a report saying analysts are overestimating the inventory overhang and that they expect a share recovery in the group. KB Homes (KBH) closed up 2.2% at $43.19 and Lennar (LEN) closed up 1.3% at $43.65.

Apple (AAPL) closed lower down 1.23%at $57.61 after the U.S. International Trade Commission launched a probe into whether Apple's iPod digital music player infringes on a Creative Technology Ltd. (CREAF) patent; CREAF closed up 5% at $4.96 on the news.

What the bulls want to see now is some solid base building. Boring days will be fine, but they want to see these recent lows hold before they can fully endorse the market from here. We still have jobless claims and other economic data coming up, and don't forget we will probably get some additional volatility at the close Friday as that is Triple Witching day.

Jon C. Ogg
June 14, 2006

Research and Development Usually Good

Stocks: (MSFT)(XRX)(IBM)(SUNW)(LU)

By William Trent, CFA of Stock Market Beat

USA Today has a breathless story on US firms cutting R&D and fears that this could make the companies and the country less than competitive. While R&D are usually good uses of money, sometimes they can be taken too far. Look at all of the inventions made at Xerox’s (XRX) Palo Alto Research Center that were not commercialized until outsiders came in for a look-see. Research is no good unless it leads to development and ultimately to sales.

IBM on Wednesday plans to launch a consulting service to help businesses manage R&D efforts. It’s needed because companies increasingly must do more with smaller budgets, IBM executive Melvin Weems says.

Sounds reasonable to us, although we question whether the reduntant R&D savings will offset the consultant overhead, but that is another story.
Many cuts came from some of tech’s most innovative companies:

• Sun Microsystems (SUNW) last month announced a restructuring that includes a “significant reduction in non-core or redundant R&D,” CEO Jonathan Schwartz said. The computer-maker had already trimmed its budget 7% in 2005 from 2004.

• Bell Labs, the research center behind the fax machine and other innovations, may soon face cuts. Parent company Lucent Technologies (LU) in April announced plans to merge with French rival Alcatel and cut 10% of the combined staff. Every business unit is likely to be affected, Lucent says.

• Hewlett-Packard (HPQ) cut its R&D budget to $3.5 billion from $3.7 billion in its 2003 fiscal year. The unit was overhauled to be more efficient and product-focused, spokesman Mike Moeller says.

• Microsoft (MSFT) cut its R&D budget to $6.2 billion in its 2005 fiscal year from $6.6 billion in 2003. Microsoft attributes some of the drop to an accounting change.
These are the “most innovative companies?” What blockbuster product has Microsoft developed with its $18 billion+ in R&D spend? Hewlett Packard cuts R&D and - what do you know - profit surges. Short sighted? The long-sighted approach was tried for 20 years and got nowhere. Sun? Lucent? They were innovative. Now they need to survive, and survival doesn’t come from doubling an expense.

Meanwhile, there is still plenty of innovation going on in the US. Much of it is still being done in privately held companies where it is off the radar screen. But all you need to do is look at how your lifestyle has changed through new and innovative products to see that it is still happening.

http://stockmarketbeat.com/blog1/

Maybe Carriers Should Price 3G More Attractively?

By William Trent, CFA of Stock Market Beat

InfoWorld notes that many carriers are trying to spur 3G adoption with unlimited plans - unlimited, that is, unless you are a bandwidth hog who is constantly streaming movies or hosting your web site over 3G.

To get subscribers to buy the high-speed services and start using them, mobile operators are offering some “unlimited” data plans that allow as much streaming, uploading and downloading as the customer wants in the course of the month — within certain terms of service. Some uses, such as hosting a Web site, typically aren’t allowed.

At least one carrier, Verizon Wireless Inc., (VZ) is looking the other way when users go wild. Verizon has allowed subscribers to use its BroadbandAccess service for capacity-intensive applications such as streaming TV to their notebooks from Slingbox video distribution devices, even though the terms of service forbid this, Executive Vice President and Chief Technical Officer Dick Lynch said at the CTIA Wireless show in April.

The most shocking thing about this is why are they letting bandwidth be too plentiful in the fist place? Instead of the limited unlimited bait and switch, Verizon, why don’t you try a more reasonably priced service? DSL speeds are not worth twice as much just because they are mobile. Fill up those networks - the incremental cost per magabit is awfully low.

http://www.stockmarketbeat.com/

Extraordinary returns, more extraordinary fall

By Yaser Anwar, CSC of Equity Investment Ideas

Templeton Russia Fund (TRF) was on a 30% premium to its actual value last month & i told readers of Investment Ideas blog
“If speculative emerging markets like Russia experience a profit taking sell-off in the near future, this fund is sitting “fat and sassy”… and could suffer a fantastic drop.”

The emerging market sell-off came. But TRF’s plunge has been extraordinary. The fund is down 46% from its May highs… and down 27% in just the past week.

Let the fall in Russian stocks be a lesson to all of us… when investors decide to exit emerging market stocks, they shoot first and ask questions later.

http://www.equityinvestmentideas.blogspot.com/

Schlumberger And The Price Of Oil

Huge oil field services provider, Schlumberger (SLB), tends to trade with the price of oil, but there are some strengths to the company's business that go beyond the daily price per barrel. The company provides products to oil and gas exploration firms, and , with prices still near their high-water mark, the company is likely to do well over the next few quarters.

The advantage that SLB has now is that as oil and gas become harder to locate and drill, the services the company has to offer the industry become more valuable. The depth of the company's R&D and product range make it difficult for any other company in the world to compete with it.

The argument against owning an oil industry service stock is that the pricing cycles tend to hurt the company when price-per-barrel drops. There is some true to this, but SLB has managed to make money in even lean years.

Over the last ten years, the companies revenues have gone up and down, linked primarily to the price of oil. Over the last ten years, revenue has been as high as $14.3 billion, which the company hit in 2005, and as low as $8.8 billion in 1999. And, operating income has been positive in each of the ten years except 2002. In 2005, operating income hit $2.8 billion.

According to Morningstar, SLB has also done a great deal to improve its balance sheet. The company cut its debt from nearly $5 billion in 2002 to $1 billion at the beginning of 2006.

SLB has pulled back from its 52-week high of $74.75 to $56.12, in some part because of the drop in oil prices.

However, price-per-barrel remains near historically high levels, and, the need for SLB's services should rise as the commodity becomes harder to find and retrieve.

With a forward P/E of 16, the shares of SLB could be a bargain.

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in the companies he writes about.

Getting the Froth Out

By Chad Brand of The Peridot Capitalist

Over the last year or so the markets have done well despite the rally being very narrowly focused. Consider what was working up until May. International, energy, gold, copper, industrials. The investment banks did great too as M&A activity hit record levels. What about other areas? Healthcare, technology, telecom, media, banks, retail. Not a lot of performance in those areas, even though they make up a huge portion of the U.S. market.

The result of such a narrow market was that everybody began chasing what was working and shunning everything else. The copper move from $3 to $4 an ounce was probably solely due to