New York Times DealBook Summary 6/30/2006

Stocks: (BA)(EMC)(RSAS)(PD)(FAL)(N)(CD)(VE)(SYMC)

NY Times DealBook reports that Boeing spin-off aircraft parts company Spirit AeroSystems has filed for an IPO. The company plans to raise about $500 million.

DealBook reports that shares in storage company EMC fell to a 52-week low on news it was buying RSA Security for $2.1 billion. There may have been a rival suitor. According to BusinessWeek, it was online security company Symantec.

According to DealBook, several institutional investors have said they do not support Phelps Dodge's purchase of Falconbridge and Inco. Atticus, a hedge fund that owns 6% of the company has voiced its doubts as has Neuberger Berman.

DealBook reports that Cendant has sold its travel services business, TravelPort, to the Blackstone Group for $4.3 billion.

Bidz.com, the online jewelry business, has cut back its IPO, dropping the number of shares for sale by half to 3 million.

DealBook say that French company, Veolia, the world's largest water company, has bought Brambles Industries, a trash collection firm, for $1.1 billion.

Douglas A. McIntyre

EMC and a Changing Security Landscape

Stock Tickers: EMC, RSAS, SYMC, MSFT, HPQ, IBM, CSCO, JNPR, ENTU, ALDN, VDSI, ACTI, BCSI, TMIC, CHKP, MFE

EMC (EMC) is being punished this morning after announcing its acquisition of RSA Security (RSAS). Its shares are down 7% or more, and this puts it at right at the bottom of what looks like a $10.00 to $14.00 trading band that has been in place for about 3-years.

After forming some internal opinions and after browsing over numerous research reports, the reasoning behind this drop would seem to be the price that EMC paid for RSA. It isn't the $28.00 cash, it is the $2.1 Billion. All in all that actually is not overly expensive when you compare the valuation of RSA to others in the data security industry (see DOUG's ARTICLE from yesterday), so this may just be creating another opportunity.

This will take some time for EMC to fully absorb and digest, but it will ultimately round out EMC's product offering. It looks like the street decided that since RSA at the buyout price is about 8.5% of the size of EMC and trades at a higher earnings multiple than EMC, then they should sell EMC off at close to the same rate. No one can give you a bottom tick prediction, but this feels a bit remedial.

This merger also has many industry ramifications. If you consider the marriage of data and storage, it actually endorses the model that Symantec (SYMC) has chosen with its old acquisition of Veritas. That stock was mutilated after it made that transaction and has never been able to recover. Even though this ultimately means more competition for Symantec and the landscape, this deal may make investors revisit the Symantec business model now.

This also puts other smaller security players into play with storage and other hardware providers. Microsoft (MSFT) has long been a quiet outside deal-maker in security, which is no surprise since they are the NO. 1 TARGET for any hacker in the world. Hewlett Packard (HPQ) has been expected to do security deals, as has IBM (IBM). Cisco (CSCO) has done security deals, as has Juniper (JNPR). CNET ran an article long ago discussing the coming trend of consolidation in data security players (LINK HERE).

So, what security companies could be looked at?

Entrust (ENTU) is a name that is being tossed around as a potential target, and it is down 50% from its 52-week highs and has a paltry $190 million market cap that would be easier than breathing for a large company. It doesn't help that Entrust has been losing money, but that could be fixed potentially by a larger parent.

Aladdin Knowledge Systems Ltd. (ALDN) is another name that has been tossed around as a takeover name before. They are based in Tel Aviv, Israel and there have been hopes that someone would acquire them for literally years and years. It has a meager market cap of $287 million and a fairly low P/E multiple of 20.00 and an even lower forward earnings multiple of about 17.35 based on consensus estimates.

VASCO Data Security (VDSI) is another name that has been elusive. It has a lofty earnings valuation with a 40 P/E, but would probably not require a ridiculous premium to acquire and has some valuable digital certificate operations that could easily be integrated into a larger hardware or software vendor's product offerings. It also has a substantial insider ownership, so IF they were convinced that this was the right fit then the deal could happen smoothly.

ActivIdentity Corp. (ACTI) is another name that is up marginally on hopes that they will be more attractive. Unfortunately they are not profitable, have been a poor performer, have had very sporadic revenues, and may need more of a consumer play to take traction.

Blue Coat Systems (BCSI) was a name thought of for a while as a candidate, but they have now entered their own deal to acquire Network Appliance's (NTAP) NetCache business.

Trend Micro (TMIC) has been an elusive company. It is based in Japan and has had a security deal with Microsoft for email security, but it is largely not thought of by many. It also has a large value at $4.5 Billion, but it hardly trades in the US at all.

Check Point Software (CHKP) is the name that has been elusive and probably would not benefit from this. They are perhaps the world leader in firewalls and corporate data security, based in Israel. The company had a failed private deal over US national security concerns and over protectionism, and they may actually have to go make some outside transactions of their own to be competitive and attractive again.

In the US, McAfee (MFE) is another name that may be left out of the deal landscape. The company is thought of as a bit maxed-out, and it may be on hold until the next PC upgrade cycle has taken hold. It is worth $3.9 Billion today and has a P/E of 28.9 based on trailing numbers, and it has had "issues" in the past.

In truth, this deal new acquisition of RSA by EMC validates the combined offering model. It will heat up competition in other areas as well, and companies that have sluggish patterns and that aren’t able to adapt may have a hard time hanging out with the big boys.

There is also a myriad of private companies in the US, Europe, Israel, EU, and Eastern Europe that have been fertile recruiting grounds and quiet takeover bait for years now. Many of these companies are completely unknown, and they will stay that way. They also offer (or attempt to) many of the same offerings as many of the public companies above.

Just because one deal occurs does not guarantee more deals to come. Even with the caveats, there is still a greater chance of other deals coming to fruition. The landscape is changing, so do some homework on your own to see which others will benefit. If nothing else, you can at least expect this to keep the rumor mill active.

This merger of course will have ties into the Data Storage and related sectors, but that is another story.

Jon C. Ogg
June 30, 2006

Why The GM Deal With Nissan/Renault Is Dead On Arrival

GM's largest shareholder, Kirk Kerkorian has been in touch with the heads of Nissan and Renault about buying a minority stake in the U.S. auto company and creating a three-way international alliance to build and market cars. GM's stock opened the day up sharply, but began to fall off almost immediately.

It won't happen.

Although Nissan's stock is off its April/May highs, it is still well above its two year bottom of early 2005. Sales of Nissan's vehicles in Japan have caused the company's shares to move down. However, the company still says it will sell 4.2 million vehicles in fiscal 2008. Carlos Ghosn's turnaround if Nissan is legendary in the car business, notwithstanding its current issue.

Ghosn is also now chairman of Renault and the European car company has cross ownership with Nissan with each owning shares in the other. The company's stock is doing unusually well, and Ghosn's presence at the company has helped it be viewed as a substantial force in the European auto industry. The company is now the 10th largest auto maker in the world with 2005 sales of 2.553 million cars.

GM, with its massive labor problems and junk-grade debt is hardly an attractive partner for tow smaller but more stable can companies. GM's situation may have improved, but a 2007 strike by the UAW is still a possibility if the union makes a last stand to protect jobs.

Additionally, and perhaps more important, GM's financial condition and falling market share are the most important hammers the company has in dealing with the UAW. An alliance that improves GM's short-term financial situation exacerbates the ability of the company to rebuild its North American operations by giving the union a bargaining chip.

Although they may be tempted, a partnership with GM is not in the cards for Nissan or Renault. Carlos Ghosn is too smart for that.

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

Growing with Accenture

Stocks: CTSH - IBM - ACN

By William Trent of Stock Market Beat

Consulting firm Accenture (ACN), which is on our Watch List, reported strong earnings Thursday after the market close. The outsourcing market appears to remain strong, which has positive implications for other Watch List names including IBM and Cognizant (CTSH).

Fiscal third-quarter net income advanced 2.5 percent to $496.1 million, or $0.56 per share, from $484 million, or $0.51 per share, in the year-ago period. Analysts were expecting $0.46. The year-ago results included a benefit of $66 million, or 8 cents per share, related to the company’s 2001 reorganization into a corporation from groups of partnerships. Revenue rose 6.8 percent to $4.81 billion from $4.5 billion last year and compared favorably to analyst estimates of $4.43 billion. Consulting revenue rose 6 percent to $2.66 billion, and outsourcing revenue gained 11 percent to $1.75 billion.

Accenture shares have tumbled about 11 percent in the three months since its last earnings report on March 28, when the company surprised investors with a $450 million charge for losses expected on a computer system project for the British health care system. The Standard & Poor’s 500 Index fell 4 percent during the same period.

New bookings, a key indicator of future revenue, were $5.57 billion in the third quarter, the highest in nine quarters, Accenture said.

Accenture said it now expects full-year 2006 revenue growth at the upper end of its earlier forecast of 9 percent to 12 percent. It expects full-year net income per share of $1.55 to $1.57, including a $140 million tax benefit recorded in June.

For the fourth quarter, Accenture forecast revenue of $4.2 billion to $4.35 billion and net income of 52 to 54 cents per share. Analysts are forecasting profit of 38 cents per share, before items, and revenue of $4.27 billion.

http://stockmarketbeat.com/blog1/

Sell Side Comes to Investing Epiphany

By William Trent of Stock Market Beat

Comments from Merrill Lynch semiconductor analyst Joe Osha, found via Tech Trader Daily.
The worse the data points get, the more bullish we become, and we think that the key lesson of the last six months is that the value of data point investing in semiconductor stocks has now been eliminated.

Markets are amazingly efficient at arbitraging excess profit opportunities away, and we’ve seen it in semiconductor stocks before. Ten years ago all one had to do was correctly call the inflection point in industry revenue growth, and the stocks would follow. By 2001 investors had started to figure that out, and over the next several years the relationship broke down. Few semiconductor analysts bother with the sweeping sector calls that used to be so popular, as the market has figured out that adding value that way become almost impossible.

Data point investing in semiconductor stocks is now headed for a similar fate, in our view. Consider the fact that no amount of channel checking would have turned up weakness in January despite the fact that January was the selling opportunity. Meanwhile, publicly available SIA data showed the industry hitting dangerously high unit shipment levels, and valuations were too high as well.

There are too many investors taking too many airplanes to Taiwan and China, and the exercise is now undifferentiated and valueless. Oddly enough, some of the tools that used to work better – watching industry data closely, and paying attention to valuation – seem to be working better. No doubt that we’ll see another shift in semiconductor stock behavior that will render those measures useless as well. For now, though, the formula for success seems to favor watching earnings multiples and SIA data, and staying off those flights to Taipei.

We will set aside our confusion over why published industry sales data does not constitute a “data point” in Osha’s parlance. Or, for that matter, why the P/E multiple for a stock does not count as a “data point.” It seems amazing that an equity analyst would suddenly realize that valuations (earnings multiples) and macroeconomic data such as that delivered by the SIA are more important to an investment thesis than some random tidbit gleaned in a channel check. (For the uninitiated, a channel check is basically asking someone who buys semiconductors “how’s business?”) If there was ever an anomaly in the stock market, it was a time when valuations didn’t have an enormous impact on investing returns. On the other hand, perhaps we’re being too harsh on Osha. His pay - no, his very job - is driven by what tiny edge he can glean for hedge fund managers that none of the other sell side analysts were able to glean.
For the most part, hedge fund managers are not investors - they are traders. For traders, a moment’s swing in sentiment due to a slow sales day at one customer is enough to jump in for a quick profit. All the better that they get the data from the sell side - that leaves more of the 20 percent incentive pay for their own profits.

If you are an investor rather than a trader, you are less likely to be concerned by the weekly fluctuations in this or that. If you are a dedicated investor, you paid very close attention to the valuation when you bought, and were probably aware of the potential short-term downside to that valuation. You are less concerned about whether customer X ordered fewer semiconductors today than you are whether customer X is consistently ordering fewer semiconductors. You’ll suffer the first couple of points of downside waiting for the trend to become apparent, but you won’t waste buy and sell commissions trading on each wiggle in a volatile chart.

To some extent the whole concept of trading tech stocks is an ongoing bubble-era hangover. We used to be able to make so much money in tech stocks we believe that if we only try harder we will be able to do so once again. So we jump on the plane to Taiwan and interview factory workers to see whether they assembled more iPods today than they did yesterday. Thing is, it ain’t the bubble anymore. In fact, the tech bubble was only the tech bubble because the growth days in semiconductors were already gone and nobody believed it.

When Osha wonders what changed when “Ten years ago all one had to do…” he need look no further than the same old SIA data. It would have given the right data then - although acting on that data would have (and did) make some investors look stupid. For a while. But Osha still hasn’t learned.

He goes on to say:
Now, of course, the negative data points are myriad, although we’re mystified as to how much value-add there can be with the SOX down 22% from its January peak and valuations now reasonable. With a seasonal uptick in PC build activity beginning to show up, the predictable appearance of negative wireless data points justifying a trade into PC stocks has been especially amusing to watch.

Only to someone who still thinks in terms of the bubble can believe that valuations are now reasonable. The chart shows how much growth trends have slowed. In fact, if you take the April 1996 number and the April 2006 number you will find an average annual growth rate of just over five percent. Nominal. GDP has grown faster on a nominal basis, with less volatility. Just about any industrial segment - chemicals, steel, homebuilders - has had more growth in the last 10 years than semiconductors. So don’t tell us semiconductor valuations are reasonable until their P/E ratios are similar to those of Dow Chemicals (8.7), US Steel (12.7) or Toll Brothers (5.1). ‘Til then, you’re living in dreamland.

Note: That is not to say we think semiconductor valuations will head straight to zero. The vast majority of investors were at the same kegger Osha went to, and are still as hung over. The industry remains cyclical and thus will have ups and downs within that longer-term valuation compression. So we’ll keep on watching that SIA data, and we’ll try to call those turning points. Just don’t expect us to hang on for more than a few months. We’d rather miss a little upside within a wiggle than participate in more of the longer-term downtrend.

http://stockmarketbeat.com/blog1/

PC Market Still Slowing

By William Trent of Stock Market Beat

Thus spake Lenovo.

While the news is likely no surprise to DELL’s investors, it may be one for those who own Hewlett-Packard. Furthermore, the delays to Microsoft’s Windows Vista continue to cause many to wonder whether businesses will alter their PC replacement plans in order to do a more comprehensive upgrade at a later time.

Passive component maker Walsin Technology Corporation (WTC) said that lower-than-expected demand from the PC sector has affected the company’s performance in the second quarter and it regarded July to August as the key indicator for this year’s business outlook, according to DigiTimes.

Meanwhile, industry analysts at IDC expect notebook computer shipments to grow in Asia, though not enough to offset a decline in the US and Europe.

http://www.stockmarketbeat.com/

Cendant's Dissolution Continues

Stock Ticker: CD

Cendant Corporation (CD-NYSE) announced a definitive agreement to sell Travelport, the Company's travel distribution services subsidiary, to an affiliate of The Blackstone Group for approximately $4.3 billion in cash and is expected to close in August 2006. The proceeds from the sale of Travelport had already been earmarked for most of the funds to reduce its Realogy and Wyndham debt levels, targeted at an approximate $750 million for Realogy and $600 million for Wyndham.

Cendant now expects to simultaneously spin-off its Realogy and Wyndham Worldwide subsidiaries in late July. This is part of an ongoing restructuring in Cendant that is actually dissolution of the company as we know it.

It is unfortunate that they are not going to use proceeds to return cash to shareholders, but they are trying to shore up their balance sheet so units are attractive. Cendant is essentially 4 different operations and each of those operations includes many facets.

The stock is up 4% pre-market on this news, but its shares are still hovering close to its 52-week lows of $15.16 and around the same lows of about 3-years. The company is honestly trying to do the right thing, but if they really ant to reward the shareholders they need to return more cash. After running many different scenarios a few months ago and trying to smooth out some of the ups and downs in units, Cendant (a BAIT SHOP member) has what is derived as a break-up value or "sum of the parts value" of between $19.00 and $22.00. The shares have been stuck mostly under $16.50 since mid-May and it is exceeding more and more difficult to find anyone that truly likes the company.

What is important is that they are full of small units and divisions that are fairly predictable and have a long operating history. They are perfect for private equity firms, and that is why Blackstone is in this deal this morning. There will probably be more and more of these, but hopefully Cendant will read this and start returning more cash to holders so that the sum of the parts actually gets returned to shareholders. Their annual meeting of shareholders is August 29, 2006, and we should have some much more clear valuation estimates by then.

This corporate structure and the dissolution process is not very clear to most, and it is not without risk. Difficult deals to understand have a hard time finding much love on the street, and that is what has contributed to the steady weakness in Cendant. The entire combined operation after the break-up and dissolution in the coming 3 to 12 months (or however long it takes) still seems to have more projected returns than risks. If something happens to private equity money in the next 3 months, then this belief and perceived valuation will come in considerably. Based on the funds that have been and continue to be raised the perceived risk of that happening is still fairly low.

Cendant is supposed to mean “change,” and that should live up to the name. Most likely in a few months the company will not look like it does today. If it handles these divestitures and spin-offs properly, it will also offer a reward to those investors that are willing to enter complex investment situations with some patience and understanding. Cendant has been perceived as a dead-money stock for a many years, but there still appears to be a favorable risk vs. reward matrix for the right investor.

Jon C. Ogg
June 30, 2006

KMG Chemicals: An Odd Secondary Offering

Stock Ticker: KMGB

KMG Chemicals (KMGB-NASDAQ), a specialty chemicals maker (in Pentachlorophenol Products, Creosote, Animal Health Products, and Agricultural Products), today announced that a public offering of 2,800,000 shares of its common stock has been priced at $7.00 per share.

This is an interesting offering, at a substantial discount in a name most have not heard of. KMG Chemicals (KMGB-NASDAQ) closed yesterday at $8.08, and this trades actually under 4,000 shares per day on average. The company only has a $71.1M market cap

The offering is 1,500,000 shares from KMG, 1,087,984 from David Hatcher, Chairman and CEO and 212,016 from Valves Incorporated of Texas, whose President is Fred C. Leonard, an outside director of KMG.

KMG will use the proceeds for working capital, to fund future acquisitions and for general corporate purposes. Boenning & Scattergood served as lead book-running manager with Sterne, Agee & Leach as co-manager.

Because this is so thinly traded the shares priced at a substantial discount. This is so small that it will likely not even show up on anyone's radar, but a pricing at that discount is reminiscent of the old Reg.-S private placements done overseas in the mid-1990's where shares were sold by companies and directors at a substantial discount.

Jon C. Ogg
June 30, 2006

Pre-Market Notes for June 30, 2006

(AAPL) Apple disclosed that its own internal options granting probe showed some options granting may have been mishandled, including options to Steve Jobs; stock down 2.8%.
(ACUS) Acusphere noted as positive value in Business Week.
(ACN) Accenture $0.50 EPS vs $0.46e.
(ACV) Alberto Culver noted as having higher breakup value in Business Week.
(ANDE) Anderson's filed to sell 2.2M shares.
(BDY) Bradley Pharma says FDA extended review period for Polyphenon.
(CA) Computer Associates announced options irregularities in internal probe; announced $2B share buyback.
(CD) Cendant is in a deal to sell its Travelport unit for $4.3B to a Blackstone-led group; stock up 2%.
(CELG) Celgene gets FDA approval for Revlimid as a combination treatment with Dexamethasone; stock up 1%.
(CEPH) Cephalon received FDA "approvable" for Fentora; stock up 10%.
(DNDN) Dendreon says their study indicates Provenge treats prostate cancer.
(DVN) Devon noted as takeover candidate in Business Week.
(EMC) EMC down 4.8% after paying $2.1 Billion for RSA Security.
(EQUIX) Equinix gets grand jury subpoena over stock options granting.
(EXAR) Exar CFO is retiring.
(GBE) Grub & Ellis 10M share secondary looks to have priced at $9.50.
(HH) Hooper Homes -$0.01 EPS vs -$0.01e.
(HLTH) Emdeon raised guidance shortly before yesterday's close.
(IART) Integra LifeSciences is acquiring private Kinetikos Medical for $40M cash.
(IPXL) Impax Labs settled its Solvay litigation for $23M.
(ME) Mariner Energy CFO is leaving the company in August.
(NR) Newpark terminated former CEO and CFO.
(PALM) Palm down 9% after beating earnings but issuing soft guidance.
(PCU) Southern Copper positive article in Business Week.
(PDE) Pride International disclosed it found improper payments to overseas government officials.
(PRGO) Perrigo received tentative FDA approval for Norvasac.
(RIMM) Research-in-Motion up 4.8% after beating earnings.
(RSAS) RSA Security rose again after EMC confirmed it would acquire RSA for $28 per share.
(SABA) Saba Software down 16% after posting an unexpected loss.
(SI) Siemens is purchasing Bayer's Diagnostic Unit for approximately $5.3 Billion.
(SNN) Smith & Nephew disclosed a DOJ price fixing subpoena as part of industry-wide probe.
(STZ) Constellation Brands $0.31 EPS vs $0.31e.
(ZICA) ZI Corp announced resignation of CFO.

AAPL tgt cut from $77 to $68 at B of A.
AATI started as Buy at Jefferies.
AKAM started as Accumulate at ThinkEquity.
BAX cut to Sector Perform at William Blair.
CA cut to Negative at Susquehanna.
CZN raised to Buy at Merrill Lynch.
ELNK reitr Outperform at CSFB.
FOXH reitr Buy at First Albany.
HEW raised to Buy at Citgroup.
KR raised to overweight at Lehman.
ONXX raised to Buy at B of A.
PGIC started as Neutral at Goldman Sachs.
POR started as Sell at Goldman Sachs.
PQE raised to Peer Perform at Bear Stearns.
RATE raised to Buy at Jefferies.
S reitr Overweight at JPMorgan.

May Personal Income at 8:30 AM;
May Consumer Spending at 8:30 AM;
June Consumer Sentiment released at 9:45 AM;
June Chicago PMI at 10:00 AM.

Reminder today is quarter-end.

Microsoft, Just Shoot Me

Microsoft was hit with back-to-back bad news recently.

First, Office 2007 will be released late this year and not in the Fall. Maybe. Microsoft is now releasing products late on an ever-increasing basis. The company's new operating system, Vista, has also been hit with delays. Aside from the embarrassment of having major software releases constantly delayed, there is another, more important, impact.

A look at Microsoft's public filing shows the extent to which the OS and Office products drive the huge majority of the company's operating income. Continued late releases are bound to catch up to the company's financials as customers wait to upgrade to new versions. Sales could certainly be hurt in the fourth quarter of this year.

In addition, Microsoft lost another key employee to Google. This adds to the public perception that Google has the hot hand in software development and consumer sentiment and that Microsoft has seen its best days.

If the delayed release in software hits the topline and earnings this year, Microsoft's stock could drop below $20 for the first time since 1998. The stock has already been as low as $21.46 over the last 52-week period.

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

Looking Ahead- Reflections on the 3Q

By Yaser Anwar of Equity Investment Ideas


The markets are entering a period of seasonal vulnerability.

The third quarter is generally a weak one for stocks. In the period after World War II, the S&P 500 has posted an average loss of 0.1% between July and September.

Since 1928, the average third-quarter gain for the “500” has been only 1.1%. Market upturns generally resume in earnest in the fourth quarter, which has, historically, been the strongest.

The Standard & Poor’s Investment Policy Committee target for the “500” by year-end remains 1385.

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

Tweaking The Foreign Allocation

By Yaser Anwar, CSC of Equity Investment Ideas

S&P Equity Strategy believes recent global stock market volatility is fueled by concerns that major central banks, fearing increased cost pressures, will overshoot and raise interest rates too much, stifling global economic growth in the second half of 2006.

Investors are worried that this will lead to a dramatic slowdown in global earnings growth. Thus, the current P/E contraction.

Global equities are experiencing their first major correction since the beginning of the current bull market in October 2002, with the S&P/Citigroup World Index down 11% from May 9 through June 21. S&P believes this volatility is shifting global risk-reward ratios and warrants several allocation changes.

The S&P Investment Policy Committee has decided to increase the allocation to developed international markets to 12% from 9%.

In the Model ETF Portfolio, this group is tracked by iShares MSCI EAFE (EFA). Since developed markets represent the largest international equity asset class, we believe greater exposure is warranted.

Also, Europe and the United Kingdom make up about two-thirds of developed international markets. Europe and the U.K. also have among the most attractively valued markets and offer a dividend yield higher than those of other developed markets.

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

European Stock Market Report 6/30/2006

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

Stocks in Europe were higher at 5.30 AM New York time.

The FTSE was up .8% to 5,837. Barclays was up .4% to 613.5. BP was up 1.1% to 634. British Air was up .5% to 340.75. BT was down .1% to 562.5. Diageo was down .8% to 908.5. Prudential was up .5% to 594.5. Reuters was up 1.9% to 383.25. Unilever was up .4% to 1200. Vodafone was up .9% to 116.

The DAXX was up 1.2% to 5,646. Allianz was up .5% to 123.07. BASF was up 1.1% to 62.34. Bayer was up 4.6% to 35.85. DaimlerChrysler was up 1.1% to 38.41. Deutsche Bank was up 1.6% to 87.49. Deutsche Telekom was up .7% to 12.48. Siemens was up .5% to 67.83. SAP was up 1.1% to 164.78.

The CAC 40 was up 1% to 4,929. Alcatel was up 1.9% to 10.02. AXA was up 1.1% to 25.58. France Telecom was down .1% to 16.55. ST Micro was up .7% to 12.57. Thomson was up .8% to 12.75. Vivendi was down .5% to 27.08.

Douglas A. McIntyre

Media Digest 6/30/2006

Stocks: (MA)(AAPL)(DMX)(RIMM(EMC)(RSAS)(F)(BA)

According to Reuters, MasterCard may have violated European antitrust rules by restricting competition among banks.

Reuters writes that Apple has announced that it found irregularities in its stock option grants, including on to Steve Jobs that was later cancelled.

The Wall Street Journal writes the Chrysler will introduce a new version of the Dodge Challenger based on the 1970s icon.

Reuters also writes that Arcelor shareholders will vote on a business combination with fellow steelmaker Severstal.

Reuters also reports that Reseach In Motion, maker of the Blackberry, posted better than expected earnings. Sales rose 35% to $613 million.

The Wall Street Journal reports that Chrysler plans to introduce an employee discount pricing plan for all customers.

WSJ also reports that EMC has agreed to but RSA Security for $2.3 billion.

The New York Times writes that Ford Motor plans to shift its focus away from hybrids and develop cars that us a range of fuels like ethanol to consume less gasoline.

The NY Times also reports that Boeing will take a second quarter charge of as much as $1.15 billion, part of which is to settle ethics charges with the U.S. government.

Douglas A. McIntyre

Asia Markets 6/30/2006

Stocks: (CAJ)(FUJIY)(HIT)(HMC)(NIPNY)(NTT)(DCM)(SNE)(TM)(PCW)(HBC)
(CHL)
Asian markets were sharply higher.

The Nikkei was up 2.5% to 15,505. Canon was up 2.4% to 5610. Daiwa Securities was up 4.3% to 1830. Fuji Photo was up 1.3% to 3840. Japan Air was down .3% to 285. Hitachi was up 1.9% to 756. Honda was up 2.4% to 3630. NEC was up 3% to 610. NTT was up 3.5% to 561000. Docomo was up 2.4% to 168000. Sharp was up .9% to 1808. Softbank was up 2.6% to 2565. Sony was up 2.2% to 5050. Toyota was up 4.2% to 5990. Toshiba was up .8% to 747.

The Hang Seng was up 2.3% to 16,225. China Mobile was up 3.9% to 44.25. China Netcom was up .7% to 13.55. China Unicom was up .7% to 6.85. HSBC was up 1.7% to 135.9. Lenovo was up 1% to 2.575. PCCW was flat at 5.5.

The KOPSI was up 2.5% to 1,285.

The Straits Times Index was up 1.8% to 2,430.

The Shanghai Composite was flat at 1,672.

Douglas A.. McIntyre

Microsoft pushes back Office 2007 release (MSFT)

By William Trent of Stock Market Beat


Microsoft (MSFT) pushes back Office 2007 release: Financial News - Yahoo! Finance
The world’s biggest software maker said it will now aim for a launch of Office 2007 to business customers by the end of 2006 rather than an earlier autumn target. Microsoft also said it would delay the general availability of the Office upgrade to early 2007 from its previous January target.
It should come as no surprise, really, as Microsoft is known for serially delaying new products. Furthermore, with the Vista operating system delayed what was Office 2007 supposed to run on anyway?
For the record, we feel about Office as we feel about Vista: Microsoft needs to get them right so delays are better than half-baked products. However, longer-term it will be crucial for Microsoft to get more effecient use of its R&D budget. It needs to release reasonably significant upgrades on an ongoing basis rather than having huge overhauls every 4-5 years. In short, it needs to get smaller because that is the most likely way to get more nimble.

http://stockmarketbeat.com/blog1/

Red Hat Woes a Modest Positive for Oracle

Stocks: (ORCL)(RHAT)(IBM)(SAP)(BEAS)

By William Trent, CFA of Stock Market Beat

We knew Oracle was doing much better in applications after having had trouble digesting acquisitions. We know their main target is SAP. But open source models are something of a threat to all of the existing software vendors, so today’s disappointing Red Hat performance, attributable in part to their acquisition od JBoss.

As Marketwatch noted:
Early this month, Red Hat bought JBoss for around $350 million in cash and stock. The deal aimed to help accelerate a shift towards service-oriented architecture.

JBoss was a maker of open-source middleware products, which are designed to help different software applications work together. The products, including application servers, compete against offerings from the likes of Oracle Corp. (ORCL), BEA Systems (BEAS), and International Business Machines Corp. (IBM).

Plus, having some of the smaller players help clean up the excess capital (translation: buy up some of the extra companies) out there saves Oracle the trouble and gets the industry to a sustainable structure faster.

http://stockmarketbeat.com/blog1/

Stocks That Missed The Rally

Among the most widely held stocks there are a few that missed the rally today. This is usually a sign that they are viewed poorly by Wall Street or may be trading at such high multiples that further gains are not likely near-term. Either way, stocks that did not have on rally caps are probably not candidates for appreciation any time soon.

The Nasdaq was up slightly less than 3% today. Some stocks that trade a lot of shares were up much less:

Microsoft (MSFT) +1.34%
Oracle (ORCL) +1.1%
Sirius (SIRI) +1.5%
Ebay (EBAY) +1.77%


The Dow was up slightly less than 2%. A few widely traded stocks missed the boat:

Ford (F) +.63%
Tenet (THC) -1.8%
GE (GE) +1.03%
Boston Sci. (BSX) -.06%
Home Depot (HD) +.83%
AT&T (T) +1.06%
Time Warner (TWX) +.99%
Sprint/Next (S) +1.06%


Douglas A. McIntyre

A Tale of Two PDA's: RIMM Slapping PALM

Palm (PALM) is trading down about 8.5% after reporting earnings. It beat projections at $0.25 EPS and $403.1M revenues when compared to $0.23 and $401+M street estimates. That is not that much higher than estimates and that is a often a problem for the street, but Palm is really being punished because it issued soft guidance for the coming quarter. Its sequential revenues will be down to a range of $380M to $385M and will be $0.18 to $0.19 EPS on a non-GAAP basis, which is under the street consensus estimates.

Analysts were hoping that Palm would actually guide revenues sequentially higher, not lower. It looks like that Q-phone from Motorola that many are saying is a look-alike may be biting into their operations. Palm shipped 623,000 smartphones and 495,000 handheld computers during the quarter.

Research-in-Motion (RIMM) has initially risen 3.3% after-hours, and that is after it was initially down over 1% after Palm showed dismal numbers. RIMM posted revenues of $613.1M and earnings of $0.68 EPS on a GAAP basis and $0.70 non-GAAP, both of which were above expectations. Analysts were expecting $0.65 EPS and revenues of $602 million. The company shipped 1.2M devices in the quarter, but said BlackBerry subscriber accounts grew by 680,000 in the quarter.

Nokia (NOK) is issuing its smartphone that is said to be the R-I-M alternative, but that is not yet out in the US. The company projected revenues of $620M to $650M, with GAAP EPS of $0.67 to $0.73, or $0.69 to $0.75 before option expensing. The street is looking for next quarter numbers to be about $0.72 EPS (non-GAAP) and about $636 million in revenues.

Jon C. Ogg

Market Wrap Up for June 29, 2006

Depite a 25 basis point hike, the FOMC was the market's friend today as the committee signalled what felt like a downgrade on the economy and noting housing markets had slown.

DJIA 11,190.80 (Up 217.24, 1.98%)
NASDAQ 2,174.38 (Up 62.54, 2.96%)
S&P500 1,272.87 (Up 26.87, 2.16%)
10YR Bond 5.2%

Neoware (NWRE) was the blow-up du jour with its shares being hit 41% to close at $11.78 after a revenue warning and what is implied as a quarterly loss.

Tenet Healthcare (THC) closed down 1.8% at $7.10 after settling its old Medicare charges, but it had been up over 5% earlier in the day.

A very positive upgrade 3Com (COMS) after it exceeded earnings yesterday helped COMS rise 15%to close at $5.10.

Both Red Hat (RHAT) and ATI Tech (ATYT) fell afetr earnings guidance failed to impress. RHAT fell 6.4% to $23.40 and ATYT fell 11.9% to close at $13.65.

RSA Security (RSAS) rose considerably after the New York Times reported that EMC (EMC) or another company would soon announce a pending merger. RSAS issued a release stating the company was in talks, but could not assure that a deal would be completed. It rose 18% to close at $22.88.

The awaited and hot IPO of Aventine Renewable Energy (AVR) actually turned out to be NOT SO HOT. AVR priced at $43.00, but that took out all of the juice. The original 7.75 million shares were boosted to 8.5 million and then ultimately to just over 9 million shares. The price range was originally $37.00 to $40.00, and that was raised to $40.00 to $43.00 before it priced at $43.00. it closed at $38.37 on the day. Those underwriters that priced the deal better get ready for some angry calls.

Monsanto (MON) ran over 8% after beating earnings estimates to close at $83.16.

Also, the IPO of GMARKET (GMKT) went only so so. It priced its ADS at the top of its $13.25 to $15.25 range. It opened over $19.00 and closed at $15.10.

Keep in mind that tomorrow is the ahead of the Fourth of July holiday, and many of the A-Team traders will head out for a few days. The holiday is on next Tuesday, and many will be out an extra day and not be back until next Thursday. Tomorrow is the end of the quarter, but a lot of today's strength may have been added to by fund managers adding to positions ahead of the long weekend.

Jon C. Ogg
June 29, 2006

Shuddering After Reading Shutterfly's IPO Prospectus

Shutterfly, one of the leading online photo services, has filed to come public via an IPO. This was one of the first online photo sites, and one of its backers is Jim Clark, co-founder of Netscape. It has filed to raise up to $92M from stock sales, although we'll have to wait to see how many shares actually get sold and at what price.

According to the prospectus Goldman Sachs, JPMorgan, Piper Jaffray, and Jefferies are underwriting the offering. The company was evaluating its alternatives just yesterday, and now we know what avenue they have chosen to reach their "liquidity event."

The prospectus says that 17.820 Million shares were outstanding as of March 31, 2006; but that exlcudes 3.198 million shares issuable upon options with exercise prices of $4.41, 1.755 million shares from the 1999 stock option plan, 1.358 million shares exercisable for the 2006 option plan, 0.116 million and 0.0408 million other shares.

For 2005, the company posted revenues of $83.9M and net income of $28.9M, butthis was inflated from a tax benefit. Its first quarter 2006 revenues were $16.88M (compared to Q1 2005 of $13.15M) with quarterly net income of -$1.668M (compared to -$683K for Q1 2005). That loss would have been wider had it not been for a tax benefit from income taxes, and that was not available in prior quarters. A tax provision was also directly responsible for $24.06M of the company's $28.9M net income in 2005.

Why is it losing more money? Quite simply it is because costs are up in all major areas and the revenue gains are not off-setting these. Also, it is in the same barrel now with all other tech companies as it has to expense these stock options. The company is highly dependent on seasonality, with 49% of 2005 net revenues coming in the fourth quarter.

The company also expects to need much larger capacity that has not yet been built to meet 2007 demands and has estimated $30 million to $35 million for capital expenditures in the second half of 2006 and first part of 2007. It also has dozens of competitors to the tune of Hewlett Packard, Eastman Kodak, Wal-Mart, Target, Yahoo!, AOL, CNET, Google, Walgreens and a couple dozen others in the US alone.

After looking through the prospectus, it starts to feel like the entire document is a risk factor. The RISK FACTORS section goes from page 8 through page 26. Companies have to list their perceived risks, but this went on and on. The growth rates for the company are slowing at th etime it has said it needs to rapidly increase cap-ex costs. It didn't list "Seeing the dead" or "Being visited by the Price of Darkness" as risks, but it felt like it was going to. This also listed an unspecified number of shares that would be available for additional sales as "immediately after this offering," "45 days after the offering," "90 days after the offering," and "180 days afterthe offering;" which is faster than the traditional 180 lock-up period of many IPO's. It is also bring a $28.5 Million deficit in total stockholders' equity, although this is often true of many Internet and IT-related IPO's.

Maybe this is the sort of IPO the street wants, and maybe it isn't. Unfortunately, it reads in the prospectus as though you are buying into a nearly artificial income and into a RISK FACTOR more than an operating company with legitimate profits. Hopefully they won't lose our pictures after they read this.

Jon C. Ogg
June 29, 2006

New York Times DealBook Digest 6/29/2006

Stocks: (JCG)(EMC)(RSAS)(KIM)(NXL)(PNP)(ASN)

According to DealBook, Millard Drexler, the CEO of J. Crew, saw his $10 million investment in the company from three years ago grow to $84 million after the recent IPO.

DealBook writes that RSA Security said it was in talks about a strategic transaction, largely believed to be a sale of the company to EMC.

DealBook also writes that Winn-Dixie Stores has submitted a plan to its bankruptcy judge to emerge from Chapter 11. The program would wipe out the value of all shares held by existing shareholders.

DealBook reports that Kimco Realty is considering buying New Plan Excel Realty Trust which is primarily in the shopping center business. Kimco may also be looking at Pan Pacific Retail Properties.

DealBook also reports that Archstone-Smith, an apartment company, is buying Deutsche WohnAnlage which sells residential properties for $649 million.

DealBook writes that online photo sharing site Shutterfly has filed for an IPO. The company plans to raise $92 million.

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com.

25 Basis Point Hike, But Markets Like Economic Commentary

The DJIA and other index rallies were based on the overall commentary contained in the FOMC statement. It feels like a small downgrade to the economy, and maybe the Fed is learning to not just look in the rearview mirror.

We'll have to see if these moves hold because so many initial reactions to planned FOMC meeting announcements get reversed.

Here is the commentary from the FOMC website:

The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 5-1/4 percent.

Recent indicators suggest that economic growth is moderating from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.

Readings on core inflation have been elevated in recent months. Ongoing productivity gains have held down the rise in unit labor costs, and inflation expectations remain contained. However, the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures.

Although the moderation in the growth of aggregate demand should help to limit inflation pressures over time, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information. In any event, the Committee will respond to changes in economic prospects as needed to support the attainment of its objectives.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Jack Guynn; Donald L. Kohn; Randall S. Kroszner; Jeffrey M. Lacker; Sandra Pianalto; Kevin M. Warsh; and Janet L. Yellen.

In a related action, the Board of Governors unanimously approved a 25-basis-point increase in the discount rate to 6-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, and Dallas.

Boeing's Hard Landing (BA)

Things have been going extraordinarily well at Boeing recently. Since the ethics scandal that lead to the departure of its CEO, the company has been posting good numbers and take share from its arch-rival Airbus. Recent news that Airbus is having trouble with its super-jumbo ject could be further positive news for Boeing, which is building a super-jumbo of its own.

Boeing's achievement is highlighted by its 2005 results and the first quarter of this year's numbers. Last year, revenue rose 5% to $54.854 billion. Operating income was up 36% to $3.083 billion. The March quarter showed operating profit stronger than any of the three that predated it. With revenue of $14.204 billion, operating profit came in at $815 million.

But, the things that can trip up one company in an industry can trip up another.

Boeing said it would take charges totaling over $1 billion in the second quarter of this year. Of this $615 million will go to settle charges with the U.S. government over criminal charges for hiring a former Air Force official and taking documents on Lockheed Martin's rocket program.
The balance, however, is probably more troubling. The company may take a charge of as much as $500 million for the late delivery of surveillance planes to Australia and Turkey.

So, product delays are not just a problem at Airbus.

Bank of America now estimates that Boeing will have a loss of $.41 a share instead of an anticipated profit of $.81. That's a big swing.

Boeing's shares trade at $81.78, up from less than $50 less than two years ago, and near the 52-week high of $89.58.

In all probability, that means the stock has more room to fall than rise, and any piece of bad news could take a chunk out of Boeing's market cap.

Douglas A. McIntre can be reached at douglasamcintyre@gmail.com. He does not won shares in companies he writes about.

Does 3Com's Report Justify Its Rally?

3Com (COMS) stock is performing well today, up over 10% at $4.89, after its earnings report that showed strong results from the Huawei partnership (H-3C) and announcing yet another restructuring (job cuts and facility closures). The company lost $0.01 on EPS before restructuring and other charges and posted revenues of $255.3M. The loss was -$0.04 after items, but the street was expecting -$0.04 EPS and $176.55M in revenues. Even with slightly under-street revenues, there was relief that the picture may be getting better.

This UBS analyst upgrade from Long Jiang lifting the rating from a Neutral up to a Buy is likely contributing to these excessive gains. Pre-market the stock was only up about 3%, but then after this upgrade the shares made a steady march to its 10%+ gains on the day. This is an interesting upgrade, and after reading the research note it looks more like a sum of the parts valuation (he says $6.40 value now) than a call that is endorsing the old legacy 3Com before Huawei. Without the additional analyst push this would probably not be as strong as it has been today. The FOMC decision hasn't yet posted and there has already been double the normal trading volume with 150 minutes until the close.

The Huawei partnership, H-3C, is now 51% owned by 3Com and is perhaps the only good thing going on there at the company. Since it is majority-owned by 3Com, they now get to count the revenues from the partnership since it is the majority holder. That is why the company had revenues grow 44% year-over-year. The company's job cuts are in the lagging Secure Converged Networking (SCN) segment, which saw a 6% drop in segment revenues. This shows there is still a steady erosion in the legacy 3Com business.

3Com ended the quarter with $864 million in cash, cash equivalents and short-term investments (including the consolidated cash, cash equivalents and short-term investments of H-3C which totaled $169 million).

The company believes the restructuring supports long-term profitability and long-term growth and will focus on reducing components of the SCN operating segment cost structure to achieve future profitability. It will close approximately 21 facilities around the world and cut 250 full-time employees (15 percent of its SCN headcount). It will also focus on its sales, marketing and services efforts and will record restructuring charges of approximately $10-$13 million. These charges are expected to be recorded principally during 3Com's first and second quarters of fiscal 2007 (the next 2 quarters). Shouldn't the focus have been this newer thought process all along? Machiavelli would say to instill all the changes in the village at once.

Scott Murray, 3Com's president and CEO, said, "I am pleased with the progress that we have made in the past quarter in moving 3Com toward a profitable business model. H-3C delivered strong results, and we have continued to reduce the operating loss of our SCN business through solid cost control.....We believe that the cost realignment announced today will be a significant part of achieving our goal of future profitability."

3Com has been a serial restructurer. It has restructured so many times you would compare it to a Motorola or Gateway of the old days, but we are not comparing these names and not even providing tickers on them to avoid distractions. To prove a point, we are talking about the company that spun-off Palm (PALM). The company had 3,900 employees at the end of March, 2003 and had thousands more back in the 1990's. What you have to wonder is how much of the Huawei JV sales are actually tied to or indirectly a result of the current SCN sector that is still spiralling downward. This is the hardest question to answer. If the answer is "Not Very Much" then why doesn't the company just jettison that whole segment? or why nottry to go find a buyer for it? It is a declining business. The reasons may be very clear.

Does this headcount reduce the dead weight? Will there be further dead weight they can trim? There has to be some. It looks like the Chairman (Benhamou) is paid $100,000 and is no longer well thought of on the street, even though he is no longer the face of the company. Under his watch they lost the data communications war with Cisco (CSCO) and others, went through restructuring after restructuring, lost Billions of dollars in market cap, and even spun-off Palm. maybe they could even try a name change to H-3C.

Will the old legal fight between Cicso (CSCO) and Huawei ever creep back up? Cisco was suing Huawei in 2003 because so much of the core router was reportedly identical in many cases down to the source code. This was resolved in July of 2004. Huawei agreed to make many surface and interface changes and to stop selling the products at issue and only sell new modified versions. So what prevents more look-alikes down the road, and what prevents Cisco from wanting to try to block 3COM's efforts as the H-3C joint venture starts to take more sales? Some in the US have referred to the H-3C routers as "the poor man's Cisco router without the support." If "the poor man's router" starts to take away too many sales from the rich man's salesforce what will prevent a re-initiation of this fight. It was resolved in 2004, but the verbage back at the time of the resolution just didn't feel the same as other resolutions between other companies. This is not predicting a legal issue will arise, but it is simply alerting that there is at least a remote possibility of it down the road. If it does, then who do you think has deeper pockets to fight it?

They carry almost no debt and the balance sheet is still manageable, but the core balance sheet has contracted through all the restructurings and through each stock-drop. The intent is not to just batter this company while it is trying to get up off the floor, but there are still issues. The stock is up 52% from the 52-week lows and up over 60% from the lows in the last 18-months. The stock would have probably been up on its own and with the market today, but it would appear that at least a large portion of the gains today are probably tied to this one influential upgrade from UBS.

Jon C. Ogg
June 29, 2006

The Great Independent Research Debate

By Chad Brand of The Peridot Capitalist

There is a very simple reason why Peridot Capital does its own research; there are very few people I trust more than myself to implement my investment philosophy. As much as so-called "independent" research claims to be such, experienced investment professionals know that research is often far from independent. All you have to do is ask yourself, is there reason to believe that this research is independent?

In the case of a buy-side firm like Peridot, there is every reason to believe that our research is independent because it is solely used internally to make investments on the behalf of clients. If clients do well, the company will prosper, and if they do poorly, clients will leave.But what if a company doesn't manage money? What if they are solely in the business of selling research? Do they have to be independent? What is keeping them from doing whatever it takes to sell the product? After all, selling research is their only line of business. It's the same reasoning that some journalists print things that might not be completely accurate. They are in the business of selling papers, or magazines, or whatever their product is. How do tabloids stay in business? Is it because their stories are always accurate? No, it's because people buy them.

I decided to write this piece after reading a transcript of testimony given by Kim Blickenstaff, CEO of Biosite (BSTE), a small medical diagnostics company based in San Diego. Her testimony was part of a Senate Hearing this week entitled "Hedge Funds and Analysts: How Independent is their Relationship?" Below is an excerpt:
"In the ten months from February to December 2002, the number of shares [of Biosite] controlled by short sellers increased from 690,000 to 7.1 million shares, which represented nearly 50% of our outstanding stock.During this same period, Sterling Financial Investment Group, a Florida-based research firm, issued at least seven negative research reports on Biosite, each carrying a Sell/Sell Short recommendation, and an $11 target price. We believe that these reports contained numerous inaccuracies or false and misleading statements, which ultimately lent volatility to the stock's performance, thereby harming many of our long-term, fundamentally-based investors."

There are many issues I have with this testimony from Biosite's CEO.First, short sellers do not "control" shares of stock. They borrow shares from other investors and immediately sell them in order to raise cash proceeds. The investors who have sold the stock short no longer control the stock, they simply owe it to someone, and will have to buy it back at some point in the future to repay the loan.

Second, Blickenstaff claims that negative research reports issued by Sterling between February 2002 and December 2002 were successful in "harming many of our long-term, fundamentally-based investors." This is interesting given that Biosite stock was $18.37 on February 1, 2002 and closed December 31, 2002 at $34.02 per share. So, even as the number of shares sold short increased more than 10-fold, the stock price soared by 85 percent. How exactly long-term investors in Biosite were hurt by this I'm not exactly sure. Sounds like these types of investors should beg short sellers to target their stocks!What can we take away from all of this?

One, short sellers do not cause stock prices to go down. If a stock can rise 85% as half the outstanding shares are being borrowed and immediately sold, such as argument is easily discounted as silly.Two, independent research is not always independent. Merely listening to Sterling's negative view on Biosite stock (which did prove to be inaccurate) would have lost you a lot of money if you were in fact a long term investor who wanted to "invest" (versus "trade") in BSTE shares.

Three, if you are an "investor" then you should, by definition, have a long-term view. Traders focusing on the short term probably were hurt by these negative research reports because they likely caused a quick drop in the stock price upon being published. In the short term, any kind of report can influence stock prices, accurate or not.Over the long term, however, company fundamentals will matter above all else. Since the research Sterling published turned out to be incorrect, the stock price went up, not down. That is why someone who bought the stock in February before all the short sellers and negative reports came out of the woodwork, and held it throughout all of this sketchy behavior, would have made 85% on their investment in less than a year.

Hopefully you can see why people should do their own research and invest for the long term. If your analysis proves accurate, you will make money, no matter whatever anyone else out there is doing. That is the philosophy I use when managing my clients' money, but it is valuable for anyone who doesn't want to be adversely affected by the inherent conflicts of interest on Wall Street, whether you are a Peridot client or not.

http://peridotcapital.blogspot.com/

Mixed Signals for Consumer

By William Trent of Stock Market Beat

With the end of the second quarter a day away, this morning’s announced revisions to first-quarter GDP are old news. Yet they are interesting in light of the differences between the story they tell and today’s other news. As has been the case for some time, the strength in GDP was driven by the consumer. In fact, 3.53 of the 5.6 percentage points of GDP growth were due to increased personal consumption expenditures.

Against this backdrop, Advanced Auto Parts saw its shares plunge as much as 20% early Thursday as the No. 2 U.S. parts retailer slashed its second-quarter profit forecast, citing the impact of soaring gas prices and rising interest rates on customer spending.
“We believe that macroeconomic factors, including higher energy prices, ever-higher interest rates, and higher required credit-card payments are further reducing discretionary income for our lower- and middle-income customers and has unfavorably impacted customer traffic,” said Chairman and CEO Mike Coppola.

The weakness also affected other companies in the industry, including our Watch List component Autozone.

Consumers most likely to be buying their own auto parts tend to be those at the lower end of the income spectrum, where higher interest rates and gas prices hurt the most. Yet buyers of new cars are also stepping back, as the New York Times reports.

The pattern was set last summer when General Motors introduced employee-discount pricing for everyone. Ford and Chrysler followed suit, buyers flocked to dealerships and sales soared.
That cleared a lot of inventory off dealer lots. But sales slumped once the deals were gone, taking Detroit’s market share to the lowest level in history.

With inventories bulging again and Asian companies making record sales, Detroit automakers are now seeing that they must offer another eye-popping round of promotions to clear out all the cars and trucks that have been sitting too long on dealer lots.

It’s a habit the Detroit auto companies, which lost billions of dollars last year in North America, would like desperately to break so they could earn a profit in their primary business.
Despite all of Detroit’s claims to have abandoned the fire-sale mentality of the past, the companies’ actions suggest otherwise.

While the article does note that Asian brands continue to do well, and many of those vehicles are produced in the US, some of those models are imports and higher sales of them acts as a drag on GDP. In the first quarter of 2006, auto and auto parts production accounted for 0.60 percentage points of growth.

The death of the consumer has been predicted for some time, and has repeatedly been wrong. For all we know, it may never happen. But today’s indications from the automotive group, which is one of the larger consumer spending areas, are worth noting. And it is easy to measure the impact. If the consumer merely continues to spend the same amount - not even cutting back but just not spending more - GDP growth would be cut by more than half. So if you are making the bet that consumer spending will continue to be strong, be sure to keep in mind what that means.

http://stockmarketbeat.com/blog1/

Good For Consumers, But for Garmin?

By William Trent of Stock Market Beat

We have written several times about how the digital navigation market appears finally to be taking off, which has certainly helped shares of Garmin (GRMN) over the last couple of years (see chart below). We have also noted the increasing competition from major consumer electronics companies such as Pioneer and Sony. An article caught our eye today that shows how far the competition is going.IBM Embedded Speech Technology to Drive Pioneer In-Car Navigation System: Financial News - Yahoo! Finance

“Speech recognition is at the beginning of a tidal wave in cars,” said Karen Rubin, director of product planning and marketing for navigation, Pioneer Electronics (USA) Inc. “Drivers can now enter destinations, search for points of interest, and access their music on the built-in hard drive using their voices.”

All of this is clearly good for consumers, who will have more choices than ever when considering a new digital navigation system. Whether Garmin will be able to maintain its stock performance
against competition is open to question.

http://stockmarketbeat.com/blog1/

Dell's Baby Steps (DELL)

Dell (DELL) announced two initiative recently that show how desparate the company is to create any positive news. The company launched a new IT service plan called Platinum Plus. With this program, companies can use Dell to support their computers, whether they bought them from the PC giant of not.

The other news is that Dell will begin to ship computers with Advanced Micro Devices (AMD) chips.

Both of these initiatives are aimed at Dell's corporate customers. The IT service plan is only useful to big companies, and most consumers cannot tell the difference in performance between an AMD or Intel (INTC) powered product. It might be important to some corporate IT managers.

But, Dell's most significant problem recently is the sales of its computers to consumers, not corporations. The company has also fallen short on customer service which has encouraged the company to hire a new head of customer service.

Dell is betting big on the corporate market, but it may be the wrong gamble.

In the quarter ending May 5, 2006, operating income actually fell to $949 million from $1.174 billion in the same period a year ago. Operating income in the Americas and Europe was hit hardest, but the increase in Asia, up only $3 million from last year to $136 million, was embarrassing given the company's push in China.

In the quarter, enhanced services like training and enterprise support were 10% of Dell's revenue, and this business is growing. Servers and networking were 9%. But, these lines of business which are primarily for businesses are still too small to have a marked impact on the company's topline and operating income.

The problem at Dell is simple. Desktop PC sales are dropping. They were 36% of revenue in the May 5 quarter down from 40% a year ago. Laptop computers, which are now 26% of revenue, picked up some of the desktop drop, but the business needs to turn itself around.

Dell can open all the new enterprise initiatives it wants to, and move from one chipset to another. Until customer service improves, and the cost of PCs stops dropping like a stone, Dell's stock is likely to stay near its 52-week low.

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

A Business Model That Ought to Take Off

By William Trent, CFA of Stock Market Beat

Tom Evslin writes about a new business model for sharing WiFi access.

FON is a commercial/cooperative worldwide WiFi access network. Huh? Actually it’s an interesting idea and a great laboratory for pricing models.

Foneros are members who’ve agreed to share their Internet access through their WiFi routers. If you’re a Fonero, you can be a Linus and allow other Linuses to use your access free in return for free use of all FON hotspots. Or you can be a Bill and charge nonLinuses for use of your access. Currently the rate is 3 Euro/day. The Bill keeps half and FON keeps the rest.
(For my readers who are not up on blogosphere ingroup jokes: “Linus” refers to Linus Torvalds who started development of Linux, the open source operating system; “Bill” is Bill Gates who charges for his operating system – and puts the resulting profits to good use.)

You become a Linus or a Bill by installing special sharing software on your existing Linksys (subsidiary of Cisco) WiFi router. To encourage growth of the network, FON is offering special Linksys routers – they call them “social routers” - with sharing software preinstalled for $5 in the US and 5 Euro in Europe (not available elsewhere). Shipping and VAT are extra ($8 to US). There is a penalty if you don’t add your new router to the network to discourage freeloaders from taking advantage of the subsidized router offer.

Aliens are members like me who are not sharing a router. We aliens always have to pay the 3 Euro/day fee for access to hotspots. If we sign on to a Linus hotspot, FON gets all of our fee. If we sign on to a Bill hotspot, the Bill gets half.

So FON itself has a real business model although one that has yet to be proven. I am going to become a Linus as soon as my social router arrives. Then other Linuses can share my Internet access free and I can log on free at any FON hotspot, even those that belong to Bills.

Here’s where the pricing gets interesting. Remember, I can choose to be either a Bill or a Linus. In my case the choice is easy. My location is isolated and few people will use my connection. But I travel so free access to other connections is valuable to me. If I lived in a more urban setting, I might have decided to be a Bill and see if my revenue offset the roaming charges which I would have to pay as a non-sharer. If you don’t ever travel with a WiFi equipped PC or other device, you clearly want to be a Bill.

This business model could cause open source/crowdsourcing to take off even faster. Consider movie downloads. If the studio sets up a hosted site it can control who downloads the movie and how much they pay, but have to be able to supply enough storage and bandwidth to accommodate the users.

The illegal model, such as bit torrent, spreads the storage and bandwidth to multiple users who “share” their files, along with their storage space and connection.

An interesting business model would be to allow users to buy a version of a movie that was authorized for resale. Then they could be compensated for their storage and bandwidth and relieve the studios of this burden. Everyone could be a winner, and distribution costs would likely plummet.

http://stockmarketbeat.com/blog1/

Can Cable Trump The Telco Video Card?

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

Comcast has announced that it will buy thePlatform, a digital media video company with customer including Comcast itself, the Wall Street Journal, ABC News and Starz.

It is a safe bet that the purchase was as much to form relationships with thePlatform's customers as to get the technology.

Cable firms like Comcast now seem to take seriously the threat posed by AT&T, Verizon and others as they prepare to offer television over their fiber networks. Try as they might, the cable firms have not been able to get the federal government to stop the march of the telcos into services that compete with cable TV.

If you can't beat them, join them.

Systems like the one offered by thePlatform allow video to be sent over the internet to televisions. So, the web-based content that most people watch on their PCs can now be routed to the television set as well. Most video on the internet makes it to the PC and no further, and this eliminates potential customers who do not want to watch TV or movies on a PC screen.

As the Wall Street Journal pointed out, Comcast has one large advantage over the telcos. It already pays them a huge sum for programming on its cable TV system, so it has access to the content providers to get offerings for the new IPTV intiative.

For the last year or so, it seemed that the large regional telephone companies had caught the cable guys flat-footed in the internet video delivery business.

Well, look again.

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

EMC's Slow Expansion

Stocks: (EMC)(RSAS)(CHKP)

EMC announced within the last few days that it was buying Isreali content management outfit ProActive Software Solutions and that it would also spend $500 million in China. The investment will be made between now and 2010. The company said it was making the move because the pool of tech workers in China is one that EMC wants to tap, but the cost factor of using workers outside the U.S. is certainly a the heart of the move. EMC is making similar moves in India.

As a digital storage company, EMC's products are at the heart of the growth, or lack thereof, of technology products at big company's. EMC's CFO recently said that the company's quarter that ends in June may not be as good as previous forecasts. This took a stock that was already in bad shape and made matters worse. After trading between $10 and $14 most of the last two years, the stock is now at the low end of that range at $11.25.

The stock may be too low.

From 2003 to 2004, revenue grew 32%. From 2004 to 2005, revenue grew 17% to $9.664 billion. Operating profits also grew impressively each year, and hit $1.48 billion for the entire year 2005.

Wall Street was disturbed that the March 2006 quarter had a topline of $2.551 billion and operating income of $303 million.

Now word comes that EMC is buying RSA Security for $1.8 billion. The company has valuable assets in the secure digital software market and would add significantly to the products EMC could market to large enterprises. The company also had revenue of $310 million last year and operating income of over $35 million. So, EMC would be paying a 4.5 time prices to sales ratio according to YahooFinance!. RSA competitor Check Point tades at nearly eight times sales.

EMC's appetite for reasonably priced acquisitions to build its business may turn out to be the catalyst that drives the company's revenues back to double digit growth. And, if labor costs for the company's software and IT employees drop due to EMC's moves into India and China, the stock may look cheap at $11.

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

How to Evaluate the Implosion in Neoware

Stock Ticker: NWRE

Shares of Neoware (NWRE) are being flogged after its earnings and revenue warning, with shares down 39% in pre-market trading. This company had gained almost 50% last September after raising guidance and at one point had risen almost 4-fold over the last two-years, so it looks like a "Live by the sword, Die by the sword" scenario here today.

Neoware was the first Successful independent "pure-play" thin client solutions provider for computing across enterprise level corporations that run on Windows, mainframe, Linux, UNIX, and other operating systems. This is turn lowers enterprise level overall computing and per-employee costs. Many have tried in this arena and most have failed, but until now Neoware has survived and its shares had thrived. What a difference a day makes.

So what changed?

Neoware said this quarter's revenues are expected to be in the range of $23 to $24 million compared to $23 million in the prior year June quarter; and Fiscal June 2006 revenues are expected to be in the range of approximately $107 to $108 million, compared to $79 million in the prior fiscal year. The problem is that the June quarter estimates are $30.7M on the street, and the lowest revenue target was still over $29 Million. The fiscal 2006 street estimates for revenues are also $114M, but that is this quarter-end so is only noting the drop this quarter. Earnings were not even mentioned, and we will not get some longer-term plans and goals for some time.

According to the company’s press release: Revenues for the June quarter were impacted by lower than expected sales to certain existing customers in the U.S. and Europe during the last two weeks of the quarter. Sales growth from new customers did not increase enough to offset these lower than expected sales to existing customers. The Company remains confident in its market and opportunity. Management and the Company's Board are working together to finalize a 2007 operating plan which contains initiatives designed to increase sales to existing customers and generate increased sales to new customers. We anticipate that the plan will be completed and approved by the Board within the next few weeks.

The company is also not hosting a conference call until 4:00 PM EST today to discuss this, which is a pretty bad choice if they wanted any shot at some stock stabilization today. Most companies get the conference call out of the way ASAP on blow-ups like this. It is pretty evident that the company was not expecting a 30+% stock scalping this morning.

So what lies ahead?

You can expect the analyst at Oppenheimer that just issued a BUY rating last week to be caught off guard and a downgrade can be presumed, and a boutique initiation earlier this month with an OUTPERFORM rating can be expected to be cut. Lehman also just initiated the company with an OVERWEIGHT rating last month, so you will likely see a cut there as well. Last month Needham had indicated the quarter was on track after the stock had started faltering. The company even raised $75M in a secondary offering back in February, but that was a full quarter ago and it would be arguable that a company this size could know exactly if it would see a slowdown.

This morning’s stock drop eliminates essentially all of the gains that were in the stock from the last year, and it had already sold off 30% or so from recent highs. It may also put in a new much lower trading band until the company gets on its feet, and it may even be a considerable time before the stock ever sees a $20-handle again. The 52-week low was $10.19 and it traded under $7.00 two-years ago.

You can expect at least one class action suit to be filed before the end of trading tomorrow, and since they had a secondary only 4 months ago you should expect more than one of these suits.

As noted above, the analysts look like they will all be caught off guard so don’t be shocked when you see downgrade after downgrade.

Is this the end or a huge opportunity?

History would indicate that huge blow-ups in shares require at least some patience before piling in. This operation is NOT disappearing any time soon, but that does not mean that there will not be seasonal bumps. What has happened is that there have been soft sales across many areas from the Joe Q. Consumer all the way up to enterprises, but it doesn't mean some aren't doing well. There are many factors out there, but perhaps the one thing that has pushed out orders is the next upgrade cycle delay resulting from Microsoft's (MSFT) perpetual delay in Windows Vista and some general spending contractions seen in other tech-land areas.

This company will get back on its feet, but rarely do you just have a huge blip like this followed with an instant turnaround back to boom times. Patience is still the best avenue, even if you end up paying a bit more down the road.

The interesting thing to add here in this particular case is that this company has been successful enough and is in enough existing businesses that it may be considered a potential takeout candidate down the road as well. That does not mean a predator would step in immediately and offer a 25% premium to this morning's discounted price. No one would accept the buyout because all of the recent shareholders would essentially be punished. After a certain period of time, these old shareholders gradually get replaced with newer shareholders that own the shares at a lower price. This has been on an internal Bait Shop WATCH LIST, but has never been able to be thought of as takeover bait because the valuations were too excessive.

As of June the company had 3.8M shares of its 18+M share float in the short interest. That is over 10-times its average daily volume, and about 21% of its float. We do not yet know what it will say regarding earnings, but you can bet those will be down as well. The company had a high-30's P/E and had a market cap of $399.7M based on the $20.19 close yesterday. This is going to bring these numbers back in-line with the sector as the company may be reaching a maturing and excessive growth vacuum. So don't be afraid to use some caution and patience here and forget about trying to use the old ratios to determine multiples, because those will all be out of whack. After the dust settles and whenever the overall environment is starting to look like there is light at the end of the tunnel is when you want to revisit this name with conviction. Until then, this may just be a leveraged trading instrument for fast money rather than a play for traditional value and long-term investors.

Jon C. Ogg
June 29, 2006

The Wheels Come Off, Again, In Detroit

Stocks: (GM)(F)(DCX)

At the beginning of the year, GM was a poster child for the bankruptcy of a big American auto maker and Ford was considered in decent shape with the Ford family repeatedly saying the Chapter 11 was not an option.

The landscape has shifted. Ford's debt was recently downgraded by S&P, and even the company CEO admits that the turnaround he has championed is not on track.

What happened between the beginning of the year and now is that incentives have returned. The Big Three have repeated renounced incentives as an option to stimulate sales, but with inventories up and sales down, all three car makers are moving to zero percent financing or employee pricing for all customers.

One would think that with Ford cutting over 10,000 employees through buyouts and GM dropping over 30,000 hourly workers that the hundreds of millions of dollars in annual saving would be enough to get the car markers' North American operations back into the black.

But, the drop in SUV sales and pick-up truck purchases is pounding the American manufacturers and the hurt to Ford is particularly acute due to the high percentage of these big gas inefficient vehicles in its mix.

GM has the slight advantage of having its price-per-vehicle up about 5% in the first five months of this year. That at least gives the largest car company a small buffer.

Chrysler, due to its parent Daimler Benz, has the advantage of a company that owns the Mercedes line of cars and other businesses.

Ford's stock has been beaten like a red-headed mule. The shares have dropped from a 52-week high of $11.19 to the current low of $6.34. The company's market cap is an appallingly low $12 billion. This for a company with annual revenue of over $177 billion.

If the next few months show that Ford's big SUV and truck sales continue to drop, the stock has not seen its bottom.

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

Google Gets Creative (GOOG)

:By Yaser Anwar of Equity Investment Ideas


The concept of interactive TV in a two-screen environment. Meaning with the TV and either a computer or web-enabled portable device.

The Pew Internet & American Life Project reports that 17% of Americans were online when they last watched TV.

The service goes something like this: Jane watches TV with her laptop nearby. When she clicks over to a particular program her laptop "hears" a snippet of the audio, matches it to its database of audio samples, and identifies it as a particular episode.

From there, it creates an ad-hoc social community of other viewers watching the same thing, so Jane can discuss the broadcast on message boards and view complementary content -- a gossip column about the characters' real-life antics or photos of the cast at the Emmys. When a commercial for Steve Carrell's latest film interrupts the show, the computer picks up the audio and serves an ad listing the nearest theater and showtimes.

Their system doesn't rely on connecting the PC to the TV through a cord or wireless connection, but instead uses an ambient audio "listening" technology using the microphone commonly installed on new computers.


Source: Advertising Age

http://equityinvestmentideas.blogspot.com/

Semiconductor Oversupply Continues

By William Trent, CFA of Stock Market Beat

Although we have frequently noted what we view as alarmingly fast growth in semiconductor equipment purchases relative to the end demand for semiconductors, it looks as though the supply will continue to grow unabated for a while. DigiTimes reports:
Semiconductor Manufacturing International Corporation (SMIC) will sign a fab construction contract with the Wuhan city government (Hubei province, China) and the pure-play foundry will increase its monthly 12-inch wafer capacity by 25,000 wafers after the completion of construction in 2007, according to company officials. SMIC reportedly gained US$3 billion in investment aid from the Wuhan government for the new fab construction.

Furthermore, although some manufacturers including pure-play foundry Taiwan Semiconductor Manufacturing Company (TSM) are slowing their expansion plans by postponing equipment delivery, DRAM makers are still looking to continue with their expansion plans, according to sources at equipment makers.

Meanwhile, wafer maker Wafer Works will expand its 6-inch silicon wafer monthly capacity in Taiwan by 20% to 300,000 wafers in the third quarter. The company will mainly focus on 4- and 5-inch silicon wafer production at its China subsidiaries but will also supply 6-inch wafers for China-based customers.

This expansion has mild implications for semiconductors for two reasons: Wafer Works is a small company and it also manufactures wafers for solar cells. It is currently running at full capacity, and we doubt their capacity increases will be broadly felt.

http://www.stockmarketbeat.com/

Pre-Market Notes for June 29, 2006

Stock Tickers: AVR, GMKT, AAP, ALXN, ATYT, NWRE, SIRI, GOOG, ASYT, LLTC, MVSN, BIIB, ELN, DUK, THC, RHAT, MU, RSAS, SYMC

S&P FAIR VALUE -$1.90.

(AAP) Advanced Auto parts lowered guidance.
(ALXN) Alexion reported its bypass graft drug study failed again to meet statistical primary endpoints.
(AM) Amer Greetings $0.25 EPS vs $0.25e; said expenses are running higher this year than it planned for later this year.
(ARRO) Arrow Intl $0.31/R$122.3M vs $0.33/$121M(e); sees next Q $0.390-0.41 vs $0.39e.
(ASN) Archstone-Smith Trust will acquire DeWAG for $649M.
(ASYT) Asyst Tech gets stock options probe.
(ATYT) ATI Tech $0.16/R$652.3M vs $0.15/$662M(e); sees next quarter revenues soft; stock trading down 5%.
(BIIB/ELN) Biogen and Elan get Tysabri approved in the EU for MS.
(BMY) Bristol Myers gets FDA approval for SPRYCEL for myeloid leukemia that has resisted treatment and another type of resistent leukemia.
(BP) BP Amoco was accused by U.S. CFTC of secretly and illegally corning part of the propane market in 2004.
(CI) Cigna upped its share buyback plan by $500M.
(COMS) 3Com -$0.04 EPS vs -$0.05e.
(CPA) Copa has its 6.5+M secondary todat.
(CREL) Corel $0.38 EPS vs $0.34e; thinly followed.
(DELL) Dell made some reorganizational changes to N.American sales operations that hadn't been announced.
(DISK) Image Entertainment -$0.01 EPS vs $0.04e.
(DUK) Duke Energy is seperating its gas and power businesses into 2 seperately traded public companies.
(EQR) Equity Residential sells its Lexford Housing Division for approximately $1.1B.
(FWLT) Foster Wheeler enters license contract in China with Shanghai Boiler Works.
(GIS) General Mills $0.61 EPS vs $0.61e.
(GOOG) Google announced "Checkout" to eliminate the need for multiple passwords.
(HILL) Dot Hill will pay $3.35M for alleged past damages and Crossroads will dismiss legal claims.
(IFS) Infrasource registered 10+M shares for holders.
(IHS) IHS $0.23 EPS vs $0.22e.
(JBL) Jabil said it authorized $200M for share buyback plans.
(LLTC) Linear tech disclosed stock options probe.
(LTD) Limited announced $100M share buyback plan.
(MERX) Merix $0.17 EPS vs $0.14+e.
(MON) Monsanto $1.21 EPS vs $1.18e.
(MU) Micron $0.12 EPS vs $0.10e; revenues tad shy; sees flat guidance on revenues;
(MVSN) Macrovision announced a stock option probe.
(NWRE) Neoware lowered revenue guidance; stock DOWN 34%.
(OSG) Overseas Shipholding sells 2 vessels for $168M.
(PAYX) Paychex $0.32 EPS vs $0.32e.
(PFE) Pfizer will make a cheaper generic version of its own Zoloft anti-depressant to fend off generic competitors after it loses patent protection this month.
(RHAT) Red Hat $0.07 EPS after $7.6M charge on options vs $0.09; R$84M vs $83.3M(e); stock down 5%.
(RSAS) RSA Security trading up 16% on NYT reports of impending sale to EMC or another bidder.
(SIRI) Sirius up almost 1% on CIBC call (see below).
(SRDX) SurModics and AbbeyMoor Medical to jointly develop products to treat various diseases of the prostate.
(SYMC) Symantec is reportedly being asked for $1 Billion according to the WSJ; some of this was previously disclosed in prior months.
(THC) Tenet Healthcare is paying $725M in settlement with the Department of Justice into Tenet's receipt of certain Medicare outlier payments before 2003.
(VOCL) VocalTec announced it is changing its CFO and its CTO.
(WOR) Worthington $0.53 EPS vs $0.43e.

IPO PRICINGS:
(AVR) Aventine priced its IPO at $43, at the high end of an already raised range.
(GMKT) GMARKET priced its 9.1M share IPO at $15.25, at the high-end of its range; YHOO owns large portion of GMKT.
(BIDZ) Bidz.com IPO has been delayed due to market conditions.

ANALYST CALLS:
ALVR started as Accumulate at ThinkEquity.
AMP raised to Neutral at B of A.
AUXL started as Buy at Soleil.
BRL started as Outperform at CSFB.
BSX cut to Sell at Citigroup.
CAG raised to Neutral at CSFB.
CAKE added to new buy list at Goldman Sachs.
CPX started as Neutral at B of A.
DUK raised to Overweight at Lehman.
FCFS started as Buy at Jefferies.
FRX started as Outperform at CSFB
HOT added to new buy list at Goldman Sachs.
HSE cut to Sector Perform at CIBC.
IGT raised to Overweight at JPMorgan.
LVLT started as Equal Weight at MSDW.
MCD raised to buy at Merrill Lynch.
NDAQ raised to Outperform at Thomas Weisel.
NIHD started as Outperform at FBR.
NOK reitr Buy at Citigroup.
NTPA started as Buy at ThinkEquity.
RD raised to Sector Perform at CIBC.
REG raised to Overweight at JPMorgan.
S cut to Mkt Perform at Wachovia; stock down 1.5%.
TCO raised to Overweight at JPMorgan.
TLM raised to Outperform at CIBC.
URBN maintain buy but tgt cut to $22 at B of A; ests cut at Lehman.
VLO raised to Buy at Merrill Lynch.
XRAY started as Equal Weight at MSDW.
YSI started as Buy at Merrill Lynch.

CIBC issued a report raising Sirius (SIRI) sales targets and lowered XM (XMSR) sales based on trailing data and shortages at XM; no rating changes and both stocks reiterated Outperform.

Weekly Jobless Claims at 8:30 AM.
Weekly Nat Gas inventories at 10:30 AM EST.
Q1 final GDP released at 8:30 Am.
FOMC decision due at 2:15 PM EST with a 100% chance of a rate hike.

European Stock Market Report 6/29/2006

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

European markets were sharply higher at 5.15 New York time.

The FTSE was up 1% to 5,737. Barclays was up 1.6% to 604. BP was up 1.2% to 626. British Air was up .8% to 337.5. BT was up 1.6% to 233.75. GlaxoSmithKline was up 1% to 1482. Prudential was up 1.7% to 584. Reuters was up 1.6% to 372.75. Unilever was up .7% to 1182. Vodafone was down .2% to 112.75.

The DAXX was up .8% to 5,502. Allianz was up 1.5% to 120.59. BASF was up 1.3% to 60.58. Bayer was up 1.6% to 33.86. DaimlerChrysler was up 1.2% to 37.44. DeutscheBank was up 1% to 84.71. Deutsche Telekom was up .2% to 12.27. Siemens was up .9% to 89.03.

The CAC 40 was up 1.1% to 4,827. Alcatel was up .5% to 9.71. AXA was up 2.1% to 25.17. France Telecom was up 1% to 16.45. ST Micro was up 1.3% to 12.46. Vivendi was up .7% to 26.89.

Douglas A. McIntyre

News Digest 6/29/2006

Stocks: (GOOG)(YHOO)(BP)(F)(GM)(DCX)(SYMC)(PFE)(WMG)(RSAS)(EMC)

According to Reuters, the Federal Reserve is set to raise rates for the 17th consecutive time.

Reuters also reports that Google will release its new online payment service today. It will be called Google CheckOut.

The Wall Street Journal writes that a federal judge has approved a Yahoo! click fraud settlement in which the internet company was accused of not providing adequate protection for fruadulent clicking on ads on its service.

The Wall Street Journal reports that traders from BP illegally cornered a portion of the U.S. propane market in 2004 causing prices to rise in seven million homes.

The WSJ also writes that Ford is hitting stronger resistance that it thought several months ago. The company is trying to restructure its North American operations to get them profitable again. The company's SUV sales have been hurt by rising gas prices.

The WSJ reports that Tenet will pay $725 million to settle charges that it manipulated Medicare to get higher payments.

The WSJ writes that Symantec is fighting a U.S. tax bill of $1 billion involving Veritas Software, a company it acquired.

The WSJ reports that Pfizer will introduce a generic version of Zoloft now that its patent has run out.

The New York Times reports that Detroit car makers are introducing incentives as inventories rise. Chysler is introducing employee pricing. Some incentives from the Big Three could be worth over $5,000 for certain cars. Chrysler may also offer no interest financing to match Ford and GM.

The NYT reports that music companies EMI and Warner Music have each launched bids to take the other over.

RSA Security, which put itself on the market a few months ago, may be sold to EMC in the near future. The deal could be worth $1.8 billion.

Douglas A. McIntyre

Gold set for seasonal boom

By Yaser Anwar of Equity Investment Ideas


The Canadian National Post reports that between the end of July and the end of September, the price of the precious metal typically rises due, in part, to purchases of gold by jewellery-makers who are gearing up for the busy Christmas and Diwali seasons.

Both of these holidays coincide with the strongest periods of gold jewellery purchases in the calendar.

Gold prices have gone up in eight of the past ten periods, according to stock statistics of the Philadelphia gold and precious metal index quoted in The National Post. The average gain per period over the past ten has been 16.6 per cent.

Gold mining companies have also seen significant rises in their stock, despite the recent decline in the metal's price. Newmont Mining (NEM) has gained in seven of the last ten periods, at an average of 13.5%

Analysts hope this traditional period of growth in the metals sector will spark a recovery in gold prices after recent declines in the past few weeks as the market eased back from quarter-century highs registered in April and May.

The Fed EuroDollar futures signalling atleast two more rate hikes, this seasonal gold boom could further be aided by investors putting money in gold to protect against inflation.

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

Technical Analysis of Northrup Grumman (NOC)

By Yaser Anwar of Equity Investment Advisors

Today i'd like to talk about an idea by Casey Murphy, an excellent technician at ChartAdvisor.

Take a look at NOC because it is currently testing the support of the 200 DMA. This moving average is generally regarded as one of the most influential averages and it is closely followed by many traders.

Expect to see the bulls step in here and push the price back up toward the resistance of the 50 DMA near $65.50.

The MACD indicator has recently crossed above its signal line. This bullish crossover will likely be used by many traders as confirmation of the expected move off of the support.

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

Asia Markets 6/29/2006

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

The major indices in Asia were sharply higher.

The Nikkei was up 1.6% to 15,121. Canon was up 2.6% to 5480. Fuji Photo was up 1.6% to 3790.
Hitachi was up .8% to 742. Honda was up .3% to 3540. NEC was up 2.8% to 592. NTT was up 1.3% to 542000. Nippon Steel was up 1.9% to 425. Softbank was up .6% to 2500. Sony was up 2.7% to 4940. Toyota was up .8% to 5750.

The Hang Seng was up .8% to 15,865. China Mobile was up .8% to 42.7. China Netcom was up 1.5% to 13.4. HSBC was up .6% to 133.8. Lenovo was down 2.8% to 2.55. PCCW was flat at 5.45.

The KOPSI was up 1.4% to 1,263.

The Straits Times Index was up 1.1% to 2,377.

The Shanghai Composite was up 2% to 1,672.

Douglas A. McIntyre

Pivot Points: June 29, 2006

With Jobless claims and a Fed decision coming up, who needs technical analysis? Since everyone is expecting a quarter point rate hike, most of the financial world will ignore the actual hike and focus their attention over to Ben Bernake's attitude toward inflation; which every economist knows he dislikes.

Technically speaking, there is plenty of resistance in the S&P500. Pay close attention to the 1250-1262 level. As you can see (in the chart below), the 20 and 200 SMA are converging around that area, and the trend since mid May is clearly declining (as evidenced by the pink dotted trend line). At least 3 levels or resistance creates relatively strong barrier, but if the news is good tomorrow, it makes for even stronger support.

The pivot points for today are listed below:

Type	Level	S&P500	Nasdaq Composite	DJIA
Resistance	3.0	1,262.49	2,148.76	11,109.97
Resistance	2.5	1,257.76	2,137.84	11,070.59
Resistance	2.0	1,253.02	2,126.92	11,031.20
Resistance	1.5	1,251.27	2,123.15	11,016.79
Resistance	1.0	1,249.51	2,119.38	11,002.38
Resistance	0.5	1,246.53	2,112.23	10,977.41
PIVOT		1,243.55	2,105.08	10,952.43
Support	0.5	1,241.80	2,101.31	10,938.02
Support	1.0	1,240.04	2,097.54	10,923.61
Support	1.5	1,237.06	2,090.39	10,898.64
Support	2.0	1,234.08	2,083.24	10,873.66
Support	2.5	1,229.35	2,072.32	10,834.28
Support	3.0	1,224.61	2,061.40	10,794.89
Prev Close		1,246.00	2,111.84	10,973.56
Prev High		1,247.06	2,112.62	10,981.25
Prev Low		1,237.59	2,090.78	10,902.48

New York Times DealBook Summary 6/28/2006

Stocks: (JCG)(GS)(BCS)(WMG)(MT)(MFE)(RMIX)

According to DealBook, shares of J. Crew rose 28% on their first day of trading. Goldman Sachs and Bear Stearns lead the underwriting.

DealBook say that the takeover fight between music companies EMI and Warner Music has resulted in each making and rejecting takeover offers from the other. EMI said that Warner had offered $4.6 billion.

DealBook says that Russian steel company Severstal is planning to make another bid for stell company Arcelor, which is already planning to merge with Mittal. Mittal's $33.5 billion bid for Arcelor has already been accepted.

Hedge fund Third Point has won two board seats at Massey Energy. It lead a proxy fight to get them.

DealBook says that U.S. Concrete has agreed to acquire Alberta Investments and an affiliate Alliance Haulers to expand its business in west Texas. The price was $165 million.

Douglas A. McIntyre

Upbeat cable outlook good for Comcast (CMCA), CBS (CBS), Verizon (VZ) & JDSU

By Yaser Anwar of Equity Investment Ideas


According to a study released on the cable network executives expect a rebound this year for the industry. Kagan Research, which surveyed more than 100 cable networks, predicts revenue for the industry will reach $33.8 billion, a 13.1% increase over last year.

The growth will be driven by ad revenue holding steady in the double-digit growth range, the study says. Kagan sees such challenges looming ahead as license fee increases between 2%-5% annually for networks owned and operated by conglomerates and the shuffling of channel lineups by satellite and land-based cable operators if license fees are deemed excessive in light of a networks' ratings.

Kagan Research senior vp Derek Baine reflected on the networks' recent performance in a statement Monday: "Most major cable networks (revenue) has been growing at a rapid clip. ... ESPN took in $3.7 billion in 2005, $2.1 billion more than its nearest competitor. Nickelodeon, TNT, FSN, MTV and USA all topped $1 billion in revenue, while 10 other networks had revenue greater than $500 million."

This upbeat outlook for cable industry bodes well for stocks like Comcast & CBS, both of which have been beefing up their cable & fiber-optic networks to meet increasing demand not only from consmers but telephone companies such as Verizon (Verizon itself has been expanding its fiber optic networks to offer broadband phone services). A derivative play of the fiber optic networks would be JDSU & Brocade.

Sources of first three points: Hollywood Reporter & Kagan Research

http://equityinvestmentideas.blogspot.com/

Pension Crisis: Looming Taxpayer Bailout?

By Yaser Anwar of Equity Investment Ideas


Is the bankrupt Pension Benefit Guaranty Corporation going to hoist its obligations onto taxpayers?

The quasi-government agency has been taking on failed companies’ pension payments since it’s creation in 1974. But could there come a day when the PBGC requires a bailout from taxpayers?A Wall Street Journal editorial says so.

The PBGC reported a $23 billion deficit for 2005. That’s a long fall from the $10 billion surplus the agency had in 2000. The reason? Companies aren’t paying into the coffers of the PBGC like they once were, and more are calling on its assistance.

According to a study by Watson Wyatt Worldwide, 113 of the Fortune 1,000 companies have ended their pensions. That’s compared to 71 in 2004, says the consulting firm.

Delta Airlines just became the latest in a string of companies looking to the PBGC to handle its pension payouts. The airline wants to end its pension plan for pilots. United Airlines and US Airways have already stuck PBGC with its pensions, PBGC assumed $6.6 billion of United’s pension liabilities and $3 billion of US Airways’, says The Seattle Times.

The growing number of companies looking to the PBGC for assistance is worsened by the fact that companies are underfunding their pension programs. The Labor Department estimates that pensions are underfunded by more than $450 billion last year.

That means companies are making promises that they can’t deliver, and the PBGC is left to pick up the pieces. As the insurer of last resort for these pensions, the PBGC is obligated to take on the liabilities of failed companies.

But what if, asks the Journal, the PBGC doesn’t have the cash to pay its obligations? Taxpayers beware.

Source: Money News

http://equityinvestmentideas.blogspot.com/

Wireless Slowdown Could Knock Your SOX Off

Stocks: TXN - MOT - NOK

By William Trent, CFA of Stock Market Beat

We recently wrote how the Chinese market for handsets may be oversupplied. With wireless being the main growth driver for semiconductors these days, a slowdown there could have a magnified effect on the whole industry, further bringing down the SOX. A JP Morgan report now suggests that this is indeed the case.Tech Trader Daily » Report Nokia (NOK) Pushing Out Some Parts Orders; Bad News for RFMD, TXN

J.P. Morgan chip analyst Christopher Danely this morning reports that “checks in the channel” indicate Nokia (NOK) is pushing out orders for handset components “across the Asian handset supply chain.” Danely says the Nokia pushouts, as well as “weakness from Motorola (MOT), LG and Samsung,” raises concerns about downside risk to estimates for both Texas Instruments (TXN) and RF Micro Devices (RFMD). He notes that Nokia represented about 10% of calendar 2005 sales at TI, and about 38% of fiscal 2006 sales and RF Micro.

“Our checks now indicate the top four global handset OEMs - Nokia, Motorola, Samsung and LG - (roughly 75% of [first quarter 2006] global handset sales) are eighter pushing out component orders (MOT and NOK) or missing [second quarter] sales estimates (Samsung and LG). We believe the rash of negative wireless data points in indicative of either an inventory over-build or weaker-than-expected demand.”

http://stockmarketbeat.com/blog1/

Micron Initially Lower After Earnings

Stock Ticker: MU

A soft revenue number and a flattish revenue guidance statement currently has Micron (MU) trading down 3.8% at $15.35 after-hours. If they are not able to say anything positive later today in their conference call, then we may have another overhang in the chip stocks tomorrow.
Micron reported earnings after the close with EPS at $0.12 and revenues at $1.31 Billion. Estimates were only $0.10 EPS, but $1.35+ billion in revenues.

Gross margins grew to 25% on DRAM pricing and switching to higher margin sales in CMOS.

HERE IS WHY SHARES ARE LOWER
The Company's fourth fiscal quarter revenue is not expected to increase measurably as a result of the Lexar acquisition as the Company will not recognize revenue from Lexar products in the distribution channel at the June 21, 2006 acquisition date.

CASH & BALANCE SHEET
At the end of the third quarter of fiscal 2006, the Company had $2.8 billion in cash and short-term investments. Approximately $748 million of the cash and short-term investments are held at, and anticipated to be used in the near term by, IM Flash and TECH Semiconductor. During the third quarter, the Company generated $384 million in cash from operations and invested $417 million in capital expenditures. The Company anticipates capital additions for fiscal year 2006 to be approximately $2.2 billion.

Jon C. Ogg
June 28, 2006

Market Wrap Up for June 28, 2006

Stock Tickers: NOK, TXN, RFMD, MOT, RMBS, AMCC, CNET, GM, BOL, MRVL, INTC, ENMD, JCG, NKE, THI, WEN, NTGR, PALM, RIMM

DJIA 10,973.56 (Up 48.82, 0.45%)
NASDAQ 2,111.84 (Up 11.59, 0.55%)
S&P500 1,246.00 (Up 6.80; 0.55%)
10YR-BOND 5.245%

The markets did close higher today, but it really felt like Monday with a mixed day ahead of the FOMC and ahead of a long weekend for most.

Nokia (NOK) fell 2.3% to $19.14 after concerns came about cell phone pushouts. This hit RF Micro (RFMD) down 3.99% to $5.78, Texas Instruments (TXN) 2.29% to $28.97, and Motorola (MOT) down 1.8% to $19.32.

More companies were hit with stock options probes. Rambus (RMBS) took the largest hit falling 11% to $20.55; Applied Micro (AMCC) fell 6.4% down to $2.45; and CNET Networks (CNET) fell 7.1% to $7.77.

General Motors (GM) rose 2.9% to close at $26.66 despite negative articles on poor June and July sales expectations. See DOUG's ARTICLE for further insight.

Bausch & Lomb (BOL) rose significantly with a 5% gain to $2.40 after reports showing that most ReNu lens-cleanings users who suffered eye infections may have gotten the infections from poor hygeine rather than from BOL's manufacturing or packaging.

Marvell Technology (MRVL) fell another 4.1% to $42.32 after yesterday's slide from acquiring the ailing communications chip unit from Intel (INTC).

Entremed (ENMD) rose 4.9% to $1.70 after getting an FDA Orphan Drug Designation on its lead candidate to treat brain cancers.

The winning IPO of the day by far was clothing retailer and catalog seller J. Crew (JCG). It priced well above the $15.00 to $17.00 range up at $20.00, and rose as high as $26.00 before closing at $25.55.

Nike (NKE) met earnings expectations but fell 4.6% to close at $79.72 after giving forecasts that were less than hopeful for the bulls.

Tim Hortons (THI) fell 3.6% to close at $25.95 after Wendy's (WEN) set October 1 as the completion date to its ongoing spin-off plans.

The most powerful analyst call today was the call on, well actually against, Netgear (NTGR). Citigroup downgraded the stock from a Buy to a Hold rating and it closed down 11.2% to close at $21.00.

Phelps Dodge (PD) recovered 3.7% to close at $77.89 after being hit so hard from its monster acquisition announcement this week.

Finally, pink-sheet listed Veritec (VRTC) closed up 20% on thin volume at a $1.50 close after licensing its bar code technology to Intel (INTC) for an undisclosed sum.

Banking Giant Wells Fargo (WFC) closed up 1.7% to close at $66.25 after hiking its dividend, announcing a stock buyback, and announcing a stock split.

Tomorrow we have weekly jobless claims at 8:30 AM and at 10:30 AM we'll get the weekly natural gas inventories. Tomorrorrow will mark the IPO of another ethanol producer Aventine (AVR), which is expected to be Hot. Of course tomorrow is also the highly awaited FOMC meeting, and another 25 basis point hike is expected by anyone and everyone on the street. We'll also get Palm (PALM) and Research-in-Motion (RIMM) earnings after the close. Friday will mark the end of the quarter, and after about 10:30 AM or 12:00 Noon that day ahead of the 4th of July you can bet that there will not be many of the A-Team traders on the trading desks until next Wednesday or Thursday.

Jon C. Ogg
June 28, 2006

R-I-M and Palm Earnings Previews

Tomorrow after the close, we will get two dueling earnings reports from Research-in-Motion (RIMM) and Palm (PALM).

It is no secret by now that there has been an ongoing market share war between the two, outside legal issues, ongoing competitive threats, comparable advantages and disadvantages from quarter to quarter, and even merger rumors of either a merger between the two or Palm becoming part of another company. These may sound as though there are more questions than answers, and that may not change.

Research-in-Motion (RIMM) has a current market cap of $12.1 Billion and is expected to post EPS of $0.65 before items on revenues of $602 Million. It is also expected to post August quarterly EPS of $0.72 on $636M in revenues.

Palm (PALM) has a market cap of merely $1.9 Billion and is expected to post EPS of $0.23 on $401.75M revenues. It is also expected to post August quarterly EPS of $0.22 on $413.5M in revenues.

It is unforunate that RIMM's fiscal year ends in FEB 2007 and PALM's fiscal year ends in MAY 2007, but these are only one quarter apart. Based on current share prices and forward consensus estimates (that will likely change after tomorrow) RIMM trades with a forward P/E of 21.7 and PALM trades with a forward P/E of 17.85.

Both of these have marked positions with carriers. RIMM is slightly more geared toward enterprise level corporate clients, and PALM is more geared toward smaller businesses and gadget lovers. RIMM is based in Canada and PALM is based in Silicon Valley. Both have ongoing developments for their pipelines, and both have competition that is outside of just each other. Both stocks are also in the middle ground of their 52-week trading ranges. Both have products with possibilities of reaching far beyond PDA-phones. Options traders appear braced for approximate moves in either direction of up to 5% in RIMM and 4.75% in PALM.

In short, the comparisons and the contrasts could go on and on. Maybe we'll get a deal between the two, and maybe we won't. Maybe one will announce an outside deal or partnership, and maybe not. RIMM was also at the C3 Expo in New York today and no word of any impending deal has been circulating since the rumors yesterday morning. After tomorrow's reports there should be much more clarity.

Jon C. Ogg
June 28, 2006

Nike: Icarus or Hercules? For Now, Neither

Stock Ticker: NKE

Nike (NKE) has not acted well at all after yesterday's earnings report. Nike is down 4.5% ar $79.80 on last look as the street yawned over its earnings and is somewhat concerned over future growth.

All you have to do is look at the past performance to recall that this stock used to be the beast in the sporting goods sector. Its shares are still up over 100% from just under 4-years ago, and its shares are up more than 3-fold from the woes in the beginning of 2000. Unfortunately it is starting to look like a mature company.

After reviewing most metrics on its chart it has been largely range bound over the last 18 months. The other key pattern that stands out is a rolling pattern of slightly lower-highs and slightly higher-lows. These trends will ultimately get tested on either its key support levels or key resistance levels, but even with it at the lower-end of a long-term tarding band it is really acting like a range bound stock that may be stuck between $77 and $87 before any significant moves can come into play.

Certainly the expanded competition from the newly combined Adidas-Reebok has to be an issue. It also didn't help that the company had to take a charge of $0.12 against its earnings per share because of a judgement in a Converse case. The company has also forecast flat to lower earnings in the coming quarter, and that is even before the stock options expense all companies have to implement now. It is also spending more on marketing to defend it its global market share, and it placed its global future orders at +5% to $6.6 Billion. Finally, it is also having margin pressures: 43.8% this quarter, 44.0% for the fiscal year, and 45.2% for the same quarter comparison year-over-year.

Out of the research field there have been numerous analyst calls, mostly mixed. Citigroup and Bank of America have both reiterated their Buy rating on today's weakness, but reading through other research reports just gives even more of a mixed picture.

The valuation snapshot isn't much to be concerned about. It trades at a mere 15-times earnings and still pays a 1.50% yield. It is still the dominant player on sporting apparel and a leader in sporting goods worldwide. It has incredible brand recognition and its stores are steadily filled with buyers. It still has a $20+ Billion market cap and its balance sheet keeps looking better and better each quarter. The company repurchased just over 3.2 million shares last quarter and the old buyback plan had recently been expanded to a total of $3 Billion. Unfortunately, that doesn't always cut it. Right now it looks range bound and, until something really positive or really negative happens, its best case scenario may only be more of the same.

Jon C. Ogg
June 28, 2006

Replidyne: A Desperate IPO?

Stock Tickers: RDYN, FRX

Relidyne (RDYN) was a pretty poor IPO effort if you look at this with just about any effort. The company was going to come public with a 5M share offering at a range of $14.00 to $16.00. Even though it has an antibiotics collaboration pact with Forest Labs (FRX), no one cared. This priced at $10.00 and only with 4.5M shares, which may make this the worst IPO pricing compared to original terms out of any recent IPO that actually priced and made it to trade. How desperate were they to come public and to raise cash? Merrill Lynch and Morgan Stanley were the joint book-runners, with Cowen and Pacific Growth as the two co-managers. Who knows how the street is going to treat this, but the pricing is so bad you would swear this was a pig dressed up in a leper's clothing. When investors see situations like this about all they can hope is that the terms were dropped so much that it makes them relatively cheap for anyone wanting to get in.

The company is a non-revenue stage company, but it is targeting drug-resistant bacteria. The FDA has accepted its new drug application with Forest based on 11 phase III efficacy studies in indications and a safety database of a 5,000+ patient group that has been treated with the product. They are studying this for acute bacterial sinusitis, community-acquired pneumonia, skin infections, exacerbated chronic bronchitis, and drug-resistant staphylococcus. So it isn't as though the company is just going after some rare infections and treatments. We haven't heard anything specific about this and likely will not. Time will be the judge for this one, but that pricing would sure lead one to be concerned about the products and how the street supports it.

Jon C. Ogg
June 28, 2006

Semiconductor Margins Getting Squeezed at Both Ends

By William Trent, CFA of Stock Market Beat

Our regular readers know that we believe semiconductor pricing conditions are only going to get worse in coming months due to continued investment in new supply, which is growing at a faster rate than end demand. We also recently noted that solar power’s resurgence is creating competition for raw materials.

As this article elaborates:
Scrap wafer recycle supplier Phoenix Silicon International (PSI) said the company turned profitable in May, thanks to large demand from solar cell makers, according to the company. The company also sees encouraging capacity growth on growing demand.

PSI observed that the tight silicon supply boosted the price of scrap wafers significantly. The price of a 8-inch scrap wafer from semiconductor makers had jumped to US$6.50-7.00 from last year’s US$1.20-1.40. Despite the price increase, the company’s recycled scrap wafer output continues to grow with 8-inch wafer shipments staying at 3,000 per month while 12-inch shipments are hitting 50,000 wafers, according to the company.

Semiconductor manufacturers rely on other commodities such as copper and aluminum, which have also seen substantial price increases, in their production as well. This has seldom been an issue in the past, as commodity prices were tame and/or declining and because the raw materials made up such a small percentage of the total price of semiconductors (gross margins as high as 70 percent in some cases.)

However, with prices set to decline even more rapidly than normal and costs having gone up significantly in the last year, margins could be set to compress dramatically. The combination has not lined up this way in many years, and thus may catch many market observers by surprise.

http://stockmarketbeat.com/blog1/

Now This is a Quadruple Play

Stocks: VZ - T - S - TWX - SI

By William Trent, CFA of Stock Market Beat

It has been said that cable’s major advantage over telcos and satellite tv is its ability to offer the “triple play” of video, voice and data over a single line. The ability to leverage its existing service to capture additional revenue streams gives it a unique edge that has been behind the telco’s own fiber roll-out.

At the same time, the telcos have enjoyed the advantage of wireless spectrum and services, which are largely replacing land-lines for voice service anyway. This gave the telcos a different triple-play: voice, data and wireless.

Thus the race was on to be the first to offer a quadruple play that included all four services. The telcos partnered with satellite companies, the cable companies partnered with independent wireless player Sprint-Nextel, and the telcos started their fiber expansion. But these interim partnerships appeared to us to be of limited value. There is no cost savings to the bells company from reselling satellite video - unlike video and data over the same pipe satellite was a different pipe, and one they didn’t own. Likewise for the cable companies offering wireless service. Until now.

Barron’s Tech Trader Daily reports:
In one of the first concrete steps to emerge from a partnership agreement signed last November between Sprint Nextel (S) and four major cable companies, Time Warner Cable (TWX) is reportedly making plans to roll out a dual-band wireless phone service with handsets that can alternate between VOIP over WiFi and cellular networks. According to the web site Light Reading, other participants in the project will include Siemens (SI) and BridgePort Networks, which together will provide the necessary network hardware.

This means that while in the customer’s home the phone will connect via WiFi to the cable modem and use the cable pipe. When the customer is mobile it will revert to the Sprint wireless network.

Granted, this has been tried before. Each of the Bells has toyed with a mobile/landline combo phone, and the plans have gone nowhere. Yet the idea remains attractive enough that companies keep trying. One day it might work. And if it does, it will be something that provides true differentiation.

Until, that is, it is copied.

http://stockmarketbeat.com/blog1/

How To Protect Yourself From Mutual Fund Issues

By Yaser Anwar, CSC of Equity Investment Ideas

Here are three ways you can protect yourself from these negatives about mutual funds:

1. Be your own money manager and invest in several mutual funds and individual stocks. Be prepared to take profits and use stop orders to protect you on the downside, in case there is a crash or bear market. I personally took profits and exited several of my favorite mutual funds during the most recent downturn.

2. If you want to be a long-term investor and not try to trade mutual funds, invest in a well-diversified "permanent" portfolio of index funds in a variety of categories: Consider a "permanent" portfolio of funds or Exchange-Traded Funds (ETFs) in growth stocks, bonds, commodities and cash. For example, the Permanent Portfolio Fund (PRPFX) attempts to do this all in one fund.

3. Consider going with a money manager who selects individual stocks and funds. Minimums are usually quite high for this approach: $50,000 or higher. Use a money manager who will post the value and composition of each position on the Internet, so you can constantly monitor performance. And stick with money managers who have a proven track record over five years.

Unlike a mutual fund, a money manager can go 100% in cash to protect you, if necessary.Fortunately, some relief for mutual fund investors may be on the way with publicly traded hedge funds that have the capability of going short or heavily into cash during a bear market.Until then, it's best to be your own money manager as much as possible. Studies have shown that individual investors often outperform professional money managers.

After all, who is more interested in your own money than yourself?

Source: Investment U

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

Investor Sentiment

By Yaser Anwar, CSC of Equity Investment Ideas

30 day outlook:

35% bullish, 33% previous week
38% bearish, 46% previous week
27% neutral, 22% previous week

Source: Low Risk

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

Pre-market Notes for June 28, 2006

S&P Fair Value -$0.40.

(AMCC) Applied Micro gets US Atty subpoena over stock option grants.
(APOG) Apogee Enterprises $0.19 EPS vs $0.17+e.
(BBT) BB&T announced a 50M share buyback and dividend hike.
(BFT) Bally's Total Fitness rose 6% after reporting earnings; showed $0.87 EPS but that included $38.4M gain from sale of Crunch.
(BMET) Biomet $0.40 EPS vs $0.46e; sees Q1 $0.43-0.45 vs $0.45e.
(BOL) Bausch & Lomb trading up 8% on WSJ blaming poor hygeine rather than BOL for the ReNu problems.
(BSET) Bassett Furniture $0.24 EPS vs $0.23e.
(CAG) ConAgra $0.32 EPS vs $0.29e.
(CAKE) Cheesecake Factory shares down 4+% after saying comparable sales would be flat to down.
(CNET) CNet.com received an inquiry over stock options granting.
(CUB) Cubic gets $25M combat training systems pact in Asia.
(DEPO) Depomed in commercialization pact for its Glumetza product with King Pharmaceuticals for Type II diabetes.
(ENMD) EntreMed said FDA has granted Orphan Drug status for the Company's lead drug candidate for a form of brain cancer
(ESLT) Elbit Systems received an additional $50M in follow-on order from US Marines.
(EXFO) Electro-Optical $0.05 EPS vs $0.06e.
(FDRY) Foundry gets a grand jury subpoena over stock option grants.
(FTO) Frontier Oil trades ex-split today (2 for 1).
(FUL) HB Fuller $0.65 EPS vs $0.68e.
(FUN) Cedar fair reported attendance at theme parks through June 25 was +1% with spending equal to last year.
(GM) GM will have poor June and July sales according to WSJ; CNBC also predicted yesterday.
(HXL) Hexcel expects lower revenue growth.
(JCG) J.Crew IPO priced at $20.00 for 18.8M shares; above the $15.00-17.00 range.
(MGLN) Magellan Health Services is acquiring private ICORE Healthcare for $210M plus a potential $75M subject to benchmarks.
(MKC) McCormick $0.32 EPS vs $0.30e.
(MTX) Minerals tech lowered guidance.
(NKE) Nike $1.27 EPS vs $1.30e; but said $0.12 charge was in the number for a lost case against Converse; said future orders up 5% to $6.6 Billion, but no formal guidance.
(NVS) Novartis gets FDA approval for Exelon in treatment for dimentia.
(NWS) News Corp has joined Macquarie Bank's bid for PCCW phone and media assets with an offer price of $7.3 billion.
(OMTR) Omniture priced its 10.7M share IPO at $6.50, under the $7.50-$9.00 range.
(QMED) Q-Med signed Smith & Nephew for its acids in orthopedic uses.
(PFE) Pfizer reported it won an appeal protecting its Lipitor patent in the UK.
(PGTI) PGT IPO priced 8.2+M share IPO at $14.00, under the $16.00 to $18.00 range.
(PKE) Park Electrochemical $0.44 EPS sv $0.47e.
(RDYN) Replidyne 4.5M share IPO priced at $10.00, lower size and lower shares.
(RMBS) Rambus has reportedly discovered improper option granting; will restate earnings; stock fell 6%.
(RMIX) US Concrete is making $165M in acquisitions; co. has $424M mkt cap.
(TGEN) Targeted Genetics signed new international AIDS development and study pact.
(THI) Tim Hortons' 82+% stake still owned by Wendy's has been given an October 1 date to complete the spin-off.
(UIS) Unisys is participating in border security initiative.
(UPS) UPS is supposedly getting USPS excess order business that will be announced this weekend according to the WSJ.
(VG) Vonage is about to release a product that will allow customers to plug a regular phone into a PC for VoIP use.
(VRTC) Veritec licensed its bar code technology to Intel for an undisclosed sum.
(WEN) Wendy's targets October 1 as date to have completed its spin-off of Tim Hortons.
(WFC) Wells fargo announced a 25M share buyback plan; announced dividend hike; announced 2-1 stock split.
(WMG) Warner Music's bid for EMI overseas for $4.5 Billion has reportedly been rejected.

ANALYST CALLS:
ADSK reitr Buy at Deutsche Bank.
ALTR cut to Hold at Citigroup.
BAY started as Outperform at Bear Stearns.
BEAV raised to Buy at Jefferies.
CG raised to Buy at merrill Lynch.
CTSH started as Neutral at Merrill Lynch.
DNA reitr Buy at Citigroup.
DR started as Outperform at CSFB.
ELX started as Neutral at Merrill Lynch.
FLIR started as Overweight at Lehman.
GPN started as Underweight at Lehman.
HD cut est/tgt at CSFB.
HES raised to Buy at Merrill Lynch.
JNPR cut estimates at Citigroup.
KOSP started as Equal Weight at Lehman.
MA started as Underperform at CSFB
MRVL reitr Buy at Deutsche Bank; cut to Mkt Perform at FBR.
NKTR started as Buy at oppenheimer.
NTGR cut to Hold at Citigroup.
PAY raised to Outperform at CSFB.
QLGC started as Buy at Merrill Lynch.
RYN started as Overweight at JPMorgan.
SYT raised to Overweight at Lehman.
TEX raised to Overweight at JPMorgan.
UVN raised to Neutral at JPMorgan, cut to Mkt Perform at Wachovia.
XLNX cut to Hold at Citigroup.

Earnings Today: PAYX, MU, COMS.
Weekly Oil inventories released at 10:30 AM EST.

GM's Silver Lining

GM's news recently has been mixed, but the negative comments about June and July sales trumped the positives of the employee buy-outs and the stock skidded down sharply.

GM expects poor comparisons to last summers sales, but there are some good reasons and buried in these may be the key to the company's recovery. In June of last year, GM offered employee pricing for all customers which drove up sales sharply. However, it also drove down the company's yield and profit per vehicle.

GM's strategy has shifted markedly. With cost dropping, yield-per-vehicle is becoming just as important as absolute unit sales. GM also has several "hot" cars like the Pontiac Solstice that are selling very, very well.

The key to the GM recovery may be its rising price per car. For the first five months of the year, the company was able to fetch an average of $26,431 per vehicle, up $1,200 over the same period a year ago.

If GM can keep its yield-per-vehicle high, the critical comparisons will not be with last year's summer employee discount sales periods, but with the fall months when new models hit the dealers.

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

IPO Alerts for June 28, 2006

Stock Tickers: JCG, PGTO, OMTR

This morning we have several IPO's that are set to begin trading.

The big kahuna IPO is J. Crew (JCG), the private equity-owned branded clothing retailer with stores and catalog sales. The company's 18.8M shares priced at $20.00, above the $15.00 to $17.00 range. Goldman Sachs and Bear Stearns were the joint book-runners; with co-managers Bank of America, Citigroup, Credit Suisse, J.P.Morgan, Lehman, and Wachovia.

PGT Inc. (PGTI), the leading US manufacturer of residential and commercial hurricane impact resistant windows and doors, priced an 8.8M share IPO at $14.00. That is under the indicated $16.00 to $18.00 range. Maybe they needed flood resistent doors and windows instead. Deutsche bank is the lead underwriter with J.P.Morgan, JMP Securities, Raymond James, and Suntrust as co-managers.

Omniture (OMTR), an on-demand Internet aanalytics software company, priced its 10.7M share IPO at $6.50. That is well under the $7.50 to $9.00 indicated range. Morgan Stanley was the lead underwriter with co-managers Credit Suisse, Deutsche Bank, and J.P.Morgan. The company has over 1,000 customers and posted a net loss of almost $17M on $43M revenues in 2005. Just two weeks ago this deal was being looked at by many on the street, so it is unclear what happened to create such a low IPO pricing.

Has Intuit Run Too Far?

Stocks: (INTU)(MSFT)(ADP)(HRB)

Shares in financial software company Intuit are up from under $40 early last year to $58, a twelve month high. The shares should have moved given the company's financial performance. In the quarter ending April 30, revenue hit $953 million and operating income was $480 million.
Revenue rose 14% from the same period a year ago.

The company does have some problems that could keep it from moving much higher. One is that it has been part of the options pricing scandal, which is yet to be resolved. Another is that guidance for the July quarter was for revenue to grow as little as 3% and for the fiscal year ending in July growth may be as low as 13% over the last fiscal year.

Another issue is that some of Intuit's brands are not growing quickly at all, bringing the overall rate of growth for the company down. Quicken Books grew at a rate of only 8% in the April quarter.

The most important issue is that Intuit, like many software companies, faces competition from Microsoft. Some of the new versions of Office offer accounting software for small businesses. Microsoft and ADP have developed a payroll solution for customers. H&R Block also has a horse in the race with its TaxCut product. All of these products could put pressure on margins at Intuit.

It is hard to make a case that Intuit's recent growth is anything other than impressive, but future increases may come more dearly, and the stock does trade at the top of its range.

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

European Stock Market Report 6/28/2006

Stocks: (BEAS)(BCS)(BP)(BAB)(BT)(RTRSY)(UN)(UL)(VOD)(AZ)(BF)
(BAY)(DCX)(DB)(DT)(SI)(AZ)(AXA)(FTE)(TMS)(V)

European Markets were fairly flat at 5.45 AM New York time.

The FTSE was up .2% to 5,662. BEA was off .4% to 357.75. Barclays was up .7% t0 594.5. BP was up .2% to 614.5. British Air was off 1.1% to 336. BT was up .4% to 228.74. Prudential was up .7% to 570.5. Reuters was up .1% to 367. Unilever was up .1% to 1160 . Vodafone was up .4% to 113.5.

The DAXX was off .2% to 5,449. Allianz was up .5% to 119.2. BASF was up .2% to 60.24. Bayer was up .9% to 33.06. DaimlerChrysler was down .7% to 37.07. Deutsche Bank was down .3% to 83.37. Deutsche Telekom was down .2% to 12.35. Siemens was up .2% to 66.41.

The CAC 40 was down .2% to 4,764. Alcatel was down .3% to 9.71. AXA was up 1.9% to 24.73. France Telecom was down .7% to 16.35. ST Micro was down .5% to 12.17. Thomson was .6% to 12.58. Vivendi was down .4% to 26.57.

Douglas A. McIntyre

Difficult Markets-The Rubble of Neglect

By Richard Konrad of Value Discipline

Roy R. Neuberger, the eponym of Neuberger Berman, an investment management firm now owned by Lehman has (he is 102) a great love of painting which he financed through his successful investment career. He was especially adept at short-selling, which brough him great fortune through the Great Crash of 1929 and well into the Depression.

A famous quote about the stock market that comes to mind in difficult markets is attributed to Neuberger,"Analysts...in bull markets, who needs them...in bear markets, they'll kill you!"Hans Deuel of the blog Clearfish Research describes the phenomenon well in "No Matter What You Do, You're Wrong."

If:
You buy on the way down, and it keeps going down (should have waited), or
You sell on the way up and it keeps going up (should have waited), or
You buy on the way up and it keeps going up (you should have bought earlier), or
You sell on the way down to stop losses and it turns around, or
You don't buy at all (opportunity loss), or
You don't sell at all and hold those losses, or...

As he points out, you can't beat yourself up. This is not a game of perfect. You have to quit beating yourself up in these choppy markets, keep the right investment horizon in mind, and don't expect that you will pick bottoms or tops.

I can recall Buffett describing his purchase of a large position in General Dynamics. At the annual meeting, he was asked about how much time he had spent in the analysis of GD's large submarine division . He replied about half an hour.

Sometimes, the obvious should not be an impediment. Mr. Market may agree over the short term or otherwise. Focus on decisions that favor your long term horizon. If Mr. Market continues his despondency, you can buy more of a good thing.

The beauty of markets like we are experiencing, and this is a good thing, is that we get the opportunity to buy businesses at prices much better than we could have expected. The high flying commodities are not a place where you want to be in my view...periods following gold rushes are not a lot of fun. A friend of mine put it best, "In today's market, people are buying things they should have owned five years ago, but wouldn't touch."Isn't that almost always true? Twenty years ago, the investment firm DLJ sponsored their last coal conference after only 18 people attended, 16 representatives of presenting companies, a buddy and myself. Coal went nowhere for some years until some shrewd investors discovered the mineral was cheaper on Wall Street than in Appalachia. At energy or mining conferences today, it is SRO...little firms such as mine can't possibly get in.Not that we'd want to!

I think similar thinking should be applied to your investments. Unpopular, boring, seemingly out of step ideas might turn into real jewels with a bit of time. No one cares in the capital markets. But is there still a business underneath the rubble of investor neglect?

http://valuediscipline.blogspot.com/

On the Road Again....To Zagreb??? Barr Labs

By Richard Konrad of Value Discipline

Well, it's a big, wonderful world out there and a xenophobic focus on the domestic opportunity set just does not provide sufficient perspective for successful investors, whether individual or corporate. Ergo, Barr's brave international move.

Barr Labs (BRL) today announced a potentially transformational bid for Pliva d.d.for $2.2 billion.Pliva has over $600 million in sales in Europe. The combined company, according to management's conference call this morning, will have nearly $2.5 billion in sales with EBITDA in excess of $875 million and net income greater than $550 million. Barr, which has been essentially a U.S. company, suddenly will find itself selling in about 30 countries. Germany is the largest base, but there is sales force in Poland, in Russia and across all of Europe...a very diverse group of countries with a very diverse set of regulations that Pliva has experienced and thrived in.

Founded in 1921, Pliva is today the largest pharmaceutical company in Croatia and by sales, the largest in Central and Eastern Europe. Since April 1996, Pliva's shares have been listed on the London Stock Exchange, a first for a Central and Eastern European manufacturing company.Healthcare is central to Pliva and the company produces a wide range of quality pharmaceutical, animal health and agrochemical products. Pliva also produces a range of food and beverage items and a line of cosmetics and personal hygiene products.

Pliva's best selling product is its patented oral antibiotic, azithromycin, which Pliva markets in Central and Eastern Europe under the brand name Sumamed. Pliva's azithromycin has also been licensed to Pfizer, marketed as Zithromax in the United States and elsewhere. Pliva also produces and markets drugs under license from a number of multinational pharmaceutical companies.

Barr becomes a leader in bio-generics, a capability that is embryonic because of the lack of regulatory structure in the States, but a capability that can be highly useful in Europe. But with Barr's penchant and skill for the important regulatory side of generic drug development, and this is the primary skill for generics operating in the U.S., the company should develop some valuable legal and regulatory expertise in crossing the pond with this skillset. The company gains some valuable sterile injectable drug manufacturing facilities in Brno, Czechoslovakia and in Krakow, Poland. In India, there is a bioequivalence laboratory, another significant capability for the future. In addition, transfer of some manufacturing to other countries should result in a lower tax burden for Barr.

The significant manufacturing and research capabilities should greatly increase the amount of research and cthe number of submissions that the company will be able to make for approval. These are very low cost facilities relative to the U.S. based facilities that the company operates. The company currently offers about 150 different dosage forms of some 75 different generic pharmaceuticals. As well, Barr has had a proprietary pharma strategy largely concentrated in women's healthcare with SEASONALE extended cycle oral comprehensives, Plan B emergency contraceptive, and ParaGuard Intrauterine contraceptive device, A total of 19 proprietary products are manufactured and distributed.

The combined company will have over 150 projects under development and will be marketing a current portfolio of about 120 products.The combined company has 65 ANDA's (Abbreviated New Drug Applications...used for generic approval) in front of the FDA.

Some of the Pliva products seem quite plain vanilla relative to other generics, but given their low cost structure, have significant margins.

The financials are not very clear. Pliva is being acquired for twice sales, which seems remarkably low relative to other generic deals in the States. The company claims that the deal is neutral to slightly accretive to its internal (not Street estimates) for 2007. Additive for 2008. The company expects some $50 million in cost savings in 2008 followed by $100 million in 2009.

Though the actual acquisition will follow a timeline requiring several approvals, Hart Scott Rodino approvals July/August, August/Sept Croation Agency Supervision approval, then the tender offer. The transaction will not be complete prior to October.

Despite the uncertainty that surrounds this new twist in Barr's strategy, the valuation for BRL is quite reasonable. EV/EBIT on a TTM basis is about 10.5 times. Return on invested capital for TTM was 18.4%. Long term debt is miniscule at about 1% of capital. However, the acquisition will be financed largely with about $2 billion in incremental debt both short and long term. Management indicated that it is working through those details.

Until I have a chance to work through some financials, I don't have sufficient comfort with the numbers and the assumptions. But strategically, I suspect the deal makes a great deal of sense for Barr. There is a lot of integration risk in deals of this scale. Barr has been a poor performer this year with a YTD decline of about 22%. Returns on capital have been sinusoidal ranging between 11% and 30% in the last five years. Free cash flow generation has been strong, especially in recent years with last year totalling over $300 million. About $80 million in net share buybacks occured last year. There is a $300 million buyback authorized since 2004.

Disclaimer: Neither I, my family, or clients have a current position in Barr Labs or Pliva.

http://valuediscipline.blogspot.com/

Stock of the Week: Harman's Ready to Rock

By The Average Joe Investor

WHO ARE THEY
Harman International Industries Inc. (ticker: HAR) is one of the worldwide leaders in the design and manufacturing of hi-fi audio and electronic systems. While Harman may look familiar to audiophiles out there as half of the Harman/Kardon brand, Harman is also behind a host of other brand names such as JBL, Infinity, Mark Levinson and Becker. The company operates in three segments, Automotive, Consumer and Professional, which represent their three primary markets.

On the home audio side, Harman's smallest business by revenue, you can find everything from home theatre systems, to headphones, to premium loudspeakers and iPod speaker docks. What you shouldn't expect to find, though, is a cheap-o boombox to take down to the beach - Harman avoids the cutthroat competition that is a hallmark of the low-end audio market. They opt for the equiptment that you buy when you think of music as a religion.Harman's second largest division, professional audio, sells just about everything you need to have a concert - save the band. This includes amplifiers, headphones, microphones, speakers and mixers.And, of course, their most important division, automotive, sells the really slick equipment that's being built into a lot of high-end new cars such as in-vehicle video and GPS navigation systems as well as - you guessed it - premium speakers and audio systems. The primary customers of Harman's automotive division are the premium manufacturers like DaimlerChrysler, BMW, Audi, Porsche, Land Rover and Volvo.

THE STORY
There really is a lot to like about this company. From product mix to past performance to forward projections to price, it all seems to line up right now for Harman.Product mix is a pretty key area to focus on as they predominantly sell into the auto market. In fact, 70% of their sales came from this market for their last fiscal year (ended 6/30/05). While this may give pause to some, it's worth reiterating that they are not selling to the US car manufacturers that have been very publicly suffering.

They are selling, as mentioned above, to premium manufacturers, many of whom operate out of Europe. While General Motors Corp (NYSE:GM) and Ford Motor (NYSE:F) continue to struggle, guys like Porsche and BMW are not having nearly as tough of a time.Even better than that is the fact that it's Harman's automotive division that is the rock star as far as operating performance. It blows both the consumer and professional divisions out of the water with a nice 16% operating margin versus 6% for consumer and 9% for professional.

The company's core is its R&D focus, and this keeps the company on the cutting edge in their markets. The newest thing in the pipe for Harman is called "infotainment" -- the combination of information delivery and entertainment. Harman's website describes infotainment as the following:Harman Infotainment™ is the seamless integration of sophisticated information and entertainment systems. The brands of Harman International... have come together to develop this technology to provide users with a high-end graphic interface that combines a number of complex functions. These functions can include DVD navigation, e-mail, hands-free telephone, music, Internet access, voice activation, movies and much, much more. This wealth of convenience and innovation has the potential to vastly improve the quality of life, both on the road and in the home.

Of course, this isn't keeping them from continuing to innovate in their core multimedia systems. The following is from their first quarter conference call:Within one year, we expect to unveil the most advanced multimedia system architecture for OEM and consumer applications this industry has seen. It will provide simultaneous and seamless transport of audio from hard disk, CD, and USB memory sticks from any computer to any other computer. It will accommodate several iPods, each playing music and displaying its playlist in less than one second. Similarly, the system will stream three DVDs across the network in real-time. We have conducted a series of exclusive presentations and focus groups to review and evaluate this new development. The unfailing reaction has been, “It knocked our socks off.”With audio, information and multimedia systems in cars getting nothing but more complex, I like the leadership, entrenchment and innovation from Harman going forward.

VALUATION
So for valuation, I basically used the company's top-line projections through '07 and assumed a 16% 5-year EPS growth rate (lower than analyst expectations) and did a quick and dirty analysis. What I came up with was that there is somewhere in the range of 40% upside to be had here. Right now, if you go with analysts' 21% growth estimate for Harman, they're trading at 21x their trailing twelve months EPS and have a 1.0x PEG ratio. At my estimate above, that would take it to a 30x multiple of trailing EPS and a 1.4x PEG.

CONCLUSION
I'm not going to try to pose here that Harman's poised to shoot up 40%. Heck, in the choppy market that we're in right now, it's probably going to be tough to figure out what in the world their stock price is going to do. What I like here is that this is a solid growth company that has been beaten up without having seen any big hit to their business. What I do think is that over the next five years this is a company that could see some really nice growth and this is a stock that you will probably not regret having in your portfolio.

http://theaveragejoeinvestor.blogspot.com/

Why Ethanol demand will fade with rising costs & its Implications on- PEIX, ADM, ANDE & VSE

Stocks: Pacific Ethanol, Archer Daniels, Andersons, VeraSun

By Yaser Anwar, CSC of Equity Investment Ideas

Ethanol prices are hitting record levels this week, adding to the cost of gasoline as the nation heads into the peak vacation driving season.

A gallon of ethanol was going for as much as $5.75 on East Coast spot markets, more than double the $2.54 that it fetched as recently as three months ago, says Tom Kloza, analyst for the Oil Price Information Service.

Ethanol has gradually replaced MTBE, a petroleum-based additive thought to cause cancer, as the lower-polluting alternative. And demand has outstripped supply.

With ethanol prices so high, the 10% of ethanol in reformulated gasoline, as the blend is called, could add about 30 cents a gallon to the cost of gas, Kloza says.

After summer, ethanol prices could fade. Demand will fall as the season for reformulated gas ends. And 33 new ethanol plants are to be completed by year's end, says Michelle Kautz, spokeswoman for the National Ethanol Vehicle Coalition, an industry group.

Implications for stocks: Ethanol stocks had been very hot since President Bush's speech on Jan. 10. Stocks like PEIX, ADM & ANDE had skyrocketed but have come down quite alot. With the new VSE IPO, the stock has almost gone down everyday after its debut & with more public offerings in the pipeline & increasing Ethanol costs, this will negatively affect the Ethanol sector.

Bullet points source USA Today

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

Media Digest 6/28/2006

Stocks: (WMG)(GS)(DCX)(F)(NWS)(PCW)(VG)(BCS)(MS)(RMBS)(TTWO)(NT)

Reuters reports that EMI Group PLC, the music company, turned down an offer from Warner Music of $4.6 billion, saying the offer was inadequate.

A group lead by Australia's Macquarie Bank said it may make a bid for Associated British Ports, which is being bought by a Goldman Sach's lead group, according to Reuters.

Reuters writes that Ford, GM, and Chrysler vehilces emit 230 million metric tons of the greenhouse gas carbon dioxide in the U.S. which is more than any electric utility.

Reuters writes that News Corp has joined Macquarie Bank's bid for PCCW phone and media assets with an offer price of $7.3 billion.

The Wall Street Journal reports that Vonage is about to release a product that will allow customers to plug a phone into a PC for VoIP use.

The WSJ also reports that GM will report poor sales in June and July. The auto company will also offer zero percent financing on some vehicles. The news caused GM's stock to drop sharply.

The WSJ says that two lawsuits have charged several large brokers such as Morgan Stanley, Bearn Stearns, and Goldman Sachs of doing "naked shorting" for hedge fund clients. The action involves selling shares short without borrowing them.

The WSJ also reports that Rambus says that a board review has found improper dating of options awards.

The New York Times reports that shares of Take-Two, the video game company, dropped as much as 15% amid a criminal probe of the company's business practices.

The NY Times also reports that Nortel will cut 1,100 employees in an effort to strenthen the company's financial position.

Douglas A. McIntyre

Asia Markets 6/28/2006

Stocks: (CAJ)(FUJIY)(NIPNY)(NTT)(SNE)(TM)(CHL)(CHU)(HBC)(PCW)

Asian markets were off and the Nikkei was down sharply.

The Nikkei Index was off 1.9% to 14,886. Canon was off .7% to 5340. Daiwa Securities was off 1.7% to 1289. Fuji Photo was off 2.1% to 3730. NEC was off .7% to 576. NTT was 1.1% to 535000. Sharp was off 1.6% to 1783. Softbank was off 1.8% to 1783. Sony was 1.8% to 4810. Toyota was off 1.9% to 5700.

The Hang Seng was off .6% to 15,685. China Mobile was off .7% to 42.2. China Unicom was off 1.5% to 6.75. HSBC was off .4% to 133. Lenovo was off 1% to 2.575. PCCW was flat at 5.5. Wharf Holdings was off 1% to 26.2.

The KOPSI was off .7% to 1,239.

The Straits Times Index was off .3% to 2,350.

The Shanghai Composite was flat at 1,369.

Douglas A. McIntyre

Pivot Points: June 28, 2007

Pivot points are used to predict changes in momentum (levels of support and resistance) that happen intraday. Pivots points are calculated pre-open based on the close, high, and low of the previous trading day. If a security trades through crosses) a pivot point during the day, that point then changes its type (i.e. from resistance to support). The basic 5 point pivot calculation involves calculating a pivot point, and deriving 2 levels of support and resistance from that pivot point. Midpoints between price levels are also used to create additional levels of support and resistance.

The following is a list of pivots points for the trading day of Wednesday, June 28, 2006:

Type	Level	S&P500	Nasdaq Composite	DJIA
Resistance	3.0	1,272.70	2,194.15	11,256.57
Resistance	2.5	1,265.48	2,173.82	11,184.89
Resistance	2.0	1,258.27	2,153.48	11,113.21
Resistance	1.5	1,253.50	2,140.18	11,066.10
Resistance	1.0	1,248.73	2,126.87	11,018.98
Resistance	0.5	1,246.29	2,119.84	10,994.42
PIVOT		1,243.84	2,112.81	10,969.85
Support	0.5	1,239.07	2,099.51	10,922.74
Support	1.0	1,234.30	2,086.20	10,875.62
Support	1.5	1,231.86	2,079.17	10,851.06
Support	2.0	1,229.41	2,072.14	10,826.49
Support	2.5	1,222.19	2,051.81	10,754.81
Support	3.0	1,214.98	2,031.47	10,683.13
Prev Close		1,239.20	2,100.25	10,924.74
Prev High		1,253.37	2,139.43	11,064.09
Prev Low		1,238.94	2,098.76	10,920.73

New York Times DealBook Digest 6/27/2006

According to the New York Times DealBook, a bankruptcy judge has approved the Time Warner and Comcast purchase of cable company Adelphia's assets. The price is about $17 billion.

DealBook says that TheStreet.com has published a survey that criticizes stock buy-back programs. Apparently, the are often just a move to offset the dilution caused by stock option exercises by management.

DealBook says that at least one large investor in steel company Arcelor favors a deal with Russian company Severstal over the Mittal merger which is valued at over $33 billion. The investor will vote against the merger.

DealBook says Televisa is weighing its options now that it has lost it bid for television network Univision.

DealBook says Canadian bankers are concerned over the number of their companies that have been bought by interests from outside the country. The most recent deal was Phelps Dodge's purchase of Falconbridge and Inco.

DealBook also reports that the Tribune company is moving ahead with its share buyback, even though members of one large shareholder group, the Chandler family, object.

Douglas A. McIntyre

PETsMART versus Petco-The Debate

By Richard Konrad of Value Discipline

Pet ownership in America grows at about twice the rate of the human demographic. This basic approximation has driven the growth of pet retailing. This growing marketplace is very compelling because of its growth and its relatively unconsolidated nature. The largest participant in the industry is PETsMART (PETM) holding about 11% market share followed closely by PETCO (PETC) with about 6% market share.

The industry has come under increased scrutiny lately as value pricing on some SKU’s by PETCO resulted in some Wall Street downgrades of PETsMart stock.
A recent Motley Fool post seems to have promulgated further concern.Since year-end, PETM is actually up about 4.3% (total return) versus a decline of about 9.6% for PETC, but the recent downgrades of PETM have diminished PETM’s lead.

In my view, PETM stands out from its superstore competition with the broadest offering of services that is available in the industry. PetsHotels, pet grooming, Doggie Day Care, dog training and access to full veterinary care provides a much broader experience than any other retailer can. Translate broader experience into greater selling opportunities. Its loyalty program, PetsPerks was modelled after the loyalty program of Harrah’s (HET) generally believed to be one of the most successful loyalty programs known in marketing. The program is designed to increase the average spend by each customer without sacrificing gross margins.
PetsMart is in the midst of a remodelling program which should bring greater focus on its service offerings. Remodelled stores have demonstrated much improved same store sales comparisons. The remodelling costs are minor at between $50K and $100K per store. So far, 170 of over 800 stores have been remodelled.

A recent Citigroup report highlights the strong impact that the service side of this business can provide.The service business has grown by over 25% CAGR in the last five years. The services side represents only about 8% of sales at this point but I believe this will grow substantially over the next five years to some 15%. There is a leveraged benefit to these services. According to Citigroup, PetHotels have provided a 25% lift to same store sales at maturity as well as significant improvement in store operating margins of some 430 basis points.

The impact to profitability at the margin can be substantial. Taking your dog in for a grooming, often results in additional sales of grooming accessories, toys, and shampoos. According to the Citigroup report, incremental revenues of 25% arise from a PetHotel, but of greater importance, pre-tax margins lift from 8.1% to 12.4%. Pre-tax income per square foot lifts a very impressive 94%. The rollout of hotels is accelerating. Starting with only 7 stores in 2004, to a year-end 2005 total of 32, PETM should have a count of over 60 hotels by year end 2006.

The economics of PETM don’t really require much improvement. The essential story is one of free cash flow generation, a better model, in my view, than that of PETC.

http://valuediscipline.blogspot.com/

Raise Rates Faster?

By Yaser Anwar, CSC of Equity Investment Ideas


The Bank of International Settlements, an international organization that nurtures international monetary and financial cooperation and serves as a bank for central banks, is warning the world's banks to raise interest rates at a faster pace to combat inflation and protect a vulnerable global economy, according to the Financial Times.

"The pursuit of low inflation has delivered excellent economic performance in industrialized countries over the past 20 to 30 years. However, in its annual report, the BIS ... questioned the merits of pursuing stable prices as a policy goal, saying it was insufficient to deliver stable economic performance," Reuters reports.

The BIS is warning central banks of the insurgence of stagflation - when an economy slows, but inflation rises. Stagflation is considered one of the worst, if not the worst, economic conditions to combat.

Malcolm Knight, BIS general manager, said, "It would be imprudent to count on the happy combination of strong growth and low inflation lasting indefinitely. At some point, central banks may well have to act more forcefully on policy rates than they have needed to do in the past few years."

The comments prompted investors to wonder if the Fed was going to surprise with a 50 basis point hike when it meets this week.

The BIS pointed to a combination of factors that allowed central banks to keep interest rates low and inflation contained so far. Globalization helped quell inflation because of cheap imports. However, that acted to mask domestic problems such as high deficits.

And further compounding the problem, central banks in Asia - particularly China, artificially kept the value of their currency down, which, in turn, kept prices low.

But now that raw materials prices are rising, developing countries can no longer keep prices low, which makes it difficult for advanced countries to maintain low inflation, and therefore low interest rates.

The report, says the FT, argued that "inflationary pressures might re-emerge with a vengeance and/or that the unwinding of the financial imbalances could undermine economic activity and contribute to unwelcome disinflation."

In other words, stagflation could occur if central banks don't act.

Source: Money News

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

Reasons To But Commodities

By Yaser Anwar, CSC of Equity Investment Ideas

Commodities are expected to attract a growing range of investors over the next five years, but careful selection and more actively managed portfolios will be the key to making money, fund managers say.

Last month, many raw materials notched up their highest prices in several decades, if not their strongest ever, causing many to liken the bull run to the technology stocks bubble.

A panel of fund managers gathered in London for a seminar on asset management developments organized by International Fund Investment said on Monday there were still plenty of reasons why money would continue to flow into the sector.

They cited a weak dollar, lack of investment in supply infrastructure, booming demand from emerging economies and saw commodities as a proven hedge against falling equity markets.
Large institutional investors like pension funds should not be worried about recent big fluctuations in commodities prices, panelists said.

"It doesn't really matter if it (the commodity boom) is a long-term trend or a bubble as we are investing to match our liabilities that sometimes go out 60 years," said Charlie Metcalfe, deputy chief executive of Hermes, Britain's biggest private sector pension fund.

Hermes manages funds for BT and decided earlier this year to invest $1 billion (550 million pounds) into commodities.

"I think that the 600,000 beneficiaries of the BT fund will look back in 20 to 30 years time and think that it was a sensible allocation to make."

Mark Shipman, a professional trader who invests via spread-betting and who has recently written a best-selling book on commodity investment, dismissed talk of a bubble developing in the asset class.

Using the Reuters/Jefferies CRB index as a barometer for commodities, he said this basket of 19 prices was up 75 percent from its 2002 low, versus gains of 77 percent for the FTSE and Nasdaq.

"Commodities haven't exhibited anything near the exponential growth of the Nasdaq," he said, referring to the dotcom bubble.Source: Money News

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

Underweight Europe Equities

By Yaser Anwar, CSC of Equity Investment Ideas

Analysts at JP Morgan reiterate their "underweight" stance on European equities.

In a research note published this morning, the analysts mention that Jean-Claude Trichet’s comments last week indicated that the ECB is in no hurry to speed up policy normalization. On the other hand, the US Fed is likely to raise interest rates at its June, August and December meetings, taking the rate to 5.75% by the end of the year, the analysts say. The environment for European equities is likely to remain challenging in view of the weak US growth data and high inflation, according to JP Morgan.

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

Hewitt (HEW) Worth a Second Look

Take-Two; Take-Twelve

Stock Ticker: TTWO

Yesterday after the close, Take-Two Interactive (TTWO) disclosed in a press release that it had received grand jury subpoenas issued by the District Attorney of the County of New York requesting production of documents, covering various periods beginning on October 1, 2001, including those relating to:

-the knowledge of the Company's officers and directors regarding the creation, inclusion and programming of hidden scenes (commonly referred to as "Hot Coffee") in Grand Theft Auto: San Andreas;

-the submission of Grand Theft Auto: San Andreas to the Entertainment Software Rating Board for a rating;

-and the Company's disclosures regarding hot coffee;

-disclosures and presentations by the Company of certain events, including acquisitions, partnering arrangements and earnings results;

-invoices from, payments to, and termination of PricewaterhouseCoopers LLP and retention of Ernst & Young LLP;

-acquisitions by the Company in 2005;

-certain compensation and human resources documents with respect to the Company and certain of its current and former officers and directors;

-AND documents concerning the activities of the Company's Board of Directors and Committees thereof.

In truth this is so broad that it would seem another attempt by hierarchs to bog down a company that they have an issue with. It is no secret that Take-Two is very hated by those who make the rules. The company does put its gamers in roles who are rewarded solely by being deviant and ruthless miscreants, who are hellbent on violence and chaos. The issue to recall is that this is a video game, this is not schooling to go influence America's youth to be chaotic cop killers. The old legal adage was to drown your opponent with paperwork and files; but this looks like the reverse: drown them with demands to produce endless documents. This is highly distracting for any company, and this will be no exception.

What investors need to ask is if this should merit yet another 20% drop in the stock. New York is the one district you don't want after you, but Take-Two has had to fight this on numerous venues from almost everyone under the sun and has been working to rectify its past problems. This is not at all the first witch-hunt and will probably not be the last, but by now the street should be looking at this as an ongoing issue that is expected to have more negative impact. The market is supposed to be a discounting mechanism that knows how to factor in certain events, but this is another example of the street reacting to an event far too many times and with far too much dispair. When does the phrase "enough is enough!" come into play?

Shares of Take-Two have been down as much as 20% this morning. Including the times the company has issued warnings with poor guidance and when they have had regulatory oversight issues like this this looks like the 8th time in the last year or so that the company has had approximately a 10% haircut or more. There is no way to ever say you have seen the last drop or the last dollar down in any blow-up or turnaround, so always keep that in mind before just jumping in and expecting a windfall return. Usually a big gap down in a stock is followed by a lot of ups and downs before it stabilizes. But, when will the street learn to adequately factor in these risks?

Perhaps a new sort of shareholder class action suit should arise out of this. Instead of just suing the company for a stock drop, maybe they should sue the government agencies that issue subpoenas over issues that should have been resolved over 6 months ago. This isn't to slam agencies in general, because we all know that companies acting outside of good faith need to be punished. But when does the punishment for the same infraction stop? Obviously, the answer is not today.

If this sounds like a personal rant or a personal attack, it is not. There are no conflicts to report and we are not incentivized for portraying this in any particular light. Sometimes situations just start to be plain stupid, and this looks just like one of those instances.

Jon C. Ogg
June 27, 2006

Will Bernanke Throw Investors a Bone?

By Chad Brand of The Peridot Capitalist

We know that interest rates hikes work with a lag, so it takes 6-12 months for the effects to ripple through the economy. We know that we've had 16 straight rate hikes that has taken the Fed Funds rate from 1% to 5%. Shouldn't Chairman Bernanke and the FOMC take a break, and see how the two-year long rate-raising campaign affects everything?

That's the case for the Fed to quit. I'm in that camp, personally. It's not like the Fed can't raise rates whenever they want to anyway. If they pause for a month or two and regret it, you can always go back and raise some more. Would such a plan have any drastic repercussions? I doubt it. And let's not forget, even though the market gets on a regular timeline with the FOMC meetings, Bernanke and Co. can move between meetings if they need to.

The way I see it, the stock market has stabilized after getting down to S&P 1,225, 8% below the highs. It has a little room to rebound, given the chance. If we get more of the same later this week from the Fed, and by that I mean a 25 bp hike and a similar statement to recent ones, equities will have a tough time to hold current levels. Uncertainty is always bad for stocks. If we get a signal that this hike is the last one for a while, I think can get a brief rally that might get us to back close to 1,300 on the S&P 500.

At that point, I'd probably do some selling.Another less likley option, but a good one nonetheless, would be to move 50 bp this week and signal a pause. This would satisfy both those looking for a hawkish stance on inflation, as well as a pause to observe the ultimate effects of all of these hikes. I think the market would rise in this scenario as well.

I hope Bernanke decides to take a wait and see approach, but we'll just have to, well, wait and see.

http://peridotcapital.blogspot.com/

Intel, The Chips Aren't Down

Stocks: (INTC)(AMD)(MRVL)

Intel may finally have a chance to break out if it funk

With the sale of its mobile phone chip unit to Marvel and the introduction of a news line of products to challenge Advanced Micro Devices, the stock has the opportunity to rebound from a number of weeks when it has reached 12 month lows. The stock now trades near its bottom at $18.58, well down from the 52-week high of almost $29.

The $600 million that Marvel paid Intel is not terribly important given the chip giant's balance sheet. The reason for selling, which is to concentrate on its core chip business may be.

Intel's new Xeon dual-processor, aimed at the server market where AMD has done well, may get it back some of the market share it has lost to its smaller rival. The company has two other chips for desktops and laptops coming out late this summer.

Intel has been able to make the case that its new Xeon dual-processor is competitive with AMD's chips and moves the company to a more efficient architecture. Heat and power consumption have become as important as processing power, and Intel has taken the shift to heart. According to the Financial Times: "Intel said more than 200 models of servers and workstations from more than 150 manufacturers were planned for the Woodcrest chip. It would deliver a 135 per cent performance improvement and up to a 40 per cent reduction in energy consumption over previous Intel server products".

Intel has been viewed recently as a company with products that are behind the times, and the financial results of the company are not as stellar as in past years.

For the quarter ending April 1, revenue was $8.94 billion and operating income was $1.718 billion. But, in the immediately previous quarter ending in December, revenue was $10.2 billion and operating income hit $3.3 billion.

Wall St. has begun to take notice of a possible improvement in Intel's fundamentals. Recently, UBS upped its rating on the company from "neutral" to "buy" on the premise that margins will improve at the company.

Intel's stock may have reached a bottom. If solid results follow its new product announcements and the pledge to focus on its core business, driving the sale to Marvel, the company has the chance to move back above the $20 mark.

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

Updating the Univision Saga

Stock Tickers: UVN, TV, ION

The Univision (UVN) takeover saga now seems closer to being over, but it might not be. A competing group of the Televisa-led (TV) group has gotten UVN's board approval for a cash offer of $36.25 per share, just above the group's prior $35.50 bid submitted last week.

The consortium, led by private equity firms Texas Pacific Group Inc. and Thomas H. Lee Partners, also includes Madison Dearborn Partners LLC, Providence Equity Partners Inc., and media mogul Haim Saban.

If you will recall we discussed this when the stock had closed the day before at $35.60, and this deal is merely for $36.25. The question remaining is if Televisa can raise additional cash to finance their desires to own this property. So why is the stock still only trading at $34.20 pre-market if it has a $36.25 cash buyout offer? That is because of the time value (with rates now at 5+%) with an expected close of Q4 2006 or Q1 2007 and because of the perception that Televisa may be stretched as far as pocketbook will allow.

One of Univision's ongoing problems of any deal outside of Univision would require it to go out and strike new deals. Another problem is that as soon as the deal is completed or even before, Televisa (if it can't win the Univision bidding) has already shown it has some contingency plans to go out and strike new deals to grow its presence with the Latin community in the US.

One of the potential beneficiaries if Televisa goes to compete rather than to own is possible Paxson Communications (ION). They have had an extremely complicated structure in the past and ION has literally been "a name with promise" for 9 years, while its stock has continued to slide. There are other plans for Televisa as well, so we'll have to see what they unveil. Will it be as a richer buyout offer, or will it be as a competitor that didn't use all of its cash and leverage?

Jon C. Ogg
June 27, 2006

Evaluating a Potential Takeover of Palm

Stock Tickers: PALM, RIMM, MOT, NOK, AAPL, MSFT

In the last 12 hours there have been over a dozen blog reports discussing rumors of a pending merger between Research-in-Motion (RIMM) and Palm (PALM). Both companies report quarterly earnings after the close on Thursday. For starters, this has been discussed before and the rumored acquirer used to be Apple (AAPL) in past months. These newer discussions started coming out last week, but they seemed to be more pondering than telegraphing of a pending deal. Are any of these rumors true?

Palm and R-I-M are very different corporate environments but the end result is that they end up with quite-similar products. It is no doubt that a combined company "could" be an attractive dominant player that would have less pure-play competition. Palm has the gadget users and R-I-M has the corporate business accounts. The legal issues that were drowning R-I-M seem to be mostly in the rear view mirror. Palm has a market cap of merely $1.8+ Billion, and R-I-M has a market in excess of $12 Billion. So R-I-M could easily handle this, but would it be allowed by regulators.?

These devices are now deemed a critical business application devices (and they are), so the two largest merging together may raise some questions. There are other competitors with Motolora (MOT) launching the skinnier Palm-look-alike and Nokia having been in the phone-PDA market for almost 10 years now. There have also been past rumors that were refuted on numerous occasions that Nokia was interested in acquiring R-I-M.

It is hard to just outright refute such a rumor out there, because literally anything can happen. Palm and R-I-M are both very entrenched and are both profitable, and both have strategic deals signed with most telecom carriers. Palm is also down about 25% from its year-highs and some would want a considerably higher premium before agreeing to be acquired. We'll see if this ends up being true, but investors need to remember that this is not really new and should be called a re-rumor. Microsoft (MSFT), Samsung, and others have also wanted to get into this space, so almost anything could be possible.

Shares of PALM are up 4.03% at $18.83 pre-market and RIMM shares are almost unchanged at $66.70 in pre-market trading.

Jon C. Ogg
June 27, 2006

Pre-Market Notes (June 27, 2006)

S&P FAIR VALUE -$0.80.

(AUXL) Auxillium Pharma registered 16.97M previously-issued shares for sale.
(BRL) Barr Labs is paying $2.2 Billion to acquire generic drug maker Pliva.
(BSX) Boston Scientific is recalling 22,600 cardiac pacemakers and defibrillators, according to WSJ.
(CC) Circuit City said its chief marketing officer is leaving the company for personal reasons.
(CEPH) Cephalon's Gaibtril Phase III data did not reach statistical significance for the treatment of generalized anxiety disorder; failed to meet primary study endpoints; stock down 2.4%.
(CEVA) Ceva announces divestment of its GPS technology and products to GloNav.
(CHTT) Chattem announced $100M for share buybacks.
(CKR) CKE Restaurants $0.23 EPS vsd $0.21e.
(CLF) Cleveland Cliffs is hiking prices at one of its facility deliveries.
(CPHD) Cepheid gets CE mark of approval in the EU for its SmartCycler System.
(DD) Dupont's 16.4M share stake held by Vivendi has been sold for part of the Seagram's deal.
(DNA) Genentech: Roche is halting trial for the use of its cancer drug Avastin for pancreatic cancer after a failure to prolong the life of patients. Avastin is being sold in the US through Genentech.
(DSCO) Discovery Labs reports progress on Surfactant Manufacturing Remediation.
(EK) Eastman Kodak and Martha Stewart have ventured into cards and scrap-booking venture.
(ENSI) Energysouth CEO/President is going to transition into Vice Chairman and advisory position.
(ESL) Esterline reported an explosion at a facility in the UK yesterday.
(EVVV) EV3 received FDA marketing clearance for its SpideRX Embolic Protection Device.
(EXP) Eagle Materials raised Q1 and FY EPS targets.
(FBN) Furniture Brands said its CEO Dondero is resigning.
(GM) GM said 35,000 workers took the buyout; will save $5 Billion in 2006;stock up 1.4% after-hours.
(GOOG/EBAY) Google and Ebay funded a company that has just started selling $5.00 routers for shared web connections.
(HOM) Home Solutions received request for additional data from NASDAQ, which will delay its listing on NASDAQ and will have to trade on AMEX until rectified.
(HWAY) Healthways $0.26 EPS vs $0.21.
(MIND) Mitcham Industries CFO resigned.
(MMS) Maximus lowered Q3 guidance.
(MNG) Miramar Mining filed to sell 22M shares of common stock.
(MRVL) Marvell Tech is acquiring Intel's communications and applications business for about $600M.
(NNI) Nelnet is acquiring CUnet LLC for undisclosed terms.
(NT) Nortel outlined its plan to improve operating margins and performance.
(NXTP) NexTel Partners acquisition by Sprint should now be closed.
(PALM/RIMM) Palm and R-I-M could merge according to numerous online reports.
(PLNR) Planar announced it signed Tech Data as a distributor for its touch screen monitors.
(RELL) Richardson Electronics raised preliminary revenue guidance.
(RNWK) RealNetworks will begin running streaming ads in online video games according to reports.
(SRR) Stride Rite $0.45 EPS vs $0.38e.
(SYNM) Syntroleum signed contract to deliver 100,000 gallons of alternative fuels.
(T) AT&T has begun its roll out of digital TV for $59.00 per month to compete with cable companies.
(THX) Houston Exploration hired Lehman to evaluate strategic alternatives.
(TOD) Todd Shipyards CFO is retiring.
(TRFC) Traffic.com selected by Garmin for mobile real-time traffic data.
(TTWO) Take-Two gets grand juru subpoena over officer and director knowledge over programming and inclusion of hidden scenes.
(TWTR) Tweeter names new CFO.
(UCO) Universal Compression filed to sell 5.5M shares.
(UPCS) Ubiquitel's vote over Sprint merger should be finalized today.
(UVN) Univision agreed to be acquired for $36.25 per share from a consortium lead by Texas Pacific Group Inc. and Thomas H. Lee Partners, also includes Madison Dearborn Partners LLC, Providence Equity Partners, and media mogul Haim Saban.
(WAG) Walgreens reitr Overweight at MSDW.

ANALYST CALLS:
AAPL trimmed estimates on Mac sales but reitr Overweight at JPMorgan.
ACN started as Equal Weight at Lehman.
AMAT reitr Overweight at Lehman.
ATRS cut to Underweight at JPMorgan.
ATYT reitr Outperform at RBC.
BCH cut to Equial Weight at MSDW.
BIOS started as Mkt Perform at Piper Jaffray.
BJ started as Neutral at B of A.
BKC started as Neutral at Goldman Sachs; started as Overweight at Lehman; started overweight at MSDW; started overweight at JPMorgan.
COST started as Buy at B of A.
CTSH started as Equal Weight at Lehman.
DMX started as Buy at Oppenheimer.
EDS started as Equal Weight at Lehman.
ENL raised to Buy at Citigroup.
FTO raised to Outperform at FBR.
HAVS raised to Hold at Citigroup.
HGSI reitr Outperform at JMP Securities.
INFY started as Outperform at Lehman.
INTC reitr Outperform at CIBC; reitr Outperform at JMP Securtities.
LRCX raised to Buy at UBS.
LVS reitr Buy List at Goldman Sachs.
OPTN started as Outperform at Piper Jaffray.
PALM raised to Outperform at RBC.
PSO raised to Buy at Citigroup.
PUB raised to Buy at Citigroup.
S maintained Outperform at Bear Stearns; reitr Outperform at Cowen.
SSP cut to Neutral at JPMorgan.
SZE raised to Buy at UBS.
THG started as Overweight at ; maintained Neutral at UBS.
TTWO cut to Sector Perform at CIBC.
WDC reitr Neutral at B of A.
WY raised to Buy at UBS.
WYNN reitr Neutral at Goldman Sachs.
YHOO raised estimates at JPMorgan.

June Nasdaq Stock Short Interest

Nasday short interest in several categories of mid-June:

Five biggest increases:

Sirius Satellite Radio 147,317,349 from 119,144,300 23.65%%
Microsoft Corp. 73,099,895 from 50,843,984 43.77%
JDS Uniphase Corp. 90,764,412 from 69,510,975 30.58%
Intel Corp. 74,715,716 from 55,962,410 33.51%
Qualcomm Inc. 28,539,585 from 17,815,796 60.19%

Five biggest decreases:

Lawson Software Inc. 3,481,447 from 6,628,631 -47.48%
Sanmina-SCI Corp. 6,203,282 from 10,350,069 -40.07%
Comcast Corp. 22,107,026 from 26,756,074 -17.38%
Ciena Corp. 42,201,508 from 46,913,711 -10.04 %
NVDIA Corp. 14,693,393 from 21,802,462 -32.61%


Five biggest positions:

Sirius Satellite Radio 147,317,349 from 119,144,300 23.65%
Level 3 Comm., Inc. 104,972,339 from 100,041,409 4.93%
JDS Uniphase 90,764,412 from 69,510,975 30.58 %
Yahoo! Inc. 81,271,055 from 78,281,978 3.82 %
Intel Corp. 74,715,716 from 55,962,410 33.51%

Sources: NASDAQ and Reuters

Douglas A. McIntyre

Kraft Needs More Than A CEO

Stocks: (MO)(KFT)(CPB)(K)

One signal not immediately apparent with Kraft's decision to replace its CEO is that it is likely that the effort to improve the company's financial fortunes is off-track. The news cannot be good for shareholder of Altria, which owns a controlling interest in Kraft and is preparing to issue Kraft shares to Altria holders, based on a report in the Wall Street Journal.

The company's track record has been wanting. Operating income in 2003 was over $6 billion. In 2005, despite a slight increase in revenue over 2003 and 2004, operating income fell to $4.8 billion.

On April 25, Kraft said that its guidance of 2006 was still good with EPS from continuing operations of between $1.55 and $1.50. Wall St. has to wonder why the CEO is gone two months later. In the first quarter of the year, revenue was up less than 1% to $8.12 billion. That's not much of a turnaround.

At other company's in Kraft's industry, revenues are rising faster, a sign that Kraft's troubles are still not behind the firm. Campbell's revenue rose from $1.736 billion in its April quarter last year to $1.836 this year. Campbell's stock is near its 52-week high. Kellogg's first quarter sales rose from $2.572 last year to $2,727 this year. The stock is also near its high.

Kraft recently announced it would cut 8,000 more jobs, but because revenue is not growing, investors do not seem to be impressed.

Over at Altria, financial results, which are good in its tobacco operations, have been dragged down by the results at Kraft. When Kraft was spun out as a public unit, the theory was that because tobacco litigation might severely damage Altria, investors would at least have the food unit to keep them financially whole. At tobacco suits have mostly gone Altria's way, it appears, in hindsight, that the move was unnecessary.

Maybe Altria should just take Kraft back. With Kraft's stock down from about $36 in late 2004 to $31 now, and Altria's stock up from about $60 to $72 in the same period, maybe Altria should just take the food company back.

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

European Stock Market Report 6/27/2006

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

Markets in Europe are very slighly higer at 5.45 New York time.

The FTSE is up .1% to 5,688. BEA is up .4% to 362.25. Barclays is flat at 598. BP is up .7% to 613.5. British Air is down .2% to 343.5. BT is up .1% to 230. Diageo is off .1% to 907. GlaxoSmithKline is off .3% to 1469. Prudential is up 1.2% to 571. Reuters is .3% to 374.25. Unilever is up .6% to 1171. Vodafone is down .7% to 114.5.

The DAXX is up .1% to 5,520. Allianz is off .5% to 119.24. BASF is up .9% to 61.28. Bayer is up .8% to 33.29. DaimlerChrysler is up .5% to 37.98. Deutsche Bank is up .1% to 84.8. Deutsche Telekom is up .2% to 12.51. Siemens is up .7% to 67.25.

The CAC 40 is up .2% to 4,809. Alcatel is down .6% to 9.84. AXA is up 1.1% to 24.24. France Telecom is down .4% to 16.55. ST Micro is down .6% to 12.41. Thomson is down 1.4% to 12.83. Vivendi is up .7% to 27.02.

Douglas A. McIntyre

The Fed verdict & historical implications of interest rate movements

By Yaser Anwar, CSC of Equity Investment Ideas

The Fed will raise short-term interest rates by one-quarter point for the 17th consecutive time on Thursday.

Also widely predicted by many analysts is the belief the Fed could be overdoing the current rate hike cycle, leading to a potential economic slowdown in the second half of this year or early in 2007.

According to the Sunday, June 25 edition of NYT, Standard & Poor’s chief investment strategist, Sam Stovall, recently studied what he called the “plateau period,” or what he described as “the time between a Fed rate increase and the first in a series of interest rate cuts.”

Stovall pointed out that “Since 1971, there have been eight such turning points in the economy. On average, the time between the end of the tightening cycle and the start of a new easing cycle has been only 7.3 months. Twice in recent history, the Fed raised rates only once before easing.”
Stovall further observed that “If you take out those one-and-out situations, the spread between the last hike and the first decline is only 5.5 months, on average.”

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

Stock Upgrades & Downgrades to consider- MER, GM, NTAP & BHP

By Yaser Anwar, CSC of Equity Investment Ideas

Merrill Lynch "buy" target price reduced- Analyst Richard X Bove of Punk Ziegel & Co maintains his "buy" rating on Merrill Lynch (MER). The target price has been reduced from $90 to $84.In a research note published this morning, the analyst mentions that the company’s performance in this fiscal quarter is unlikely to be as healthy as that of its peers, since its calendar year ends in June and in this quarter it will witness two bad months, May and June. Merrill Lynch is a more equity-focused than a trading-oriented company as compared to its peers and hence its F2Q performance is expected to be below that of other brokers in New York, the analyst says. The downward revision of the company’s target price reflects the application of a higher discounting factor to its future earnings flows, Punk Ziegel & Co adds.

General Motors "sell"- Analyst Ron Tadross of Banc of America Securities maintains his "sell" rating on General Motors (GMA). The target price is set to $10.In a research note published this morning, the analyst mentions that the company is likely to hike prices by 1% or more in 2006 in order to benefit from market inelasticity and increase in margins. General Motors expects to utilize its new secured credit line worth $4.5 billion. General Motors is unlikely to limit its cash burn after 2Q06, the analyst says.

Network Appliance "outperform"- Analysts at Morgan Keegan maintain their "outperform" rating on Network Appliance Inc (NTAP).In a research note published on June 23, the analysts mention that the company is selling its NetCache division to Blue Coat Systems for around $28.3 million. The sale was prompted by NetCache's underperformance in FY06, as compared to the rest of Network Appliance's businesses, the analysts say. Morgan Keegan expects the deal to positively impact the company’s growth going forward.

BHP Billiton "buy"- Analysts at Irwin, Jacobs, Greene & Associates maintain their "buy" rating on BHP Billiton (BHP).In a research note published this morning, the analysts mention that the company has announced that it had raised its stake in Skye Resources by 6.8% to 16.5%. BHP Billiton bought these shares for the purpose of investment and to enhance the company’s interest in mining opportunities in Guatemala, the analysts say.

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

Housing Market Confuses Economists

By Yaser Anwar, CSC of Equity Investment Ideas

Sellers slashed prices on new homes in May and managed to attract buyers, surprising economists.

Sales of new homes jumped 4.6 percent in May to a seasonally-adjusted annual rate of 1.234 million units, says the Commerce Department. That's the third month in a row that sales for new home sales rose. In April, sales jumped 5.9 percent, following a big 7.3 percent rise in March sales.

The only part of the country experiencing a decline in sales this month was the Northeast, which posted a 7.9 percent drop. Showing the best volume of sales was the South with a 6 percent jump in sales. The West was second best with a 5.3 percent rise, and sales in the Midwest increased 2.7 percent.

Analysts, meanwhile, are expecting sales for new and existing homes to fall by about 10 percent this year, according to the AP. As mortgage rates rise, says the analysts, buyers will recede.
For proof of the struggling housing market, economists point to tumbling prices. The median price of homes sold declined to $235,300, a 4.3 percent drop from the month before.

Also, inventories remain high. The number of homes on the market fell slightly to 556,000 units, not far from the recent all-time high of 560,000 units for sale. Currently, there is 5.5 months worth of inventory on the market.

Last week, MoneyNews reported that housing construction activity was up 5 percent in May. As developers continue to build new homes, the amount of inventory will swell and push prices even lower.That's not good news for homebuilders. After all, when you're a homebuilder trying to sell a home, it doesn't matter how many units you sell, but how big your profit is. In other words, if the volume's up, but prices are down, you're probably not going to make shareholders happy.

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

Ethanol Reshapes American Heartland

By Yaser Anwar, CSC of Equity Investment Ideas

Business 2.0 magazine reports, there is a major question surrounding exactly how the valuable substance will be extracted. "If you're making an investment for the long term, you have to ask yourself whether the future's dominant fuel is going to come from corn, sugar, rape seed or switchgrass - or if it's going to be synthesized from scratch," the magazine says.

"The winner is going to be whoever can make ethanol in mass quantities for as little money per gallon as possible - a tall order, no matter how you go about it."

Of course, in the U.S., almost all of the ethanol produced here is derived from corn - the result of pressure from the farm lobby, in addition to other factors. In fact, "it has the most government subsidies, and is the form of the fuel that Richard Branson says he will invest in, and market, to the tune of $400 million," according to Business 2.0.

And news like this is changing the economic landscape of America in a big way.

A new article from The New York Times describes the overwhelming effects ethanol is having on the U.S. heartland in the face of concerns that a huge redirection of agricultural resources to make the fuel could have massive repercussions.

For instance, it could lead to more expensive food for both humans and livestock, and the costly creation of new farmland to make the ethanol. There is major concern about keeping the cost of corn low enough to make ethanol production feasible.

But "the modern-day gold rush is driven by ... surging demand for ethanol as a gasoline supplement, a potent blend of farm-state politics and the prospect of generating more than a 100% profit in less than two years," according to the Times.

The article cites the small town of Hereford, Texas, which in the past has primarily been a perennial player in the cattle industry.

"... In the middle of the Texas Panhandle's cattle country and hundreds of miles from the agricultural heartland [in Hereford], two companies are rushing to build plants to turn corn into fuel ... As a result, Hereford has become a flashpoint in the ethanol boom that is helping to reshape part of rural America's economic base," the paper says.

The NYT goes on to mention that at least 39 new ethanol plants are planned for completion within a year, at which point the U.S. is projected to surpass Brazil as the largest ethanol producer in the world.

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

Media Digest 6/27/2006

Stocks: (GM)(GOOG)(NYX)(TWX)(UVN)(KFT)(T)(BSX)(TTWO)

According to Reuters, GM announced that 35,000 hourly workers, which is about a third of the company's workforce, accepted buyouts and will leave the firm.

The Wall Street Journal says that Google will begin to test its new online payment system as early as this week.

Reuters says that the SEC will issue guidelines on options grants this summer in reaction to the scandal that now involves options dating at over 100 companies.

The New York Stock Exchange says it will close the Euronext deal in early 2007, according to Reuters.

The WSJ says that Univision, the broadcaster, will be sold to a group of private equity firms for 12.3 billion plus the assumption of $1.1 billion in debt.

The Wall Street Journal reports that the Warner Bros. unit of Time Warner will distribute movies and TV shows over the Guba.com's video sharing and community site, the first such deal in the industry.

The WSJ reports that Kraft Foods has replaced its CEO with a former senior manager at the company probably because the firms turnaround was progressing too slowly.

The WSJ also writes that AT&T is making its new internet TV service available starting in San Antonio.

The WSJ also writes that Boston Scientific is recalling pacemakers. The recall includes almost 23.000 units which can malfunction.

According the the New York Times, Take-Two has received a grand jury subpoena seeking information about the company's business practices going back to 2001.

Douglas A. McIntyre

Asia Markets 6/27/2006

Stocks: (CAJ)(FIJNY)(NIPNY)(NTT)(DCM)(TM)(CHL)(CN)(CHU)(HBC)(PCW)

Asian markets were modestly higher.

The Nikkei was up .1% to 15,172. Canon was down 1.6% to 5280. Daiwa Securities was down 1.1% to 1312. Fuji Photo was down .8% to 3810. Japan Air was down .3% to 296. NEC was up .7% to 580. NTT was down .4% to 541000. Docomo was down .6% to 163000. Sharp was up .4% to 1811. Softbank was up 1.8% to 2530. Toshiba was down .7% to 747. Toyota was down .3% to 5810.

The Hang Seng was up .3% to 15,850. China Mobile was up .8% to 42.85. China Netcom was up 2.8% to 13.05. China Unicom was down .7% to 6.85. HSBC was down .1% to 134. Lenovo Group was up .8% to 2.6. PCCW was down 2.7% to 5.5.

The KOPSI was up .3% to 1.248.

The Straits Times Index was down .4% to 2.360.

The Shanghai Composite was up .4% to 1,640.

Douglas A. McIntyre

New York Times Dealbook Digest 6/26/2006

Stocks: (GE)(XMSR)(SIRI)(WSTC)(PD)(FAL)(N)(KRI)(MNI)(JNJ)(IP)

According to DealBook, the CEO of Sirius mentioned at a media conference that he would have an interest in owning XM Satellite Radio Antitrust regulations would make such a deal extremely difficult.

DealBook writes that a $4.1 billion deal to take West Corp. private is being criticized by several minority shareholders according to regulatory filings. The deal has the support of the founders of the company and would involve Thomas H. Lee Partners and Quadrangle Group. The company runs call centers.

DealBook writes that Gammon Lake Resouces, a Canadian mineral company with properties in Mexico, will take over MexGold Resources for $358 million.

DealBooks also reports that the Phelps Dodge $40 billion bid for Falconbridge and Inco is a huge bet that the price of metal commodities will continue to rise. Without a rising metals market, justifying the price of the acquisitions is much more difficult.

DealBook also reports that Lion Capital, a private equity firm, is buying American Safety Razor for $625 million. The company is the largest firm in the private label razor business.

DealBook also reports that the 12 Knight-Ridder papers that acquiring company McClatchy has sold brought in a total of $2.1 billion. McClatchy paid $4.5 billion for Knight-Ridder and will retain the rest of the company's operations.

DealBook reports that Wall St. analysts have mixed views of the Johnson & Johnson purchase of Pfizer's consumer unit for $16.6 billion. UBS commented that the deal was good for JNJ given increased regulation of reimbursement of the cost of its medical devices. But, Prudential commented that the price JNJ paid was too high given that the margins of the Pfizer unit are below JNJ's corporate margins.

DealBook reports that a unit of GE will buy six senior housing portfolios worth $1.4 billion from Formation Capital.

DealBook says that International Paper will sell its kraft papers division to Stone Arcade Acquisition for $115 million and two contingent payments totalling up to another $60 million.

DealBooks also reports that Italyian insurer Generali plans to buy rival Toro Assicurazioni for $4.8 billion.

DealBook also writes that Holcim, a Swiss building materials company will buy Meyer Material Company, a cement maker, for $231 million.

Douglas A. McIntyre

Cephalon Wiffed a Phase III; Stock Down 3.4% After-Hours

Stock Tickers: CEPH

Cephalon announced after the close that its GABITRIL Phase III data did not reach statistical significance for the treatment of generalized anxiety disorder on the primary study endpoints.

CURRENT INDICATION

Cephalon currently markets GABITRIL in the United States and Europe. GABITRIL is indicated as adjunctive therapy in adults and children 12 years and older in the treatment of partial seizures. In three multicenter, double-blind, placebo-controlled, parallel-group clinical trials and two placebo-controlled crossover studies, GABITRIL significantly reduced the frequency of seizures in patients with epilepsy who took GABITRIL as add-on therapy. In epilepsy patients, dosing with GABITRIL is initiated at 4 mg dosed 2-4 times a day with food and titrated to a maintenance dose of 32-56mg/day in patients receiving hepatic enzyme-inducing anticonvulsants. The maximum dose in epilepsy patients is 32 mg in children and 56 mg in adults. In clinical trials, GABITRIL was well tolerated with the most common adverse events being mild to moderate in severity. The most common adverse events were dizziness, asthenia (weakness), somnolence, nausea, nervousness, tremor, abdominal pain, and impaired concentration.

RAMIFICATIONS

This GABITRIL is already marketed for seizures, but this indication was for general anxiety disorder. "Expanded use failure" scenarios typically do not hurt companies as much as Initial or preliminary indications where the company has essentially bet their life on it, but general anxiety disorders seem more common depending on the seizure comparison.

After looking at the company it seemed worth a note. the trailing EPS looks just like another huge biotech that is losing money every day, but they are not. Cephalon has posted a net profit attributable to common shareholders for the last three quarters and analysts expect 2006 revenues of $1.54 Billion and EPS $3.43. The question that will come up tomorrow is this: Do the earnings and revenue models have a significant portion resting on this additional use? The company is only forecast in 2007 to have revenues of $1.67 Billion and EPS of $3.61, so there is not a huge year-over-year earnings or revenue gain for a company that has just had its first year of profits.

This stock closed up 2.2% on the day at $52.78, but is down 3.4% after-hours at $50.95 on last look. Because traders saw the headlines "FAILS TO MEET PHASE III PRIMARY ENDPOINTS" they had been down as much as almost 6% as traders shoot first and ask questions later. We'll have to see how the street reacts tomorrow, because they have bashed the stock almost weekly. Its shares were over $80.00 in early February, but it is still well above the $37.35 its old 52-week low.

Cephalon's market cap was $3.21 Billion as of today's close. The company also has an FDA review this week for a product called FEBT, a follow-on product to its Actiq (a strong pain relieving drug referred to as an opioid analgesic). It also has a very large short interest as of May with 11 Million shares in the short interest out of its 60.3+M share float.

Jon C. Ogg
June 23, 2006

Closing Summary for June 26, 2006

Stock Tickers: BG, LEN, PD, N, FAL, SMRA, BRK/A, PFE, JNJ, BMET, ZMH, SYK, SIRI, XMSR, APC

DJIA 11,045.28 (Up 56.19; 0.51%)
NASDAQ 2,133.67 (Up 12.20, 0.58%)
S&P500 1,250.56 (Up 6.06, 0.49%)
10YR 5.239%

New Home Sales and merger mania helped the markets close higher today, but throughout most of the day it felt like a directionless market ahead of a long holiday weekend and ahead of an FOMC meeting. Our rally was mostly at the end of the day.

Bunge (BG) fell 6.5% to close at $49.00 on an earnings warning blamed almost entirely on outside factors.

Lennar (LEN) did beat earnings, but issued a warning for the rest of the year. The street was expecting a weak forecast in the sector and LEN shares closed up 2.5% at $45.68.

Phelps Dodge (PD) closed down over 7% at $76.25 after announcing it wants to buy the already merging Inco (N) and Falconbridge (FAL) in what will end up being a combined $40 Billion transaction. Falconbridge (FAL) rose 5.4% to close at $51.80 and Inco (N) rose about 10% to close at $64.20.

Shareholders who purchased Somera (SMRA) at the end of last week were perhaps the happiest on the street this morning. The company was acquired by Telmar at $4.60 per share, over a 100% premium to Friday's closing price. SMRA closed up 105% at $4.22on the day.

Berkshire Hathaway (BRK/A; BRK/B) saw its shares fall as founder Warren Buffet pledged most of his $44 Billion in personal holdings to the Bill and Melinda Gates Foundation over the coming years. Its shares closed down less than 1% at only -0.65% at $91,500.00 but had been down as much as 3% on fears that the open market share dilution had some specific dates coming.

Pfizer (PFE) rose 1.6% to close at $23.01 after finally announcing the sale of its consumer products unit to Johnson & Johnson (JNJ) for some $16.6 Billion. Conversely JNJ fell 1.8% to $60.21 after telegraphing that this deal would not be accretive to earnings until 2009.

A DOJ criminal investigation into implantable orthopedic devices (knee and hip replacements) sent many of the targeted names to 52-week closing lows. Shares of Biomet (BMET) fell 5.1% to $33.18; shares of Stryker (SYK) fell 5.9% to $42.20; shares of Zimmer (ZMH) fell 6.8% to $58.70.

Sirius' (SIRI) CEO Mel Karmazin was speaking in NYC and said he would possibly be interested in acquiring XM Satellite (XMSR), although this was more off the cuff than telegraphing. SIRI closed up 5.1% at $4.70 and XMSR closed up 6.7% at $14.37.

Anadarko (APC) closed down another 2.9% at $43.62 on additional over-extension fears from the street after the company is more than doubling its size with Friday's announced buyouts of both Kerr-McGee (KMG) and Western Gas (WGR).

Jon C. Ogg

Is the Reaction on Bunge Too Much?

This pre-market early morning release from Bunge (BG) was a bit startling after going back over and reviewing some of the daily stories. Normally you would expect the company to comment on poor prices of beans, weak demand, or weather damage being the culprit. None of those were really to blame.

The guidance is still at a level that most can easily tolerate: guidance for Fiscal Year December 31, 2006 to $425M to $445M, or $3.50 to $3.67 per share. Prior guidance was $495M to $515M, or $4.08 to $4.25 per share. In addition, the effective tax rate for the year is now expected to fall within a range of 8% to 12%. Previously, the effective tax rate was expected to be within a range of 14% to 18%. Bunge expects poor results, close to breakeven, for its second quarter. This gives it a forward P/E of 13.8 at the mid-point of the EPS range, but that is unfortunately a larger P/E than its current P/E ratio of 12+. This is still not unreasonable at all, as the company is the largest pure-play in soy beans with long-term operations and almost assured many forward purchasing contracts. The company also is a play on bio-diesel (as soy converts to bio-diesel rather than ethanol) and even has an ethanol plant under construction development in Mississippi with Ergon.

If you read through the release, you will see the main culprits that created the environment for the warning: Brazil, Argentina, Tax Rates, Currency Hedging........

According to the company: "Volatility from time to time is normal in agriculture-related businesses, but this quarter has been particularly difficult. Nevertheless, we believe that the major issues affecting the quarter are temporary in nature and substantially behind us. The new farmer aid package granted by the Brazilian government and a more stable real should help Brazilian farmers. New demand for biodiesel inputs is also a positive sign for the future. Longer-term fundamentals for Bunge and our industry remain positive."

These outside factors did lead the company to say it was creating increases in supply chain disruptions, plant stoppages and slow sales of agribusiness, fertilizer and edible oil products. What was shocking about this article, and the subsequent reaction to the stock, is that at $49.00 this puts it within striking range of a new 52-week low. Its 52-week trading range has been $46.65 low and $67.99 high. It seems that the market was already bracing for issues, although maybe this last drop should have already been assumed. Usually when you see weakness like this it is followed by more weakness. If you trust what the company is blaming this warning on, this should be a name worth watching after the dust settles.

Jon C. Ogg
June 26, 2006

Valassis: Online Advertising Victim or Canary?

By William Trent, CFA of Stock Market Beat

Recently-added watchlist member Valassis Communications (VCI) revised its earnings guidance negatively this morning. The company attributed this shortfall to continued softness in Free-standing Insert and Neighborhood Targeted page volumes. Both segments are also experiencing pricing pressure.

Targeted ads and inserts are both areas that could be suffering at the hands of on-line advertising outlets, as the new media version may simply be more effective at reaching targeted consumers than the old. Proponents of this theory could point to the pricing pressure and infer that some of it may be due to the new options available to advertisers. This secular story is well known, and the ongoing shift of marketing dollars from newspapers and television into the Internet is a major contributor to Google’s share price.

Of course, the other side of the argument is that ad-driven business models are all highly cyclical and consumer dependent. With the consumer up to its eyeballs in debt and the housing market slowing, consumer cyclicals may be due for a slowdown. In this case, which is supported by the softness in volume, all ad-driven business models could suffer - Google included.

http://stockmarketbeat.com/blog1/

$5 Stocks

Stocks: (CDE) (GMST)(TMR)(MTMD)(PRM)(UMC)

There are not many stocks under $5 worth considering, but, if investors
can find ones with reasonable revenue and margins, they may be worth
a look, especially anyone who would like to buy companies with a relatively
low price-per-share. Keep in mind, there are somtimes good reasons these
stock do not trade for higher prices.

Here are a few:

COEUR D ALENE Stock Price: $4.39 Sales: $185 million Margin: 14%

GEMSTAR-TV Stock Price: $3.45 Sales: $584 million Margin: 12%

MERIDIAN RES Stock Price: $3.30 Sales: $202 million Margin: 14%

MICROTEK MED Stock Pruce: $3.80 Sales: $134 million Margin: 11%

PRIMEDIA INC Stock Price: $1.84 Sales: $ 1 billion Margin: 21%

UNITED MICRO Stock Price: $3.03 Sales: $2.9 billion Margin: 19%

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

Expect Gold To Strengthen On Fed Move

By Yaser Anwar, CSC of Equity Investment Ideas

After the CPI released earlier this month, showed more inflationary pressures on the U.S. economy, there is no doubt in anyone's mind that the Fed will raise rates for the 17th consecutive time at their meeting next week.

How far will the Fed go in their rate hikes? Some economists fear that if the monthly reports will keep coming in showing inflationary pressures, the Fed will get overzealous, perhaps raising 50 base points in one hike instead of the normal 25, and end up doing more harm than good - forcing the United States into a recession, in other words.

CNN Money reports: "Some economists say rising energy prices are bleeding through to affect the broader economy. Others point to the rise in housing prices during the recent real estate boom. Some even say that due to a quirk in how the government measures housing prices, a weaker real estate market can actually make inflation seem higher."

Watching the price of gold. This correction has surely scared some of the speculators off, and it's time to get your hands on the yellow metal. Take advantage of this low price before investors start taking these inflation concerns seriously, and flock to gold as a hedge. Spot gold formed a small flag below resistance at $600, signaling continuation of the down-trend.

Medium Term- Expect another test of primary support at $535/$540 if the index fails to break above $600 in the next few days. A stronger dollar will mean that gold is likely to weaken; and vice versa.

Long Term- The gold-oil ratio is below 9. Up-turns below 10 signal buying opportunities; down-turns above 20 indicate selling opportunities. Expect a recovery if crude prices remain high.

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

Assessing the Costs and Benefits Of Brokers in the Mutual Fund Industry

By Richard Konrad of Value Discipline

There are some brokers who do a truly outstanding job. But according to this study, and my own anecdotal experience, purchasing funds through the broker channel provides little tangilbel benefit.

This study in NBER (National Bureau of Economic Research) focuses on five measurable potential benefits to consumers of brokered fund distribution:

(a) Assistance selecting funds that are harder to find or harder to evaluate;
(b) Access to funds with lower costs excluding distribution costs;
(c) Access to funds with better performance;
(d) Superior asset allocation,
(e) Attenuation of behavioral investor biases.

In short, brokerage customers according to this study, generally pay substantially higher fees, and buy funds that have lower riks-adjusted returns than directly-placed funds.The study does indicate that any benefits that do exist must be found along less tangible dimensions.

It suggests, that perhaps brokers may help investorssave more, better customize their portfolios to risk tolerances, and/or increase overall investor comfort with their investment decisions. Seeking a benefit suggested in part (e) would be particularly intriguing and beneficial to clients.

If brokers are better able to overcome behavioral biases, client portfolios would benefit. As the paper suggests: "From an academic perspective, the past 10 years have seen an explosion in research focusing on how behavioral biases affect investment behavior. While biases like overconfidence, mental accounting, and loss aversion characterize individuals, little research has focused on whether distribution professionals attenuate—or magnify—these biases. For example, while investors might have bounded rationality—and be unable to process the mountain of information on the thousands of funds available—paid professional advisors might be able to help them sift through all of this data and make better investment decisions."Regrettably, the advisors generally demonstrated all the same biases that the rest of us have. Despite the professional standing, they are after all human.

The paper is quite lengthy at 61 pages and will be of particular interest to those with deeper research needs. Bottom line, even when picking actively managed portfolios rather than index funds, invest directly rather than through most brokers. Exceptions to the rule are always there, but they are truly jewels.

Link to document

http://valuediscipline.blogspot.com/

Pacific Crest Initiates Coverage of Digital Navigation Stocks

By William Trent, CFA of Stock Market Beat

Steve Lidberg of Pacific Crest Securities initiated coverage of the GPS and digital mapping sector. He ranks Navteq outperform, Garmin and Traffic.com in-line. He did not launch coverage of TomTom. (Found via Tech Trader Daily)

Lidberg points out that adoption of navigation devices is still very low. “With cumulative sales of navigation devices approaching 11 million units for 2006, and penetration of in-dash automotive navigation at approximately 7% in the United States, navigation still has significant room to run, in our view. We expect unit sales to grow at a compound annual rate of more than 35% through 2010.”

Despite his enthusiasm for the sector, Lidberg comes up with only one actual “outperform” rating: that goes to Navteq (NVT), which is one of the two primary providers of digital map information.

There is no doubt that the group is poised to grow. The question is whether the existing companies can maintain their advantage in the face of growing competition.

http://stockmarketbeat.com/blog1/

Introducing Stock Market Beat Watchlist

William Trent, CFA of Stock Market Beat

We have decided to take the possibly foolish step of creating a watch list. This post is to tell you what the watch list is and isn’t.

It isn’t a recommendation to buy or sell any or all of the securities on the list. We are not registered investment advisors, and even if we disclose that we have bought or sold one or more of the investments ourselves that decision will have been made on the basis of our own circumstances. Without knowing your circumstances, we are in no position to make any sort of recommendation to you. Nuff said.

It is where we will look for most of our articles, research and commentary. We want a list of stocks that is both reasonably diverse and reasonably small in order to keep our site both reasonably interesting and reasonably manageable. Hopefully by broadening our perspective we will find more to talk about than the LCD Panel glut.

It is not an index. It would be very difficult to duplicate the performance of this watch list, which may turn out to be a good thing. It is, at this point, completely untested. It may do far better or far worse than common benchmarks such as the S&P 500 or Russell 2000 indexes.

Furthermore, the relative weights of each component are likely to fluctuate over time. The watch list was assembled by taking roughly equal dollar amounts (rounded to the nearest share) of each security as of June 24, 2006. At the end of each calendar quarter we may or may not add/remove names from the list. However, we will not adjust the number of shares subsequent to the initial purchase except under extreme circumstances. Winners will be left to run for the most part and will constitute an ever-greater influence on the overall portfolio. To try to prevent excessive trading we will deduct a $10 per trade commission that will go against the watch list’s performance.It is something we will track. Our plan is to update the performance weekly, and compare it to several major benchmarks. It may do better. It may do worse. We don’t know.

How it was constructed: We ran a couple of screens to find stocks that appear to have attractive attributes. Then we picked names from these screens on the basis of both relative attractiveness according to these traits and familiarity to us. Pretty unscientific stuff, here. Mostly we wanted to get a group of names that included representatives from every sector. We also wanted to get a spectrum that included various market capitalizations and also included a few foreign stocks. In the end, although the average market cap of $10 billion would indicate a mid- to large-cap portfolio, the median market cap of $1.3 billion shows that the vast majority of the names are small-cap. This wasn’t by design, it just seemed like more small-cap names made it through our screens. So be it.

http://stockmarketbeat.com/blog1/

Net Neutrality and Telecom Regulations Get Murkier

Stock Tickers: This particular article does not speify any specific stock tickers.

Tomorrow, June 27, 2006, we will have continued telecom mark-up discussions regarding this ongoing Communications, Consumers' Choice, and Broadband Deployment Act of 2006. Unfortunately, nothing should get resolved tomorrow. The bill has 10 titles dealing with Universal service, video franchising, network neutrality, state preemption of wireless carriers, and broadcast flag rules.

This is out of the Senate Commerce, Science, and Transportation Committee and we may not even have any resolution this week. Prior to the session, members had filed over 200 amendments, and this needs to be cut in half. Unfortunately, they won't make amendment changes arbitrarily so this has added time. Some of these issues have been under development since 2005, so this is probably not a real surprise. Perhaps the 2 largest issues are net neutrality and whether or not to require new entrants in the video market to build out their systems in a given franchise area. Because of these amendments, it is likely that this will continue after the Fourth of July holiday.

Please visit our other articles on net neutrality and related issues below:

Net Neutrality, the AT&&-BellSouth Merger, and Developments

Can Arbinet Prosper From Net Neutrality Threats?

Watching the AT&T-BellSouth Merger Saga

Jon C. Ogg
with contributions from Tony Brush

June 26, 2006

Siriusly XM?

Stock Tickers: SIRI, XMSR, DISH, DTV

What would a Satellite Radio merger look like? Since there are legitimately only two players, you would see a Sirius (SIRI) and XM (XMSR) under one brand, which was noted this morning. Today Sirius' CEO Mel Karmazin has said at a conference in New York that he would be interested in acquiring XM, but price and regulatory issues would be key hurdles.

Sirius has a market cap of $6.28 Billion and XM has a market cap of $3.5 Billion. Sirius is projected to have 2006 revenues of $620+M and -$0.82 EPS, while XM is projected to have 2006 revenues of $935+M and -$2.40 EPS. XM expects 8.5 Million subscribers by year end and Sirius expects 6.2+M subscribers by year-end.

How would you compare this to any other situation? There had been prior speculation years ago that a similar merger between Echostar (DISH) and DirecTV (DTV), but that never materialized and that merger would be far more critical to consumers and problematic on the regulatory front.

In truth, the merger of satellite radio into a single conglomerate may not matter on the regulatory front. Satellite radio is almost entirely a luxury good. There are obviously huge advantages to no commercials and to contant steady channels regardless of where you are in the country, but there are no national defense issues and probably not any serious risks to Joe Consumer if they have one satellite radio provider or two. There has been previous talk about the likelihood that down the road these need to be one company, but who knows. Integrating these companies would be costly and many of the deals with the content companies would probably need reworking. You would also have a lot of confusion from consumers as they would have to say now that they are just a satellite radio subscriber rather than a Sirius loyalist or an XM loyalist.

There would be a corporate culture clash, and don't ever forget how much that can come into play. While a deal may make sense down the road, this is probably not on the immediate horizon and seems to have been more of a situation where Sirius' Karmazin was speaking figuratively rather than him testing the waters to see how the market would react. Shares of SIRI are at $4.6109 (Up $0.1409; 3.15%) and shares of XMSR are at $13.66 (Up $0.20, 1.49%).

Jon C. Ogg
June 26, 2006

Delving into Durables

By William Trent, CFA of Stock Market Beat


We aren’t the type who hit the trade button as soon as we see a piece of economic news. For the most part, our trigger fingers are too slow for that sort of thing. We prefer to set it aside until everyone else has moved on to the next thing, then put the data into a longer-term context. That said, we decided to look at the implications, if any, of Friday’s durable goods report - particularly with respect to the technology sector. All data are taken from the Commerce Department and presented on the basis of the non-seasonally adjusted year/year change.

For tech as a whole, shipments accelerated but orders grew at a slower pace compared to April. This suggests the current quarter could be strong but that a slower economy may lie ahead. Both backlog (unfilled orders) and inventory grew at a slower pace, which also is mixed news.With respect specifically to computer-related products, things are generally looking better. The swing to positive year/year growth in shipments and new orders is clearly a plus. The continued drop in inventories is also good. The only negative was the slightly faster drawdown of backlogs.

Communications equipment remains the strongest tech category. Even though the rate of sales growth decelerated it remains high (above 20 percent) and order growth accelerated. Backlogs are flat and inventories, while growing modestly, are doing so at a far slower rate than sales or orders - so no glut yet.

Last but not least are the semis. They only supply their shipment data, but the growth rate in shipments was up nicely. Which is good, because the capacity has been going up so much.

http://www.stockmarketbeat.com/

Ramifications of the DOJ Inquiry into Orthopedic Implants

Stock Tickers: BMET, ZMH, SNN, JNJ, PFE

This morning we had announcements that Biomet (BMET) was part of a similar Department of Justice probe that Zimmer (ZMH) also announced Friday.

Biomet received a grand jury subpoena at the request of the DOJ's Antitrust division regarding possible violations of federal criminal law and antitrust violations relating to the manufacture and sale of orthopedic implant devices. Zimmer's press release was very similar.

This appears to be regarding price fixing. We have not seen any word out of Smith & Nephew (SNN) as to whether or not they are part of the probe. Johnson & Johnson (JNJ) also has a large unit in joint replacements called DePuy, although if you have been looking over news today you will know JNJ is in also in the midst of this $16.6 Billion transaction to buy Pfizer's (PFE) consumer products company.

Both Biomet and Zimmer have been poor performers this year. Zimmer ($57.38; -$5.65) is now under what was the 52-week low of $59.75 and Biomet ($32.88; -$2.10) had briefly breached its 52-week low of $32.50. Unfortunately it is not clear what all of the details are and what the ramifications will be, but these antitrust cases that come out of the DOJ rarely are a short term event that just quietly disappear.

Commodity Boom to Continue?

Stocks: (PD)(FAL)(N)(MT)

By William Trent, CFA of Stock Market Beat

There has been much speculation as to whether the recent price pullback for both commodities and the shares of stocks that produce them is a breather or the beginning of the end of the bull run. The action of the producers themselves suggest they believe the boom has legs.

For the second time in as many business days, a commodity producer has announced it will buy not one but two of its rivals. On Friday it was in the oil patch, where Anadarko Petroleum bid for both Kerr-McGee and Western Gas. Today,Phelps Dodge said it would acquire Inco for C$80.13 per share in cash and stock. Inco in turn raised its existing offer to buy Falconbridge to an implied value of C$62.11 per share. Throw in the long-awaited deal between Mittal and Arcelor (steel) and you have a broad-based commodity stock M&A boom.

Having covered basic materials in the late 1990’s, when the only way to get investors to show up at a conference was to bill it as a B2B play, we can tell you there are more than a few long-suffering analysts who are finally getting their day in the sun.

http://www.stockmarketbeat.com/

Time Warner: A Glass Half Full

Time Warner’s stock has been flogged back below $17, down from its 52-week high of $19 and close to the low for the period. Institutional investors and the press have suggested that the company be broken up or that some of the units be spun out into a new public company. The failure of the AOL merger still bedevils the current management and shareholders.

Looking at the company’s results and recent plans, the picture is not nearly a bleak as it has been painted by some critics.

AOL is certainly a shrinking franchise, and it may require substantially more cost cutting to improve margins. In the quarter ending March 31, revenue dropped 7% to $1.98 billion. The silver lining is that advertising revenue rose 26% and nearly offset the drop in subscription revenue. With the explosion of online advertising, it is entirely possible that the advertising pick-up at AOL could more than offset the attrition in subscription, especially if AOL.com and other free sites that company owns see improved traffic in future quarters. In the last quarter, operating income at AOL dropped 14% to $269 million, which may be an indication that further cost cuts are in store, especially to get full leverage from the ad revenue growth and its potential contribution to income growth.

Time Warner’s cable business is unusually healthy, which may be the reason that some investors would like to see it as a separate unit. Total revenue for cable rose 15% last quarter to $2.58 billion. Operating income did even better, rising 25% to $501 million. High speed data revenue rose an impressive 24% to $612 million and digital phone service was up 338% percent to a modest $140 million. As demand for voice over IP grows, it is likely that this segment will be a larger and larger component of the cable operations in future quarters. While the telcos are trying to offer high speed internet, video channels and phone service as a combined package to compete with Time Warner and other large cable operators, the potential success of these programs is several years off.

Owning movie studios has always been a choppy business and Time Warner’s film and TV production operations are no exception. This part of the company saw revenue decline 8% in the last quarter to $2.997 billion. Due primarily to improvement in the cost of revenues, operating income was up 22% to $386 million.

Time Warner’s network operations, which include properties like HBO, the WB network and Turner properties, had a modest revenue increase last quarter of 3% to $2.351 billion. Operating income rose 7% to $788 million.

The company’s publishing operations showed flat revenue in the March quarter at $1.226 million and operating profits dropped 13% to $71 million.

One of the major concerns that investors have about the company is its debt. At the end of last quarter, the company had over $20 billion in debt and $2.3 billion of cash and investments.

Those are the numbers, and some of them are not as pretty as shareholders would like. The issues at AOL and the publishing operations will have to be taken care of by a combination of further cost cutting and well-planned programs to take advantage of a good advertising environment, especially online.

But, Time Warner is now a company with all of the bad news priced into the stock. It is probably not a stock that reflects the efforts of the management to improve operating results. One of these is the combination of the operations of the WB network and UPN. Small television networks are expensive to operate relative to revenue, and the combination of these two should improve margins for the new entity.

AOL’s agreement with Google, in which the search company essentially buys 5% of AOL for $1 billion, has some advantages for both companies. AOL can provide content to Google, and Google’s targeted advertising programs can make advertising purchases on AOL properties more effective.

Time Warner Cable’s agreement with Comcast to acquire the assets of bankrupt Adelphia will significantly boost the number of basic subscribers it serves and potentially improve revenue per customer as broadband and VoIP adoption improve.

Short interest in the company’s stock increased 8 million shares to 52.9 million, one of the largest increases for any company traded on the NYSE, so there are still plenty of investors ready to bet that the company’s shares will fall further. But, there are several events that could improve the company’s fortunes.

The release of Superman in the next month could give the film unit of the company a significant improvement in revenue.

The change over from dial-up to broadband could actually begin to favor AOL as internet advertising, including video program with video ad support, growth and delivers higher cost per thousand ad rates for large internet portals.

The increase in broadband and VoIP demand should fuel faster growth at the company’s cable operations.

The rise of video use over the internet will begin to expand the revenue options for Time Warner’s studio and TV productions as will the increasing use of VOD by cable subscribers.

Time Warner’s stock is not likely to go much lower. But, if one or two of the initiatives that management has announced materialize, the stock has the opportunity to move up to levels it has not seen in four years.

Douglas A. McIntyer is the former Editor-in-Chief and Publisher of Financial World Magazine. He has also been president of Switchboard, Inc. which was, according to MediaMetrix, the 10th most visited site on the internet at the time. He has been CEO of FutureSource and On2 Technologies, Inc. He has also served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about.

Rosneft's Coming IPO: Must Have or Must Avoid?

Rosneft, Russia's third largest oil producer, is going to proceed with plans to come public via an IPO. The financial terms are still a bit vague, but the company will have a market cap in the $60 Billion to $80 Billion range, and it will be floating a base amount of $8.5 Billion in stock. With a convertible note offering and normal over-allotments you could see as much as $10.75 Billion to $11.6 Billion in securities sales, assuming these terms all remain static.

Global energy and oil buyers may want to get what they can, but there is a serious question about the expected price versus the value. This pricing values it more than LUKOIL, Russia largest producer, and nearly eliminates much political or eco-political risks from Russia and discounts most traditional emerging market risks.

The four lead banks in the deal are ABN AMRO, JP Morgan, Morgan Stanley and Dresdner Kleinwort Wasserstein. this will take a few weeks to develop, but who this has to be good for is the myriad of other international oil companies who must be thinking of how they can do some comparative valuations. The shares have been given a currency translated range for Moscow and London trading of $5.85 to $7.85 per global depository receipt.

Pre-Market Notes for June 26, 2006

(AAPL) Apple noted a bit cautiously in the WSJ.
(ABT) Abbott Labs gets FDA Approval for new Humira delivery device.
(ASTT) ASAT CFO is resigning to spend more time with family.
(BG) Bunge lowered 2006 EPS targets.
(CHK) Chesapeake Energy filed to sell 20M shares of common stock.
(CLMT) Calumet filed to sell 3.3M shares of common stock.
(CRTX) Critical Therapeutics said its CEO Paul Rubin has resigned.
(EGN) Energen authorized 9M shares for buyback.
(GNBT) Generex Biotech filed to sell 15M shares.
(FAL & N) Falconbridge and Inco both get acquisition offer from PD, a rival to the other Merger they are invloved in.
(FNSR) Finisar won a $78.9M patent case against DirecTV.
(HD) Home Depot has an SEC stock option inquiry.
(INTC) Intel's new Woodcrest chip for servers is where the company hopes to beat AMD according to a WSJ report.
(JNJ) J&J reportedly has won the Pfizer consumer products unit for $16.6 Billion.
(JNY) Jones Apparrel according to WSJ has the best offer from Bain Capital, but it may not be enough to win board support.
(JNPR) Juniper noted cautiously after the Nokia-Siemens JV in Barron's.
(LEN) Lennar $2.00 EPS vs $1.85e; but lowered earnings guidance for 2006.
(MAIR) MAIR -$0.08 EPS vs -$0.13e.
(MO) Altria may have to delay its spin-off of KFT stake if the Engle case in Florida does not get resolved soon, according to WSJ.
(MSFT) Microsoft noted in WSJ as wanting to compete against AV and CSCO in video conferencing phones.
(MT) Mittal has won the bid for Arcelor overseas.
(PD) Phelps Dodge offers to buy Inco and Falconbridge; stock down 5.6% pre-market.
(PEIX) Pacific Ethanol registered to sell 8.2M shares for holders.
(PFE) Pfizer selling consumer products unit to J&J for $16.6 billion.
(PLA) Playboy noted as a cheap stock iun Barron's.
(PTEN) Patterson gets formal SEC inquiry into already disclosed CFO embezzlement case.
(QTWW) Quantum Fuel Systems won an order from the California Air Resources Board to lease 4 hydrogen-fueled Toyota Prius hybrid vehicles.
(RHAT) Red Hat filed to sell 6.7M shares for holders.
(SHPGY) Shire may be a target of Serono according to overseas reports.
(SMRA) Somera gets a $4.60 buyout to become part of Telemar; up over 100%.
(TMY) Tramsmeridian Exploration filed to sell 1.8M shares for holders.
(WAG) Walgreen's $0.46 EPS vs $0.44e.
(ZMH) Zimmer disclosed a DOJ criminal subpoena over antitrust issues over orthopedic implant sales back to 2001.

Analyst Calls:
CELG raised tgt/est at Citigroup.
CYN raised to Buy at Citigroup.
EMC tgt lowered to $12 at Deutsche Bank.
ENDP raised to Buy at Oppenheimer; raised to Overweight at JPMorgan..
ITY reitr Overweight at JPMorgan.
MCK raised to Overweight at MSDW.
MHS raised to Overweight at MSDW.
PETM started as Buy at Citigroup.
PNSN started as Neutral at JPMorgan.
PNY raised to Outperform at Baird.
PVH raised to Overweight at JPMorgan.
QCOM raised to Outperform at Thomas Weisel.
REST started as Buy at First Albany; started as Buy at Deutsche Bank.
SEPR cut to Neutral at JPMorgan.
ZMH cut to Neutral at B of A.

May New Home Sales at 10:00 AM EST.

Cramer's MAD MONEY Recap from 6/23/06

Stock Tickers: JCP, FMD, GRMN, PALM, RIMM, PNRA, GIS, WLT, DVN

Cramer opened Friday saying investors should get into shares of J.C. Penney (JCP), First Marblehead (FMD) and Garmin (GRMN) as they all get marked up at the end of the quarter.

Cramer also said to look at Palm (PALM) and Research in Motion (RIMM), which are set to report on Thursday after the close.

Then Cramer recommended Panera (PNRA), General Mills (GIS), and Walter Industries (WLT).

Cramer discussed acquisitions after the Anadarko (APC) acquisition of Kerr-McGee (KMG) and Western Gas (WGR); he believes Devon Energy (DVN) will be the next big acquisition. He also believes that BP (BP) and Royal Dutch (RDS/A) need to make some acquisitions.

In the "Lightning Round," Cramer was Positive on ABB (ABB), BHP (BHP), Basic Energy Services (BAS), Baxter (BAX), Best Buy (BBY), Circuit City (CC), Coherent (COHR), Newell Rubbermaid (NWL), Alliant Techsystems (ATK), Pantry (PTRY), Serologicals (SERO), Rio Tinto (RTP), Foster Wheeler (FWLT), Schering-Plough (SGP), Volt Information Sciences (VOL), & Hewlett-Packard (HPQ); and was Negative on Dell (DELL), Sirius Satellite Radio (SIRI), Pactiv (PTV), AT&T (T), Sprint (S), Verizon (VZ), Casey's General Stores (CASY), Adtran (ADTN), Shaw Group (SGR), Merck (MRK), Chicago Bridge & Iron (CBI), Teva Pharmaceutical Industries (TEVA), and RadioShack (RSH).

Home Depot, Odd Duck (HD)

The movement of the shares in Home Depot may not be a good indication of the business. The company had the highest increase in shares short in the NYSE mid-June report, rising 56.3 million to 77.8 million shares.

Granted, the company has an options timing problem, and shareholders are furious with the pay package that the CEO received. The stock now trades very near its 52-week low of $36.04, well down from the period high of $43.98.

On the other hand, the company has recently announced that it is buying back $2 billion of its own shares. The company's net sales in the period ending April 30 were $26.41 billion, up 13% from the prior year's quarter and operating income rose 21% to $2.4 billion. The average ticket on a customer purchase rose over 4% to $60.75. Weekly sales per operating store were down 2.8%.

The company's revenues in fiscal 2004 (ending February 1) were $64.8 billion. Operating income was $6.8 billion. For fiscal 2006, revenue hit $81.5 billion and operating income was $9.4 billion.

What makes very little sense is that Home Depot stock closed at $35.44 on June 23, 2004 and at $36.41 on June 3, 2006.

Given the huge increase in both the company's revenue and operating profit, that does not make any sense.

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

Europe Markets 6/26/2006

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

Markets in Europe were fractionally higher at 5:45 New York time.

Th FTSE was flat at 5,693. Barclays was up .3% to 599. BP was off .8% to 612. British Air was off .5% to 345.75. BT was flat at 228.5. Diageo was up .2% to 909.5. GlaxoSmithKline was off .3% to 1481. ITV was off 1.2% to 103.5. Prudential was up .4% to 559. Reuters was up 1.1% to 370.75. Unilever was down .7% to 1168. Vodafone was flat at 117.5.

The DAXX was up .1% to 5,534. Allianz was flat at 120. BASF was up .6% to 61.29. Bayer was up .2% to 33.2. DaimlerChrysler was up .6% to 38.04. Deustche Bank was off .3% to 84.61. Deutsche Telekom was up .2% to 12.55. Siemens was down .4% to 67.63. SAP was flat at 163.74.

The CAC 40 was up .1% to 4,820. Alcatel was flat at 9.9. AXA was up .3% to 23.85. France Telecom was up .4% to 16.7. L'Oreal was down .4% to 70.95. STMicro was down .8% to 12.48. Thomson was down .6% to 13.03. Vivendi was down 1% to 26.89.

Douglas A. McIntyre

Market Trend Analysis

By Yaser Anwar, CSC of Equity Investment Ideas

Most of the major indices ended the week just below where they were last week. The one exception, the DJ-20, managed to go much higher. The NASDAQ Composite ended the week at 2121 just below the 20MA. The DJ-20 managed to break above all the moving averages, and is holding just below the 4800 resistance level. The DJ-30 could not break the 11,100 resistance level and ended the week below 11,000.

The OEX is below all the moving averages, and also looks weak. The same is true for the QQQQ, the SOX, and the S&P500. Last week we mentioned the fact that most of the major indices couldn't penetrate that resistance level. It is true for this week as well, which is an indication of market weakness. We may see the market continue sideways or move lower.

At this point we see a weaker market direction. Remember, even in a weaker market there are some rallies, but these rallies are not as strong as in an uptrend market. For the long term we are still in an uptrend direction, while for the short term we are in a downtrend. Remember to reduce the lot size and number of trading transactions during this choppy market.

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

Greenspan on Ethanol

By Yaser Anwar, CSC of Equity Investment Ideas


Greenspan told the Senate Foreign Relations Committee that "if ethanol is to be a significant (solution to our transportation fuel needs) it will have to be cellulosic." Greenspan cited rapidly achieving full-scale cellulosic ethanol production, testing its viability and accelerating developments in liquid natural gas as the best immediate targets for reducing petroleum demand, which he said was an imperative goal. "Current oil prices over time should lower to some extent our worrisome dependence on petroleum. Corn ethanol, though valuable, can play only a limited role, because its ability to displace gasoline is modest at best. But cellulosic ethanol, should it fulfill its promise, would help to wean us of our petroleum dependence, as could clean coal and nuclear power."

Washington - U.S. agriculture and energy officials announced June 23 that they will co-host a national renewable energy conference October 10-12 in Missouri to accelerate commercialization of renewable energy industries and distribution systems. U.S. Department of Agriculture (USDA) Secretary Mike Johanns and Department of Energy (DOE) Secretary Samuel Bodman told reporters that the conference, "Advancing Renewable Energy: An American Rural Renaissance," will help create partnerships and strategies needed to implement President Bush's Advanced Energy Initiative. That initiative aims to reduce U.S. dependence on foreign oil and increase production of domestically grown fuel to promote U.S. job growth and increase energy security.

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

Media Digest 6/26/2006

Stocks: (MT)(MSFT)(CSCO)(MOT)(HPQ)(PD)(FAL)(N)(PFE)(JNJ)(UVN)(TV)
(JNY)(T)(SNY)

Reuters reports that the tow largest steel makers have merged bring together Mittal and Arcelor.

Reuters also reports that Microsoft has announced hardware partners to support its software to improve how workers communicate with one another. This inclues e-mail, instant messaging and web telephone service. The partners include HP and Motorola. The new software which will be available with Office 2007 will compete with certain products from Cisco.

The New York Times reports that Phelps Dodge will acquire nickle makers Falconbridge and Inco.

The NYT also reports that Johnson & Johnson is close to a deal to acquire the consumer businesses of Pfizer for $16 billion.

The New York Times writes that a deal to buy Univision is in doubt because a bid lead by television company Telvisa may be too low.

The Wall Street Journal reports that Bain Capital is close to acquiring Jone Apparel. The company has a market cap of over $3.5 billion.

The WSJ also reports that online photo sharing site Shutterfly may do an IPO worth between $400 and $500 million.

Cisco and AT&T are leading an investment group that will invest $15.5 million in Akimbo, a company that channels internet TV to television set. The deal reflects the rising interest in TV over the internet.

The New York Times reports that Bristol-Myers and Sanofi has agreed to shorten the patent protection window on the drug Plavix after another deal was rejected by state attorneys general. The deal would keep generic competitors off the market until June 2011.

Douglas A. McIntyre

Asia Markets 6/26/2006

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

Asian markets were mixed with little movement

The Nikkei was up .2% to 15,152. Canon was up .5% to 8200. Daiwas Securites was up .1 % to 1327. Fuji Photo was down 1.3% to 3840. Hitachi was down .9% to 738. Honda was up .1% to 7290. NEC was down 2% to 576. NTT was down 1.4% to 543000. Docomo was off .6% to 164000. Softbank was off 1.4% to 2485. Sony was up .4% to 4970. Toshiba was up 1.1% to 752. Toyota was up .7% to 5830.

The Hang Seng was down .2% to 15,778. China Mobile was up .6% to 42.4 China Netcom was up .4% to 12.7. China Unicom was down .7% to 6.85. HSBC was down .5% to 134.2. Lenovo was up 2% to 2.575. PCCW was up 1.8% to 5.6.

The KOPSI was up .8% to 1,238.

The Straits Times was up .8% to 2,361.

The Shanghai Composite was up 1.7% to 1,633.

Douglas A. McIntyre

Barron's Digest June 26, 2006 Issue

Stocks: (ERICY)(NOK)(LU)(MOT)(NT)(SI)(PLA)(NOOF)(SLE)(K)(GIS)(FNF)(FNT)(FIS)
(PFE)(MRK)(TEVA)(RDY)(RSTO)(GOOG)(JBLU)(GRMN)(AAPL)(KBH)(PHM)


The Nokia joint venture with Siemens to combine their telco infrastructure operations could boost Nokia's stock. It will create the No. 2 entity in the field behind Ericsson, but ahead of the Lucent/Alcatel merged company. The Nokia/Siemens venture will have revenue in excess of $30 billion. The deal will also change the competition among suppliers of 3G equipment and may force Motorola and Nortel, who have less market share, to consider a combination.

Playboy's stock, which is trading at $9, may be getting attractive. The company's high overhead could be reduced to increase earnings and certain assets like the company's mansion and photo collection are carried below their full value on the balance sheet. Bank of America Secutities has a $13 price target on the company and says it could be a leverage buyout candidate. Playboy does face competition from companies that offer more hard-core content like New Frontier, and this could cut into Playboy's share of cable programming.

Barron's view of Sara Lee is negative. The company is spinning of its clothing assets into an entity that will operate under the name Hanesbrands. But, the company's food brands lag behind products from companies like Kellogg and Kraft Foods. The Hansebrand spin-off should raise $2 billion for the company. Part of this will be distributed to shareholders, but the stock price of Sara Lee already relects this. However, the turnaround of the food business will be difficult because of high debt and lackluster line of products.

Fidelity National, which is in the mortgage title and data processing business will divide itself into two companies so that Wall Street can follow the businesses more easily. Fidelity National Financial will have the mortgage title assets. Fidelity National Information will have the data-processing operations. And, the fomer holding company's stack in Fidelity National Title will be distributed tax-free to the shareholders in FNF. Fidelity Information will be viewed by many investors as a tech growth stock, while Fidelity National Financial is more for value investors. The stock of Fidelity Financial is up 6-fold between 1999 and 2005. While the mortgage business is no longer growing as fast as it has for the last several years, the new structure should make the companies more easy for investors to understand.

The U.S. patent on Merck's Zocor has expired leaving $4.4 billion at risk for competition from generics. But, the option for consumers and doctors to use the generics may also affect Pfizer's competiting drug, Lipitor, which has annual sales of $12.2 billion. The availability of generics should help mail-order pharmacies like Express Script and Caremark RX. And, a few companies will be the only manufacturers of the generics for the next six months: Teva, Ranbaxy, and Dr. Reddy's. Pfizer's stock price probably already takes into account the competition for Lipitor, and the company is working on a drug that improves levels of good cholesterol in the blood, so there may be an upside to the stock's price.

Restoration Hardware, the home furnishings retailer, has seen shares purchased the by the CEO and fund Glenhill Capital recently. Glenhill now owns over 13% of the company's shares. The fund is betting the Restoration's revenues will rise sharply over the near-term.

The head of equity research at Majectic Research was interviewed by Barron's. His picks are Google, which he believes will have higher revenue growth than expected, JetBlue, which in improving yield management, and Garmin, which is in the growing GPS business. His pans include KB Homes and Pulte because of the housing slowdown, and Apple due to weak iPod sales.

NYSE Short Interest Report

The NYSE short interest for mid-June:

Largest short interest positions:

Lucent 133.5 million
Ford 105.8 million
AT&T 84.8 million
Home Depot 77.8 million
GM 75.2 million
Sprint 60.8 million
Pfizer 59.9 million
Qwest 59.2 million
TimeWarn 52.9 million
GE 44.6 million
HP 44.4 million
Interpublic 43.5 million
News Corp 40.1 million
Disney 39.8 million
Exxon 38.0 million


Largest changes up:

Home Depot plus 56.3 million to 77.8 million
AT&T plus 15.7 million to 86.8 million
Micron plus 9.1 million to 37.6 million
TimeWarn plus 8.0 million to 52.9 million

Largest changes down:

Lucent minus 28.3 million to 133.5 million
Seagate minus 21.7 million to 12.1 million
JPMorgan minus 10.9 million to 26.0 million
AMR minus 9.3 million to 21.5 million
US Steel minus 9.0 million to 5.9 million
DuPont minus 9.0 million to 26.2 million

Largest short interest ratios:

Pre-paid Legal 59 days
BuildABear 42 days
Mosaic 35 days
Superior Ind 32 days
Cedar Shop 32 days
Primedia 29 days
Allied Cap 28 days
Trex 27 days


Largest percent increase in short positions on AMEX stocks:


Apex Silver 50%
Covad 94%
Home Solutions 218%
InterNap 115%
Northgate Miner 160%

Douglas A. McIntyre

Apparel Makers Descend on China

By Yaser Anwar, CSC of Equity Investment Ideas

It appears there is a growing market for casual clothes in China - one that is expected to blossom by about 10% a year and hit a whopping $58 billion within the next four years, according to one expert cited by The Wall Street Journal.

Clothes retailers from around the globe have long manufactured their merchandise in China - only to ship it out of the country for sale elsewhere. But that seems to be changing."Prompted by the easing of the country's regulatory hurdles and the explosive growth of the Chinese middle class, a number of retailers are starting to see the world's most populous nation as a budding clothes market itself," the Journal reports.

Brands from around the world - including H&M and Lee jeans - are set to open their first Asian outlets in Hong Kong and Shanghai at the beginning of next year, according to the article. And "by the end of this year, Jones Apparel Group Inc., will operate 50 stores in China, double the number at the end of 2005.

The company also plans to add 10 to 15 stores a year under its Nine West, Anne Klein and Jones New York names."The story goes on to explain that there will be a major markup in prices for Western products, as a number of American retailers promote themselves as upper-echelon premium brands, even though they are perceived that way in the United States.

But there is no guarantee the venture will succeed."Higher prices are meant to give brands cachet in the eyes of Chinese consumers, analysts say," according to the Journal."Though the strategy has worked for premium brands, it may backfire for mid-priced foreign brands that don't appeal to China's nouveau riche generation, says MasterCard International economist Yuwa Hedrick-Wong

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

What I think about the market

By Yaser Anwar, CSC of Equity Investment Ideas

The market's been doing so poorly over the past few weeks that many people have been afraid to get out there, and the recent rally hasn't yet turned into a recovery to quell the investors' fears.

They think that this is the time to step back and let others fight it out while they wait. Maybe they've been burned in the past when the bottom fell out of the market, maybe they just don't know how to trade when the market's going down, or maybe they think they're protecting their investments.

But the problem with this mindset is simple: When do you start trading again? Wait until the market hits bottom, then expect to get a quick ride back up? Frankly, the chances of the market getting back to those record highs anytime soon is slim - and when we do start moving back up steadily, it'll be slow and tentative as investors start to feel the market back out.

The truth is, money is made by the Traders when the market is making big moves, not by the investors when it's slowly, steadily crawling along. The key is predicting big moves during volatile markets, where there's a large volume of trading, and right now there's a LOT of volatility - a lot of market movement toward the downside, as investors' fear causes them to continue to dump stocks, and then toward the upside as it rallies before falling again.

The Short interest has been going up for the fourth straight month to to 9.087 billion shares from 8.613 in the previous month.

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

Media Digest 6/24/2006

Stocks: (VZ)(UNV)(TV)(HD)(BMY)(TWX)(CMCSA)(GM)

According to the New York Times, a federal appeals courts said that the SEC lacks the authority to treat investors in hedge funds as "clients", handing the hedge fund industry a victory in its efforts to avoid regulation. The lower courts ruling would have required the funds to register with the SEC.

The NY Times writes that Verizon will cease its airline telephone service and focus on its broadband, cellular and TV businesses.

The Times also reports that Televisa has bid $12 billion for rival television company Univision.

The Times also writes that the SEC has begun an informal inquiry into its stock option grants practices.

The Wall Street Journal reports that Bristol-Myers arrangement with Apotex to end the smaller company's patent challenge to the drug Plavix was rejected by state attorneys general, probably forcing the drug giant to fashion a new proposal of settlement.

The WSJ also reports that TimeWarner and Comcast have agreed on revised terms to buy the assets of bankrupt cable company Adelphia. Earlier deals had run afoul of concerns on the part of Adelphia's creditors.

Reuters reports that emails have surfaced indicating that AOL chief Steve Case knew about aggressive tactics employed by the company's business development units to make revenue targets ahead of its 2001 merger with TimeWarner.

Reuters also writes that GM plans zero percent financing on most of its 2006 models and some of its 2007 SUVs.

Douglas A. McIntyre

Closing Comments for the Week of June 23, 2006

Stock Tickers: NBIX, PFE, GM, UVN, TV, APC, KMG, WGR, YHOO, MSFT, GOOG, JNJ, BSX, SRDX, ANPI, CONR, NOVL, QCOM, SNRR, SIX.

For Friday’s Daily Closings:
DJIA 10,989.09; Down 30.02 (0.27%)
NASDAQ 2,121.47; Down 1.52 (0.07%)
S&P500 1,244.50; Down 1.10 (0.09%)
10YR Bond 5.228%

The markets braced for next week’s FOMC meeting with somewhat mixed results, but there were just no steady catalysts to run the markets steadily one way or another for any sizeable changes. The bulls may be happy that this looks like it may have been a stabilizing week, and after so many blood-letting weeks a marginal drop was just fine. The DJIA for the week closed down about 25 points, down just under 0.25%. The NASDAQ closed down 8.48 points, or about 0.4%; and the S&P 500 index closed 7.04 for the week, or about 0.57%.

We had many pieces of big news that created some wide moves in stocks.

Neurocrine Biosciences (NBIX) was the true loser this week. Pfizer (PFE) walked away from their partnership on sleep drug Indiplon. Neurocrine fell over 30% on the news and closed down 28% on the news at $9.85, which is over a 33% drop for the week.

General Motors (GM) closed out the week about 4% higher at $26.97 on word that Delphi and GM worker buyouts were running ahead of plan, although it closed 1% lower on Friday.

The bidding process on Univision (UVN) continued to weaken with UVN closing out the week down almost $3.00 at $32.95. Televisa (TV) is still said to be the high bidder, but will UVN’s majority owner think it is close enough to the $12 Billion he was seeking.

We saw a major slew of mergers on Friday in the oil patch with Anadarko (APC) spending more than it was actually worth to acquire Kerr-McGee (KMG) and Western Gas (WGR). The deal was worth some $23 Billion, which was more than the $22.19 Billion APC was worth before the deal and more than the $20.8 Billion market cap that APC showed on Friday. Shares of KMG rose 36% and WGR rose 45% on the news. APC closed down over 7% at $44.90 on the news, and very close to the same for the week.

Yahoo! (YHOO) posted some gains Friday after Merrill Lynch’s analyst, Justin Post, said that behemoth Microsoft (MSFT) should acquire the company to fend off Google (GOOG). YHOO closed up 2.25% at $31.37 on the possibility of this happening, and closed out the week up just over 3%.

The WSJ did a damaging article to drug coated stent makers by saying that sales were being curbed at hospitals for some patients, although it stated that sales had not been affected. Johnson & Johnson (JNJ) fell 1% on the news, Boston Scientific (BSX) fell 2.5% on the news; and the companies respective polymer partners SurModics (SRDX) fell over 6% and Angiotech (ANPI) fell 5.6% on the news. One company that was a huge beneficiary is a competiting drug coated stent polymer maker named Conor Medsystems (CONR), whose shares actually rose about 7% on the news and up about 10% to close the week at $26.62 on this development.

Novell (NOVL) was a big winner after its board sent Both the CEO, Jack Messman, and the CFO, Joseph Tibbetts, down to the minors. On the news the shares ran 9.16% and closed the week up over 10% at $6.66.

Qualcomm (QCOM) found itself under the gun after Nokia (NOK) announced it would terminate CDMA phone development over cost issues. QCOM fell 6.4% on the news Thursday and closed even lower on after JPMorgan cut its rating to Neutral on the news. It closed the week down over 10% at $39.50. te company tried to say on Friday that this wouldn’t affect its handset sales, but not many wanted to listen.

Sunterra (SNRR) fell about 17% on news to close the week at $7.17 after announcing its CEO was placed on leave and its CFO had to step down on allegations of financial improprieties.

Six Flags (SIX), former ticker “PKS,” fell 25% at the end of the week to close at $5.55 after disclosing attendance in the may-June period year over year has fallen in the double digits and that they may have financial payment issues down the road. SIX shares closed down

Next week we are bracing for the FOMC meeting on June 29, which may or may not be the rate hike we see as the Fed grapples over risks of inflation versus risks of over-tightening and causing a more severe slowdown in the economy. We also slide into the weekend ahead of July Fourth, which is usually the prelude to a massive drop in trading volume. Before the FOMC on the 29th we’ll get to see May’s New Home Sales, May’s Existing Home Sales, June’s Consumer Confidence, the final revision for Q1 GDP (usually uneventful because data is 80 days old), and the weekly jobless claims.

We will also see some earnings coming in as stragglers. Monday we have earnings from Lennar (LEN) and Walgreens (WAG); Tuesday earnings from Nike (NKE); Wednesday earnings from 3Com (COMS), Biomet (BMET), ConAgra (CAG), McCormick (MKC), Micron (MU), Paychex (PAYX), and Red Hat (RHAT); Thursday earnings from Accenture (CAN), American Greetings (AM), General Mills (GIS), Monsanto (MON), Palm (PALM), and Research-in-Motion (RIMM).

Depending on the markets we may get to see the IPO’s of Aventine Renewable Energy (AVR), Bidz.com (BIDZ), GMarket (GMKT), Omniture (OMTR), and J Crew (JCG). This all depends on overall market conditions, and weeks before a holiday can be tricky for initial offerings.

Jon C. Ogg
June 23, 2006

He Said, She Said, Why Can’t Qualcomm and Nokia Just Get Along?

Stocks: (NOK)(QCOM)(INTC)

By William Trent, CFA of Stock Market Beat

So far the market appears to be taking the opposite viewpoint to that we expressed yesterday regarding the Qualcomm/Nokia license disputes. For balance we give a quick rundown of the opposing case, along with our rebuttals.IT Business seems to be on Nokia’s side.
Maybe Qualcomm is ready to give up the US$250 million it gets in royalties from Nokia every year, but as it withdraws from the CDMA market Nokia is also diverting considerable marketing resources that help boost the standard. Just a few days ago for example, Nokia released a pair of CDMA camera phones, which were greeted with the usual enthusiasm by various media.
Sure, but wouldn’t you think if Nokia was paying $250 million in royalties it may be earning a little bit on the handset sales themselves? Are they ready to give that up? As we said yesterday, we’re sure Motorola and Samsung won’t mind if they do.

JP Morgan cut their rating on Qualcomm.

The broker cited its belief that contract negotiations with Nokia (NOK) over the Finnish handset maker’s WCDMA license agreement could very likely end in a stalemate with the companies failing to agree to new terms without the third-party intervention the joint venture with Sanyo Electric would have provided.

The broker told clients it believes there is little-to-no chance of Nokia’s WCDMA royalty rate increasing and a non-trivial chance it could decrease.
That’s what they said the last time the royalty was up for renewal, too.

Qualcomm has their own response:
“In view of Nokia’s existing small presence in CDMA2000, we do not believe that Nokia’s decision to ramp down will have any impact on the continued growth of CDMA2000 or any adverse effect on Qualcomm,” said Qualcomm’s Steve Altman in a prepared statement. Altman added that Qualcomm plans to “continue to allocate substantial resources in expanding the CDMA2000 market and we will continue to work in close partnership with our many other licensees.”

Finally, with the war over 3G over (Qualcomm won) the battle is now turning toward who will get to dominate the 4G standards. Here the battle is between Qualcomm and Intel.
A squabble between Intel and Qualcomm seems to have at least temporarily derailed an IEEE work group.

The move to suspend the committee’s activity was prompted partly by a complaint by two Intel engineers, according to a Wall Street Journal report. Reportedly, Intel alleged that the group showed an unfair “bias” toward Qualcomm as a result of MBWA Working Group chairman Jerry Upton’s “relationship” with Qualcomm.

For its part, Qualcomm, a San Diego wireless technology company, argued that Intel and allied companies are using IEEE procedures to stall development of 802.20 technology because it is a potential competitor to WiMax, a wireless technology backed by Intel.

“It is very clear that Intel’s sudden interest and the sudden influx of its allies is designed not to contribute to 802.20, but to disrupt and to try to stop its development — because they see it as a threat,” Ronny Haraldsvik, a VP of marketing in Qualcomm’s mobile broadband business, told the WSJ.

http://stockmarketbeat.com/blog1/

Anadarko Announces Two Large Buyouts

By Chad Brand of The Peridot Capitalist

I can't recall a time when a company has announced two large acquisitions at the same time. Today we hear that Anadarko Petroleum (APC) will buy both Kerr McGee (KMG) and Western Gas Resources (WGR) for more than $21 billion in cash. With Anadarko's market cap around $22 billion before the deals were announced, they are essentially doubling the size of the company overnight, creating the country's largest independent exploration and production company.

Both of these purchases show just how undervalued energy companies are in the public markets these days. Anadarko is paying a 40% premium for Kerr McGee ($16.4B) and a 49% premium for Western Gas ($4.7B). Despite these huge cash premiums, the deals will be accretive to earnings. Few seem to disagree that our natural gas needs will continue to rise, but for some reason the stocks trade at exceptionally low valuations. This has resulted in a lot of M&A activity, and likely will continue to do so.

http://peridotcapital.blogspot.com/

Qualcomm Drops

By Yaser Anwar, CSC of Equity Investment Ideas

Other than JP's rating cut to neutral, QCOM is trading lower due to, Reuters reports:

Due to lower prices for the cheapest GSM handsets which cost less than $30 before local taxes, reflecting the GSM market's scale and low GSM royalties for major players such as Nokia, Ericsson and Motorola which also developed the technology.

The cheapest CDMA phones cost between $40 and $50, but analysts said these are not widely available because the top CDMA phone makers LG and Samsung focus on high-margin, pricey models sold in the United States and South Korea.

The inability to take CDMA phones abroad and swap SIM cards is also blamed for the shrinking market share.

"SIM card swapping is important in countries like India where a vacationing family does not want to pay expensive domestic roaming fees," said wireless telecoms consultant Ben Wood at Collins Consulting in Britain.

A third factor threatening CDMA is Qualcomm's policy to require its customers to render their intellectual property if it is included in a Qualcomm chip, without compensation.
That is another reason why Nokia decided to pull out of CDMA, according to sources close to the company.

In the last 15 years, Nokia has pushed ahead with its own wireless technology development, and claims to have a larger share of patents in the main wireless technology of the future WCDMA than Qualcomm. Nevertheless, Qualcomm is still demanding the same terms for its WCDMA chips as for CDMA chips.

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

Unemployment on the Rise

By Yaser Anwar, CSC of Equity Investment Ideas

Jobless claims rose by the largest amount in five weeks, indicating further slowing in the economy.

The number of Americans filing for unemployment benefits rose 11,000 to 308,000 for the week ending June 10, according to the Labor Department. Applications for benefits haven't grown this much since May 13, and claims haven't been this high since they hit 337,000 on May 27.

Forty states and territories reported an increase in claims while 13 saw a drop. Claims were highest in Pennsylvania, which had 5,425 applicants for unemployment benefits. The state had higher layoffs in the transportation, leather goods, electrical equipment, and service industries, according to the AP.

North Carolina and California were among the nine states that had an increase in filings of 1,000 or more. North Carolinians filed 3,761 more claims, and 2,533 more Californians applied for benefits.

The biggest decline in jobless claims was in Texas, which reported 2,065 fewer applications. The trade, service, and manufacturing industries showed improvement.

Growing jobless claims are a sign that the slowing economy is beginning to pervade the job market. In May, the economy added just 75,000 jobs, 100,000 jobs below what economists expected.

Analysts, says the AP, are forecasting "job growth will weaken in coming months and layoffs will rise as businesses adjust their hiring plans in the face of an expected slowdown."
Economists are forecasting that the economy will grow by about 3 percent in the latter part of the year, compared to 5.3 percent growth in the first quarter.

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

GM Executive: Good 2nd Q

By Yaser Anwar, CSC of Equity Investment Ideas

General Motors, after losing a record $10.6 billion in 2005, is hinting at good results for the second quarter, according to executives.

"At GM, the turnaround is progressing ... you'll see a good second quarter," Bo Andersson, vice president of global purchasing and supply told an audience at the Automotive News Europe congress.

Andersson didn't expand, but did tells the audience that he is hoping to improve the company's supply chain in order to improve "the ratio between revenue and costs," says the AP.

Andersson's comments come just a day after chairman and CEO Rick Wagoner told shareholders that the company is making significant progress on its turnaround plan, reports the AP.

Wagoner says that GM is planning to cut $7 billion in structural costs in North America and has a goal of reducing costs to 25 percent of revenue by 2010 from 34 percent last year.
"These are huge reductions for GM and any other corporation anywhere," Wagoner said.

The company is showing some improvement. GM posted a profit of $445 million in the first quarter compared to a loss of $1.3 billion in the first quarter of 2005.

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

Technology Review Answers Some Nanosolar Questions

By William Trent, CFA of Stock Market Beat

Just a day after reading an article that raised questions for us regarding a new solar power technology, MIT’s Technology Review provided some of the answers.

This week, Nanosolar, a startup in Palo Alto, CA, announced plans to build a production facility with the capacity to make enough solar cells annually to generate 430 megawatts. This output would represent a substantial portion of the worldwide production of solar energy.

According to Nanosolar’s CEO Martin Roscheisen, the company will be able to produce solar cells much less expensively than is done with existing photovoltaics because its new method allows for the mass-production of the devices. In fact, maintains Roscheisen, the company’s technology will eventually make solar power cost-competitive with electricity on the power grid.

Experts say Nanosolar’s ambitious plans for such a large factory are surprising. “It’s an extraordinary number,” says Ken Zweibel, who heads up thin-film research at the National Renewable Energy Laboratory in Golden, CO. Most groups building new solar technologies “add maybe 25 or 50 megawatts,” he says. “The biggest numbers are closer to 100. So it’s a huge number, and it’s a huge number in a new technology, so it’s doubly unusual. All the [photovoltaics] in the world is 1,700 megawatts.”

Today, the lion’s share of solar cells are based on crystalline silicon, which is about three to five times too costly to compete with grid electricity, Zweibel says.

Nanosolar’s technology involves a thin film of copper, indium, gallium, and selenium (CIGS) that absorbs sunlight and converts it into electricity. The basic technology has been around for decades, but it has proven difficult to produce it reliably and cheaply. Nanosolar has developed a way to make these cells using a printing technology similar to the kind used to print newspapers, rather than expensive vacuum-based methods.

So the answer to our first question is that Nanosolar does not use wafers (see photo). It also suggests an answer to the second question, which is that wafer manufacturer MEMC would not see a benefit from widespread adoption of this technology.

Although the company expects to start selling solar cells next year, ramping up to full production will take more time. Meanwhile, high demand for solar cells worldwide will keep prices high, Roscheisen says. Eventually, however, he says the company hopes to attract more customers with lower prices, in several years reaching prices that make solar-power electricity competitive with the grid.

Zweibel says the company is likely to face challenges in ramping up production, although their pilot manufacturing facility is a big step. And he adds that Nanosolar is not alone in developing inexpensive manufacturing processes for CIGS solar cells, and at least one other company is working with a printing process.

Meanwhile, Andrew Gabor, senior engineer at Evergreen Solar, a silicon solar-cell developer and manufacturer in Marlboro, MA, says current supply problems related to conventional solar cells are easing as more production capacity is coming on line. This could mean that prices for silicon cells start dropping again, eventually becoming competitive with grid electricity. He suggests that in the future solar electricity supply will likely be met by a mix of technologies.

While the last paragraphs do not answer our questions about the price of oil needed to make solar competitive without subsidies. It is also not clear whether the “several years” horizon refers to cost competitiveness before or after subsidies.

But it is a start.

http://stockmarketbeat.com/blog1/

TSMC: No Killer Apps in Sight

By William Trent, CFA at Stock Market Beat

DigiTimes reports:
The semiconductor industry is unlikely to see in the next 5-10 years stunning killer applications that can spark dramatic growth, but stable growth will be enabled by applications evolved from existing products, according to Kenneth Kin, senior vice president of worldwide marketing and sales of Taiwan Semiconductor Manufacturing Company (TSMC).

Kin, speaking at TSMC’s Technology Forum yesterday, pointed out that the foundry sector was enjoying fast growth during the 1990s. But the turning point came in 2000 when the dot-com bubble burst, and as a result the worldwide semiconductor industry saw its production value fall 35% in 2001, he said.

However, since 2002 the semiconductor industry has seen continued growth each year, and this trend should continue through 2015, the TSMC executive indicated.

We found this amusing, because killer apps, almost by definition, are entirely unpredictable. If anyone knew what the next killer app would be, everyone would be working to develop it. Then, when somebody does come up with it it will seem completely obvious in hindsight.

For the record, we don’t see any killer apps on the horizon either. But we aren’t predicting there won’t be one.

http://stockmarketbeat.com/blog1/

Semiconductor Inventory Already High, Just Wait for the New Capacity

By William Trent, CFA of Stock Market Beat


iSuppli: Semiconductor inventories elevated, but remains under control
Although excess semiconductor inventories in the electronics supply chain are expected to swell by 11% on quarter to US$1.3 billion by the end of the second quarter, research firm iSuppli believes that stockpiles aren’t large enough to raise alarms.Inventories remain within expectations and are manageable, iSuppli said. The current expansion in surplus stockpiles appears to be restricted to the PC supply chain. No major expansion in excess inventory is expected in the third quarter.

Really? We have been harping for months that semiconductor manufacturers are ordering equipment at far faster rates than can be supported by end demand. This equipment is used to make semiconductors. If the semiconductors are not sold, they will be inventory. So score us in the camp of expecting a major expansion in excess inventory in the third quarter.

However, almost all semiconductor suppliers that provided comments on expectations at the beginning of the second quarter said they expect to meet their sales forecasts.
Duh. That is why those were their forecasts.

iSuppli indicated that overall excess inventories in the supply chain edged upward to US$1.3 billion. This number reflects updated inputs from companies whose fiscal quarter ends in April.
Lack of demand is always a concern for the electronics supply chain, especially in the second half of the year. This concern is heightened amid the present uncertain macroeconomic environment.

Inventories now are higher than they were at the midpoint of 2004, iSuppli stated. At the time, semiconductor suppliers became overloaded with excess stockpiles that were pushed back up the chain after increased production in the first half of that year forced an inventory correction. The push back in semiconductor stockpiles occurred after second-half demand failed to materialize. It took a year to work down the overhang.

That’s what we’ve been talking about, Willis.

http://stockmarketbeat.com/blog1/

Oracle Update

By William Trent, CFA of Stock Market Beat

The earnings were no surprise, as they were pre-announced last week. So here are some highlights from the conference call.

Applications came in very strong across the board, generating license revenues of $641 million, that is 83% up year-over-year, both in US dollars and constant currency. This compares to 14% growth constant currency in SAP’s most recent quarter.

Well, they compare it to SAP’s “most recent quarter.” However, SAP will report the comparable quarter next week. Then we will get a better idea of any share shifts going on.

Operating cash flows increased by $1 billion year-over-year while free cash flow increased 28%. DSO was 55 days, down two days from last year, showing folks are paying their bills. In summary, I could only say that a year ago we gave you guidance for the year, and we clearly exceeded it at every level.

Their commentary and guidance on free cash flow excludes the cost of acquisitions. Although this is the customary practice, we would argue that they should include acquisitions in free cash flow (there would be none left) given the large number and size of recent deals and on the basis that if their contribution to operating cash flow is included so should be the impact on their investing cash flows.

As for Q1, our guidance is as follows. While we feel very good about our prospects heading into FY07, Q1 is typically our smallest seasonal quarter, being June, July, August. So we’re going to set guidance as follows:
New software license revenue for the quarter are expected to be up 18% to 25% year-over-year. Total software revenues are expected to be up 18% to 20% on a non-GAAP basis. Software revenues on a GAAP basis are expected to be up 23% to 25%. Total revenue for Q1 is expected to be up 19% to 20% year-over-year on a non-GAAP basis. On a GAAP basis, it’s expected to be up 22% to 24%.

Consensus estimates had called for a 16 percent rise in total revenues.
Non-GAAP EPS for the first quarter is expected to be $0.16 per share as compared to $0.14 last year. GAAP EPS for the first quarter is expected to be $0.11 per share, up from $0.10. This translates into a non-GAAP net income growth of 11% to 15% and GAAP net income growth of 9% to 14%.

Inline.

Now, this guidance assumes an annual effective income tax rate of 30%, up from 29.2% in Q1 last year, due to the shift in the mix of earnings from our foreign sub. That alone is a $0.01 for Q1.

It also assumes one point of positive currency impact, because that is where we stand right now; but with currency fluctuations, it’s difficult to predict and we’re not trying to predict, we’re just telling you year-over-year where it is right now. It could vary from our current estimate.
Now in Q1, we’re going to adopt FAS 123-R. Our Q1 GAAP guidance currently assumes comp expense of approximately $50 million for the option. We expect stock compensation to reduce diluted earnings per share in FY07, about $0.02 to $0.03.

Kash Rangan of Merrill Lynch asked what is driving the strong license revenue. Management said that their progress toward suites that include several best-of-breed applications under one installation is reducing complexity for their customers.

In response to a Bear Stearns question, management professed no insight as to how much of the recent improvement was company-specific rather than an overall increase in IT spending.

http://www.stockmarketbeat.com/

Merck's Ongoing Statin War With Teva

Stock tickers: TEVA, MRK, PFE, NVS, AZN, SGP

This week has not been kind to Israeli drug maker Teva (TEVA), who makes both generic drugs and some of its own branded drugs. Teva has a 180-day exclusivity period for its generic version of Merck's (MRK) statin Zocor, and Merck (MRK) has its Zocor patent expiring today in the US. The problem is that Merck has been negotiating with insurers to actually provide Zocor at a cost Under TEVA's generic version of Zocor. This is bad for TEVA of course, but now this raises questions over how it will impact Merck. Will it be bad for Merck's sales, or will it keep enough market share to not lose as much as would have been expected from generic competition?

Zocor in 2005 was Merck's top selling drug with sales of $4.381.7 Billion, which compares to their total sales of $22.01 Billion for the year. This is actually a lower percentage compared to 2004 when Merck showed Zocor was $5.196.5 Billion of its total $22.938 Billion in sales.

Conversely, this is a different story than Pfizer (PFE). Pfizer's top selling drug is its statin Lipitor. Lipitor's patent was under challenge by Indian-drug maker Ranbaxy, but a court ruling in December 2005 in a Delaware federal court went in favor of Pfizer. This ruling gave them patent protection in the US out to 2010 and 2011. Pfizer's Lipitor revenues in 2005 were $12.187 Billion out of the entire company's $51.298 Billion total revenues in 2005. Pfizer's 2004 Lipitor sales were $10.9 Billion out of the company's total $52.51 Billion.

Novartis's (NVS) Sandoz unit has also filed suit against Teva to stop it from exclusivity on generic Zocor, as Novartis is trying to get its generic Zocor approved.

The other large statin player out there is Astra-Zeneca (AZN) with its Crestor drug. Crestor's sales in 2005 were only $1.3 Billion, but that was 38% higher than the year before. Crestor's recent study results, combined with a Schering-Plough (SGP) drug called Zetia, showed that it not only lowers bad cholesterol but actually has plaque-breaking qualities in arteries has helped this drug gain traction. It is also expected to see its sales grow because of these study results. Bristol-Myers (BMY) saw its statin Prevachol went generic in April of this year.

Merck is down 0.95% at $34.91 today, but as of this morning shares are still higher over the last 5 days. The thought process is that if Merck sells the name brand drug for less than the generic then they will not lose market share to generics, and therefore will have less sales erosion than it would have if it maintained current prices. Merck may make up the difference in sales with its newly approved Gardisil for cervical cancer, but $4.3+ Billion in 2005 sales for one product is a pretty hefty number.

Merck's plan to combat eroding sales is to combine Zocor with Schering-Plough's Zetia as the name Vytorin, which showed to reduce cholesterol by 11 points more than Zocor alone.

The big loser is still Teva (TEVA) as its shares are down another 0.7% today at $31.02, and that is down from $36.05 at the beginning of this week. This also gets Teva shares down within striking distance of $29.50 lows of the last 52-weeks. This statin situation still has a long way to go, but it goes without saying that Teva has much more to worry about than just Merck's price cuts.

Jon C. Ogg
June 23, 2006

Durable Goods Orders Implications

By Yaser Anwar, CSC of Equity Investment Ideas

Durable goods orders slipped 0.3 percent in May, after a sharp 4.7 percent drop in April. The consensus had expected a 0.4 percent rise in durables orders in May. Declines in May were led by a 2.6 percent drop in transportation equipment - primarily non-defense aircraft. Excluding transportation, new orders rebounded 0.7 percent, following a 1.0 percent drop in April.

Nondefense capital goods orders fell 1.9 percent in May after a 6.3 percent drop in April and an 11.6 percent surge in March. Industry categories showing declines in May were: fabricated metal products, 1.3 percent; computers & electronic parts, 1.1 percent; electrical equipment, 0.2 percent; and transportation, 2.6 percent.

Gains were seen in: primary metals, 3.5 percent; machinery, 2.3 percent. Overall inventories rose 0.4 percent in May-the fourth gain in five months. Overall shipments rebounded 2.6 percent while unfilled orders rose 0.6 percent. While new orders for non-defense capital goods were soft in May, shipments were not, rising 2.1 percent.

These shipments point to a healthy gain in producers durable equipment for second quarter GDP. The continued rise in unfilled orders suggests that momentum in manufacturing remains healthy.

This might push stocks lower as it signals the economy is getting weaker but it could also push them higher 'cause traders might believe it wil signal to the Fed that the economy is slowing down and interest rate hikes after June 29 are not needed.

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

How Dow And Nasdaq Are Weighted

Stocks: (MMM)(MSFT)

By Yaser Anwar, CSC of Equity Investmen Advisors

The Dow and Nasdaq are not weighted the same way. The Dow is price-weighted, meaning that component stocks are important to the overall average in proportions based on their quoted prices.

So in today's prices 3M, which on Tuesday, June 6th closed at $82.35 a share is about four times as important as Microsoft, because it closed at just $22.13 a share.

Though a much larger company in terms of market cap, Microsoft is only about a quarter as important in terms of movement in the Dow.

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

Rise In Medical Costs

By Yaser Anwar, CSC of Equity Investment Ideas

USA Today reports, Brand-name drug prices jumped nearly 4% the first three months of the year, raising costs for taxpayers subsidizing the Medicare drug program and for some people participating in the program, AARP said Tuesday.

AARP, an advocacy group for senior citizens, said the quarterly increase was the largest since 2000. Pharmaceutical companies say the increases were in line with overall medical inflation.

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

Major Energy Oil & Gas Mergers, LBO's Actually: Anadarko & Others

Stock Tickers: APC, KMG, WGR, SGY, EPL, KMI, EOG, DVN, PXD, XEC, CHK, APA, NBL, SWN, SU

Yesterday Anadarko Petroleum (APC) was its own diversified energy powerhouse with operations in exploration, development, production, and marketing of natural gas, crude oil, condensate, and natural gas. It had a market cap of $22.19 Billion. What a difference a day makes.

This morning the company announced that it is making TWO acquisitions, and the total purchases are on the surface worth more than the value of the company. The company is spending $23 Billion in combined stock and debt to acquire. Kerr-McGee's (KMG) acquisition price is $16.4 Billion in all cash at $70.50 per share, which is a 40% premium above KMG's close yesterday. They are buying Western Gas (WGR) for $4.7 Billion (as well as $600M in debt) or $61 per share, which is a 49% premium to yesterday's close.

Back in the old days, we would call this a leveraged buyout. APC is trading down 6% or 7% pre-market as the street tries to digest this deal. The interesting thing here is what this will do to the Index arb’s and the Index funds that end up having to buy close to twice the amount of shares of APC down the road. APC has a 0.197% weighting in the S&P 500 Index, and this will likely increase by a large portion of that 100% increase to say 0.32% or 0.35% after it is all said and done. The company will be conducting some asset sales and the shares are down this morning, so understand that this number may ultimately come in much lower than that after the dust settles.

In another deal this morning, Stone Energy (SGY) received and approved a $1.4 Billion buyout from Energy Partners Ltd. (EPL) valued at $51.00 per share in cash or stock. There will also be about $800 Million in debt that gets refinanced and absorbed. That merger price of $51.00 compares to a $46.23 close yesterday, but this $1.4 Billion deal compares to EPL's market cap of $690 Million. SGY is in various operations in the acquisition, exploration, development, operation, and production of oil and gas; and EPL engages in the exploration and production of oil and natural gas.

Just recently, Kinder Morgan (KMI) received a management-led buyout offer from CEO Richard Kinder valuing the stock at $13.4 Billion.

We are seeing other oil and gas plays trading up this morning based on expectations of a rapid land grab in the sector. This morning on CNBC Oppenheimer's analyst said you could easily see other deals with buyout targets being named: EOG Resources (EOG), Devon Energy (DVN), and Pioneer Natural Resources (PXD). These are all higher pre-market: EOG +4.4%, DVN +6.1%, PXD +5.8%. Others are also higher pre-market: Cimarex Energy (XEC) is up 1.5%, Chesapeake Energy (CHK) is up 4.0%, Apache (APA) is up +2.8%, Noble Energy (NBL) is up +4.6%, Southwest Energy (SWN) is up +5.6%, and Suncor Energy (SU) is up +1.2%.

Usually deals of this magnitude are announced either during or right after a weekend, hence the term MERGER MONDAY. With this having occurred on a Friday morning you can bet that even if no deals in the oil and gas sectors get announced this weekend that companies and their investment bankers will be in discussions.

Jon C. Ogg
June 23, 2006

Pre-Market Notes for June 23, 2006

(APC) Anadarko making $23 Billion in buys of Kerr-McGee and Western; APC down 6% pre-market as these purchases are more than the combined market cap of APC (see coming article here).
(ADLS) Advanced Life Sciences positive article in Business Week.
(ARRY) Array Bio secured $32M from a facilities transaction where it offered an option to buy facilities thru 2016 to BioMed Realty.
(BBBB) Blackboard sees losses and revenues slightly better than the street estimates for Q2 and 2006; stock up 7%.
(CENT) Central Garden & Pet announces the settlement of litigation and will receive $26M as part of the settlement with the Axelrod's; says this was not part of any prior guidance.
(DSCO) Discovery Labs hired Jefferies to evaluate strategic alternatives.
(DT) Deutsche telekom is reportedly a takeover target of Blackstone next year in a deal said to be in the $60 Billion range.
(ENDP) Endo Pharma received final FDA approval for Opana; PPCO is partner.
(GM) GM employee buyouts are running ahead of schedule according to WSJ.
(GPRO) Gen-Probe said it has settled litigation with Bayer (BAY) where Bayer will pay GPRO certain lump sum royalties over the next 18 months.
(GSIG) GSI signed a mixed signal processor order for $7M.
(HMA) Health Management slightly lowered guidance on soft hospital volume; also announced $250M for share buyback plan.
(HZO) MarineMax boosted its credit facility to $500M.
(ISLE) Isle of Capri Casino $0.64 EPS vs $0.57e.
(KMG) Kerr-McGee is being acquired by APC for $70.50 cash.
(LOW) Lowe's noted positively as solid value compared to Homed Depot in Business Week.
(LPSN) LivePerson is acquiring a private Atlanta-based company Proficient Systems, a provider of hosted proactive chat solutions.
(LTON) Linktone announced $20M for share buybacks.
(MXWL) Maxwell registered 2.1M shares for shareholders.
(NBIX) Neurocrine down 35% after Pfizer backed out of its Indiplon study after having the ongoing FDA issues.
(NRGY) Inergy LP priced its 3.75M share secondary at $24.90.
(ODFL) Old Dominion Freight raised Q2 guidance to $0.50-0.52 vs $0.46e.
(OMR) Odyssey Marine reinstated John Morris as CEO after he successfully beat head and neck cancer.
(ORCL) Oracle $0.29 EPS & R$4.9 Billion vs $0.28/$4.75B(e); had already raised guidance last week; stock up 1% pre-market.
(PKS) Six Flags said its May-June attendance was down 13% from last year.
(PLA) Playboy announced the acquisition of Club Jenna for an undisclosed sum.
(PPCO) Penwest's partner Endo gets FDA approval.
(SEE) Sealed Air was noted as positive valuation after recent sell-off in Business Week; stock up 0.5% pre-market.
(SEPR) Sepracor up 4% after neurocrine woes.
(SGY) Stone Energy gets a $51 buyout from Energy Partners Ltd (EPL); SGY closed at $46.23 yesterday.
(SLR) Solectron $0.04/R$2.7B vs $0.04/R$2.63B(e); reaffirmed next quarter; stock up 3% after report.
(SMOD) Smart Modular $0.16 EPS vs $0.15e.
(SNRR) Sunterra CEO was placed on leave and CFO resigned over improprieties allegations; stock down 6.5% pre-market.
(SYN) SYNNEX $0.38 EPS vs $0.34e.
(SSSS) Sovereign Storage acquired 20 properties for some $90M.
(TEK) Tektronix $0.43 EPS vs $0.42e, but guides next quarter a tad light.
(TKC) Turkcell said its CEO Muzaffer Akpinar is resigning, but will remain on the board.
(WGR) Western Gas gets acquired by APC for $61.00 per share.
(XLNX) Xilinx disclosed it received an SEC inquiry on stock options; stock down 1.8% pre-market.

ANALYST CALLS:
AGU raised to Buy at UBS.
BMTI started as Buy at AGEdwards.
BVN started as Buy at Merrill Lynch.
BWLD started as Buy at Jefferies.
CACH raised to Buy at Robinson Humphreys.
CD reitr Overweight at MSDW.
CRA raised to Outperform at Cowen.
CYN cut to Sector Perform at RBC.
EBAY reitr Outperform at Goldman Sachs.
EV started as Peer Perform at Bear Stearns (maybe yesterday's call).
FLE cut to Neutral at Oppenheimer.
GPI raised to Buy at Merrill Lynch.
HGSI started as Buy at Deutsche Bank.
HLT reitr In-Line at Goldman Sachs.
HOT reitr Outperform at Goldman Sachs.
IPAR reitr Outperform at Cowen.
LEA raised to Neutral at Merrill Lynch.
KPN cut to Equal Weight at Merrill Lynch.
MAR reitr Outperform at Goldman Sachs.
MCHP raised to Outperform at Sanford Bernstein.
MGA raised to Buy at Merrill Lynch.
MGAM raised to Buy at B of A.
NAT started as Equal Weight at MSDW.
NBIX cut to Sell at B of A.
NCIT started as Hold at BB&T.
NXG raised to Buy at UBS.
ODSY raised to Sector Perform at CIBC.
ORCL reitr Buy at Jefferies.
PCU started as neutral at Merrill Lynch.
PXPL cut to Hold at Jefferies.
QCOM cut to Neutral at JPMorgan; stock down another 1%.
RDS/a raised to Buy at Deutsche Bank.
RIMM tgt cut to $73 from $80 at RBC.
RIO started as Buy at Merrill Lynch.
ROP raised to Overweight at Prudential.
SEPR reitr Buy at Deutsche Bank; reitr Overweight at JPMorgan.
SLR maintained sell at Citigroup.
SNRR cut to Neutral at Oppenheimer.
SSS raised to Outperform at RBC.
STO raised to Buy at Deutsche Bank.
SU raised to Buy at Deutsche bank.
SVR started as Hold at Jefferies.
TSCO started as Buy at B of A.
VRNT cut to Peer Perform at Thomas Weisel.
VSE started as Buy at Soleil.
WDR started as Peer Perform at Bear Stearns (maybe yesterday's call).
WSH started as Equal Weight at MSDW.
XMSR cut subscriber estimates at Lehman.

Oppenheimer analyst on CNBC after this huge oil and gas merger this morning noted DVN, EOG, & PXD as other natural takeover candidates in oil and gas sector.

Stock Upgrades To Consider

Stocks: (MWD)(NEM)(NWS)(KSS)(BBBY)

By Yaser Anwar, CSC of Equity Investment Ideas

Morgan Stanley upgraded to "overweight"- Analysts at Prudential Financial upgrade Morgan Stanley (MWD) from "neutral weight" to "overweight." The target price is set to $65.In a research note published yesterday, the analysts mention that the company has posted its 2Q06 EPS significantly ahead of the consensus. Morgan Stanley reported record revenues for its institutional securities division and robust results for its investment banking business. The performance of the company’s retail brokerage business during the quarter was boosted by increased retail activity, the analysts say.

Newmont Mining "neutral weight," estimates raisedAnalyst John C Tumazos of Prudential Financial reiterates his "neutral weight" rating on Newmont Mining Corp (NEM), while raising his estimates for the company. The target price is set to $50.In a research note published this morning, the analyst mentions that the gold and copper price estimates for 2006 have been raised from $550 per oz to $564 per oz and from $2.25 per pound to $2.50 per pound, respectively. The EPS estimate for 2006 has been raised from $1.05 to $1.15.

News Corp "buy"- Analyst Doug Shapiro of Banc of America Securities maintains his "buy" rating on News Corp (NWS). The target price is set to $24.In a research note published this morning, the analyst mentions that Ice Age 2 and X-Men 3 could generate $700 million in operating income for the company with more than $500 million to be realized in FY07. News Corp’s newspaper segment is likely to witness healthy growth next year due to positive currency effects, the sale of the TSL Education division and benefits of headcount reductions, the analyst says. Recent vents have increased the visibility into the company’s FY07 results, Banc of America Securities adds.

Kohls "buy"- Analyst Dana Cohen of Banc of America Securities maintains her "buy" rating on Kohls' (KSS). The target price is set to $66In a research note published this morning, the analyst mentions that the company has implemented two major systems initiatives, markdown and size optimization. The initiatives are expected to boost Kohl's sales and gross margin going forward, the analyst says. The opportunities from these initiatives are expected to start from 2H06 and extend until 2008.

Bed Bath & Beyond "overweight," estimates raisedAnalyst Mark J Rowen of Prudential Financial reiterates his "overweight" rating on Bed Bath & Beyond (BBBY), while reducing his estimates for the company. The target price is set to $46.In a research note published this morning, the analyst mentions that the company has reported healthy 1Q results, with comp-store sales ahead of the estimates. Bed Bath & Beyond's EPS and total sales were marginally short of the estimates, the analyst says. Bed Bath & Beyond’s SG&A expenses for the quarter increased significantly due to stock option expenses and higher occupancy, lease accounting and advertising expenses, Prudential Financial adds. The EPS estimate for FY07 has been reduced from $2.19 to $2.18.

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

Motorola leads booming Bluetooth headset mkt

By William Trent, CFA of Stock Market Beat.


Plantronics (PLT) and GN Store Nord have long dominated the market for office and call center headsets. However, as the market has opened up to consumers due to increasing use of cel phones, and increasingly laws that prohibit handheld phones while driving, the company has struggled.

To begin with, margins are significantly lower than in the office and call center market. This, in turn, is due to greater competition in the consumer marketplace. And while Plantronics continues to enjoy strong brand presence in its core market, established competitors in the mobile handset business have been able to take the lead for accessories like headsets as well. A new survey lays out the details:

Motorola leads booming Bluetooth headset mkt-survey Reuters.com
Global sales of wireless Bluetooth headsets for mobile phones rose 153 percent to 33 million units in 2005, representing a wholesale value of $1 billion, and are expected to grow 70 percent in 2006, according to a survey released on Thursday.

Motorola (MOT.N: Quote, Profile, Research), the world’s second biggest mobile phone maker, controlled 28.2 percent of the Bluetooth headset market, according to market research group Strategy Analytics.

Denmark’s GN Store Nord’s (GN.CO: Quote, Profile, Research) Jabra unit was second with 16.3 percent and Plantronics (PLT.N: Quote, Profile, Research) third with 12.3 percent market share.

Popularity of the devices was fuelled by falling prices for Bluetooth headsets as well as traffic laws in many countries which require hands-free calling while driving.

http://stockmarketbeat.com/blog1/

European Stock Market Report 6/23/2006

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

European markets were up modestly at 5:15 AM New York time.

The FTSE was up .2% to 5,697. BEA was down .7% to 358.75. Barclays was up .2% to 602.5. BP was up 1.5% to 614. British Airways was off .1% to 345.75. BT was off .8% to 230. Diageo was off .2% to 911. GlaxoSmithKline was up .9% to 1500. Prudential was down 1.7% to 552. Reuters was up .3% to 371.5. Unilever was up .7% to 1179. Vodafone was down .2% to 114.5.

The DAXX was up .1% to 5,539. Allianz was down .3% to 121.05. BASF was up .9% to 61.28. Bayer was up .4% to 33.64. DaimlerChrysler was up .6% to 38.25. Deutsche Bank was flat at 84.88. Deutsche Telekom was down .9% to 12.39. SAP was up .4% to 164.45. Siemens was up .3% to 68.2.

The CAC 40 was up .4% to 4,824. Alcatel was off .2% to 9.88. AXA was up .1% to 24.34. France Telecom was down 1.1% to 16.78. ST Micro was down .6% to 12.51. Thomson was .2% to 13.18. Vivendi was up .1% to 27.38.

Douglas A. McIntyre

Media Digest 6/23/2006

Stocks: (UNV)(TV)(ORCL)(SAP)(IBM)(PIR)(DCX)(GM)(GOOG)(QCOM)(INTC)
(FD)(MRK)(PFE)(PCW)

According to Reuters, Oracle posted higher quarterly profits on better than anticipated software sales. The company also said it was taking share from competitors SAP and IBM. In the company's fiscal fourth quarter reported yesterday net income rose to $1.3 billion from $1 billion in the same period a year ago. Revenue rose 25% to $4.9 billion.

Reuters also writes that Associated British Ports has accepted a purchase bid from a group lead by Goldman Sachs. The final price was $5.15 billion.

Reuters writes that the CEO of Pier 1 told shareholders that the company would not be adding or replacing management because poor financial results The company's slump has made it difficut to retain or add new senior level employees.

Reuters writes that Chrysler is considering deep discounts to bring in new car buyers even as it launches its new Sebring mid-sized car.

The Wall Street Journal writes that bidding for Univision assets has gotten off schedule as biddders like Televisa, another media company, try to line up financing.

The WSJ says that the UAW announced that 37,000 workers have accepted buy-outs from GM and Delphi.

The WSJ also writes that Google has begun streaming free movies and TV shows supported by commercials.

WSJ also writes that Qualcomm has launched a public relations attack on Intel for its tactics in industry-standard setting for the next generation of wireless technology.

WSJ also reports that Federated Stores has agreed to sell its Lord & Taylor retail operation to NRDC Partners for $1.2 billion.

The New York Times reports that Merck is losing its patent proctection for cholesterol drug Zocor which will allow generic drugs to compete with the medication. The result will be the lose of billions of dollars in revenue for the company, and possibly for Pfizer which make the competing drug Lipitor.

The NYTimes also reports that a number of companies and private equities firms are considering bidding for the assets of Chinese media and telecom company PCCW.

Douglas A. McIntyre

Metal prices return to being driven by fundamentals

By Yaser Anwar, CSC of Equity Investment Ideas

Analysts at Dresdner Kleinwort Wasserstein say that metal prices are likely to return to being based on fundamentals going ahead.

In a research note published this morning, the analysts mention that although Dresdner Kleinwort Wasserstein’s demand/supply indicator points towards current metal prices being at a structurally higher level than they were five years back, this higher level is substantially (15%) lower than the current metal prices. The recent surge in global liquidity pushed commodity prices up, the analysts say. Now that the global and emerging market monetary conditions are contracting, metal prices should return to being driven by fundamentals, Dresdner Kleinwort Wasserstein adds.

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

Asia Markets 6/23/2006

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

Asian markets were down slightly.

The Nikkei was off .1% to 15,124 at 4AM New York time. Canon was up 2% to 8160. Daiwa Securities was down 1.2% to 1326. Hitachi was flat at 744. Honda was down 1.2% to 7280. NEC was down .5% to 588. NTT was down .2% to 551000. Docomo was down 1.8% to 165000. Sony was up .2% to 4590. Toyota was down 1.4% to 5790.

The Hang Seng was down .2% to 15791. China Mobile was down .6% to 42.05. China Unicom was off 2.2% to 6.8. HSBC was off .3% to 134.5. Lenovo was flat at 2.525. PCCW was off 3.5% to 5.55 as there was continued speculation on the sale of some of the company's assets.

The KOPSI was off .8% to 1229.

The Straits Times Index was off .6% to 2346.

The Shanghai Composite was up .6% to 1606.

Douglas A. McIntyre

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 w