Cramer's MAD MONEY Recap (July 31, 2006)

Stock Tickers: XMSR, SIRI, AMZN, BGP, BKS, HUM, PEP, GIS, WFC, MO.

(XMSR) XM Satellite Radio: XMSR is cheap according to Cramer, as they have supply issues that make it hard for them to build enough units. He thinks it has bottomed on itws own and he thinks SIRI could acquire it.

(AMZN) Amazon: Cramer compared Amazon.com to BGP and BKS. He said AMZN is not cheap even down $6 and should be sold.

(HUM) Humana: Cramer also interviewed the CEO of Humana (HUM). Cramer says this was one to buy in insurance when there were insurance implosions elsewhere.

Cramer also said that the way to defend your portfolio against a tightening Fed was to buy defensive stocks like Pepsi (PEP), General Mills (GIS) and even Heinz (HNZ). Also noted were Wedlls Fargo (WFC) and Altria (MO). He noted that it may be 14 weeks before market conditions improve, if 2001 can be used as a comparison.

13G Disclosures: Goldman's stake in HILL Carlyle

By Yaser Anwar, CSC of Equity Investment Ideas

Goldman Capital Management Raises Stake in Dot Hill (HILL)

In a 13G filing released to the SEC, Goldman Capital Management disclosed a 5.1% stake (2.27 million shares) in Dot Hill Systems (HILL). This is up from the prior 907.5K share stake the investment firm disclosed in a quarterly 13F filing with regulators.


Dot Hill is the market leader in providing flexible storage offerings and responsive service and support to OEMs and system integrators, from engagement through end of life.
Carlyle Offshore Partners Discloses 5.3% Stake in Focus Media Holding (FMCN)

In a 13G filing released today to the SEC, Carlyle Offshore Partners disclosed a 5.3% stake (27.5 million shares) in Focus Media Holding Ltd. (Nasdaq: FMCN). At the Carlyle Group website, the firm notes a past position in Focus Media, but does not disclose the size.


Focus Media Holding Limited is China's leading out-of-home multi-platform life-style media company, which operates the largest out-of-home advertising network in China using audiovisual flat-panel displays

Note: The Carlyle Group is one of the world’s largest private equity firms, with more than $41.9 billion under management.

Sources: SEC & SI

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

Market Wrap (July 31, 2006)

Stock Tickers: SNDK, FLSH, UAUA, AG, DE, SCT, AAPL, IMCL, RGEN, CEPH, WYN, H, CD, LNG, NGAS, FL, TRB, TSN, AVP, PFE, XMSR


DJIA 11,185.68; Down 34.02 (0.30%)
NASDAQ 2,091.47; Down 2.67 (0.13%)
S&P 500 1,276.66; Down 1.89 (0.15%)
10YR-Bond 4.988%

Today we had Chicago Purchasing Managers show a stronger than expected 57.9 reading, although we ended up down on the day. We also had duelling Fed Governors with Poole saying there was a 50-50 chance of a rate hike in the August 8th meeting and another stating that the jury was still out.

In a move that had been discussed previously, SanDisk (SNDK) did confirm it would acquire M-Systems (FLSH) in an all stock trasaction valued at $1.55 billion. SNDK fell 1% to $46.60 and FLSH rose $4.18 to $35.97.

UAL (UAUA) fell 4.8% to close at $26.18 as traders "sold the news" of it finally posting an operating profit, mainly because it looked like the numbers were shy of estimates after you backed everything out properly.

Agco (AG) missed current estimates, but it said it would not miss for the entire year. AG shares fell 10.8% to $22.92. Deere (DE) fell in conjunction and closed down 1.8% at $72.60.

Scottish RE Group (SCT) fell a massive 76% to close down at $3.83 after its CEO announced he was leaving AND after the company company forecast a very wide loss. It is also suspending its dividend, its board has essentially stepped down, and it has hired bankers for Strategic Alternatives.

Apple (AAPL) rose 3.5% to close at $67.94 after Bank of America lifted its target and rating a BUY, and that was the call of the day.

Audible (ADBL) closed Flat at $7.42 after disclosing an audio book pact with Apple, although ADBL had traded up over 3% earlier in the day.

Imclone (IMCL) fell over 4% to close at $32.48 after a court rejected the argument that Repligen's patent had expired on its Erbitux. Relpigen (RGEN) is the direct beneficiary of this and its shares rose a lofty 24% to close at $2.99.

Cephalon (CEPH) shares fell 0.3% to $65.83, but had been down as much as 5% in sympathey with Bristol-Myers (BMY) adverse ruling over its Apotex settlement. It was not directly involved, but it was in similar circumstances.

Barr Labs (BRL) rose 2% to close at $49.83 after the new FDA head said he move to make Barr's "Plan B" pill, otherwise known as "the morning after" pill, available on an over-the-counter status for girls 18 years and older.

Wyndam (WYN-WI) and Realogy (H-WI) both rose as the companies were going into the S&P 500 ahead of the Cendant (CD) spin-off and dissolution from parent trading. WYN rose 0.4% to $33.13 and H rose 3.3% to $24.95. Both will trade as normal tickers tomorrow without the "WI" status.

With natural gas prices so much higher on the Midwest and Northeast heatwaves, the two most leveraged names to natural gas rose substantially. Cheniere (LNG) rose 2% to $35.14 and NGAS Resources (NGAS) rose 11.5% to $8.90.

Foot Locker (FL) rose 3.5% to close at $27.16; Women's Wear Daily ran an article saying they were clearing out inventory ahead of 2 private equity buyout firm's were preparing a formal bid.

Tribune (TRB) rose almost 1% to close at $29.75 after some billionaire private investors were interested in the LA Times and other individual papers.

Tyson (TSN) fell about 3% to $14.15 after disclosing its first loss in years.

Avon Products (AVP) fell about 11% to close at $28.99 after the company missed earnings on further restructuring; Cramer said the woman CEo should be canned.

Pfizer (PFE) closed down 0.5% at $25.97 but had been up most of the day. The company got rid of Hank McKinnel about 18 months ahead of time and replaced him with the Chief Legal Counsel.

XM Satellite Radio (XMSR) fell 8% to $11.63 after reporting NO NEWS to account for the mystery run-up on Friday.

We should have another earnings barrage this week, so get ready for that. And, another month is done as July ended. Where does the time go?

Jon C. Ogg
July 31, 2006

The New SanDisk After Acquiring M-Systems (SNDK, FLSH)

What will the new SanDisk (SNDK) look like now that they have announced the intent to acquire M-Systems (FLSH)?

For starters, an inch may go a mile. The company claims that there are essentially no overlaps in company operations.

SanDisk (SNDK) is a $9.1 billion market cap flash memory company that is mostly into consumer electronics and gadgeets, although recently the company began selling its own line of media players. M-Systems (FLSH) makes PDA and gadget flash as well, but they are also on the corporate side for larger systems and larger design contracts with many outide companies in and out of the semiconductor realm.

When you factor out the small amount of dilution, it will barely affect any of the multiple of SNDK stock. SNDK has a $9.1 Billion market cap; FLSH will have an implied $1.5 Billion market cap. SNDK has a P/E of nearly 25; FLSH has nearly a 28 P/E. The combined company according to the CEO should have $10 Billion in annual revenues in 4 to 5 years, which he said is a stretch but doable.

The company also got to do this deal for all stock, allowing it to keep its powder dry. SNDK did just soar last week after beating expectations. It also has close to $2.4 billion in liquid assets and it has a very little in long-term debt. It does have to list a $1.15 billion convertible note offering, but if the company can keep up its fast pace that will essentially take care of itself as far as the balance sheet is concerned.


The other interesting part here is that further out this will require the index fund managers to have to acquire more SNDK stock. SNDK is a member of the S&P 500, the NASDAQ 100, the Semiconductor HOLDRs, and various Russell index member weightings as well. By guestimation it looks like certain index funds may have to increase their weighting in SNDK by anywhere from 8% to 11%. That is a broad range, but should provide a decent level of support for the stock when this deal gets closer to the Q4 closing.

This is subject to various approvals in the US and in Israel, but there are no major hurdles expected.

Jon C. Ogg
July 31, 2006

Oops On Apple

Stocks: (AAPL)(DELL)(INTC)(HPQ)(GTW)

Apple's shares took a nice tick up on an upgrade form Bank of America. The analyst who covers the computer and iPod wonder increased his price target from $68 to $79, So, the stock has to move up 16% from where it trades now to hit the B of A target. The reasons for the upgrade are improved sales of the iPod Nano and Mac laptops later in the year.

Where did B of A find a crystal ball?

Maybe a new iPod will sell better, but, maybe it won't. Mac laptops are nifty computers, but Dell, Gateway, and HP are cutting prices to gain share as the big PC manufacturers bleed margin. Intel has dropped Pentium prices as much as 61% to make way for its new chip. That means that PC pricing could be even lower in the second half of the year.

Another interesting piece of news is that Verizon will introduce a cell phone that doubles as an MP3 player. Of course, Microsoft is entering the iPod look-alike market as well. Investor should expect big marketing pushes from both Verizon and Microsoft in a market where Apple had very little competition for the iPod a year ago.

According to Apple's 10-Q for the period ending April 30, sales of portables/laptops were up only 8% from the same quarter last year. This was a sharp slowdown from the immediately previous quarter growth rate. And, iPod unit sales are no longer growing at a torrid pace, hitting 8.5 million units in the last reported quarter.

Will unit sales of iPods and portables jump up as 2006 closes. Maybe. But, the competition in both markets will provide a stiff headwind.

The B of A crystal ball my be right, but, it may not be.

With Apple's stock up almost 30% since mid-July, buying in now could be an expensive gamble.

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

Nortel: Taxes Aren't The Issue, Survival Is

Stocks: (NT)(MOT)(ALA)(LU)(NOK)(SI)

Nortel is engulfed in another set of problems with its P&L and balance sheet. It seems to be an annual ritual like the gulls returning to Capistrano. The result of the confusion over tax credits was raised in the Wall Street Journal, based on a study by research firm Glass, Lewis. If Nortel continues to lose money, the tax credits could go away and send the company's shareholder equity. The company is holding on to the credits on the basis that it will be profitable soon.

The conversation is interesting, but it begs the question of whether Nortel is a viable entity under any circumstances. Nortel's shares hit a 52-week low on the tax credit news, dropping to $1.92. The company's shares are down almost 50% over the last 12-month period from a high of $3.57. The stock was at $4 in the Fall of 2004.

Nortel's core business in optical network equipment is a fairly good one, but the costs to run the business as a standalone business are clearly too high. And, its balance sheet is hardly a thing of beauty. According to Morningstar, cash and cash equivalents are $2.7 billion. Long-term debt is $2.5 billion.The company has $5.2 billion in accrued liabilities and only $675 million in equity. The company still commands a market cap north of $8.4 billion.

With the Alcatel merger with Lucent, and the Siemens joint venture with Nokia to combine telecom infrastructure unites, Nortel is the odd man out. And, the stock trades that way.

The balance sheets and pricing power of these new entities, created by "mergers" of telecom equipment vendors, puts Nortel's back to the wall. It cannot afford to see margins drop in the hopes of pricing its products to gain share. It simply does not have the financial power to do it.

Motorola, the other bride left at the altar in the consolidation of telco equipment giants, may be Nortel's last, best hope. Without a well-financed parent, Nortel has little chance of surviving.

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

Geron & Stem Cells: Why the Traders Had It Wrong

Stock Tickers: GERN, DNA, DILD, STEM, VIAC, ASTM, OSIR

This morning was an interesting day for shares of Geron (GERN). The company reported slightly wider losses than the "consensus estimates." The question to ask here is simply SO WHAT? Before you interpret this as an open buy or purely a positive opnion, please understand that this is not. The headlines and summaries say "Losses Widen" and this appears to have concerned the day traders and short-term players.

What is important to understand about emerging biotech, and particularly Stem Cell companies, is that Earnings Per Share and even Revenue analysis may be completely worthless. There was a declining revenue base, but once again that needs to be qualified. This company is essentially a non-revenue company even though revenues are mentioned. Most other stem cell companies are essentially in the same boat. The "revenues" these companies report are merely one-time or short-term payments they receive from other partners or as grants. What you have to look at is the cash-burn rates, and that is why the shares have recovered from being down almost 4%.

The company's R&D expenditures are up and should stay up as they are in more collaborations and are in further steps toward trying to commercialize some products. The total Operating expenses were almost $12.2 million. Let's almost double this to be safe and average it out at $20 million per quarter to be safe. This company has NO long-term debt and essentially has $183 million in net tangible short term assets that are almost all comprised of cash and short-term interest securities. This is almost 2 and a half years of operations before cash concerns creep up, and that is without the company going to the trough to raise any capital. This number can change on a dime, but it sure looks like the day traders focused on the wrong items this morning.

Below are the company's highlights in the press release for the second quarter:

Clinical Development

* Geron initiated clinical testing of its lead anti-cancer compound, GRN163L, in patients with solid tumor malignancies at The University of Chicago Cancer Research Center. This study will evaluate the tolerability of IV infusions of GRN163L at various rates of administration, and enable an assessment of the pharmacokinetic profile of GRN163L at escalating doses and at decreasing infusion durations.
* Collaborators and independent researchers gave several presentations at the 2006 AACR Annual Meeting, including a preclinical study of the Company's telomerase inhibitor drug, GRN163L, from the laboratory of Dr. Jerry Shay at the University of Texas Southwestern Medical Center and a clinical study of the Company's telomerase vaccine, GRNVAC1, in advanced prostate cancer patients from the laboratory and clinic of Dr. Johannes Vieweg at Duke University Medical Center.
* New data published in Clinical Cancer Research demonstrating the broad efficacy of GRN163L, Geron's telomerase inhibitor drug, against multiple types of breast cancer cells as well as the significant reduction of metastatic activity in vivo. The research was authored by Dr. Brittney-Shea Herbert and colleagues at the Indiana University Cancer Center along with Geron collaborating scientists.
* Geron and TA Therapeutics, Ltd., a joint venture between Geron and the Biotechnology Research Corporation of Hong Kong (BRC), announced the presentation of studies demonstrating that their small molecule telomerase activator, TAT0002, enhances the anti-viral activity of CD8 T-cells from HIV/AIDS donors against infected CD4 cells from the same donors. TA Therapeutics is exploring multiple applications for telomerase activators in chronic degenerative and infectious diseases. The company's most advanced program is HIV/AIDS, and it has selected TAT0002 as the lead development candidate for this indication.

Intellectual Property

* The U.S. Patent Office granted to Geron U.S. Patent No. 7,033,831, covering the production of insulin secreting cells from human embryonic stem cells (hESCs). The new patent covers methods developed by Geron scientists working towards the scalable production of pancreatic islet cells from hESCs for use in new cell-based treatments for diabetes.
* The Opposition Division of the European Patent Office ruled at a hearing on claims of Geron's granted European Patent No. EP 0 841 396. The patent is directed to the cloned human telomerase gene and its uses. Pharmexa had filed an opposition to the patent, seeking revocation of all 47 claims in the patent. The ruling maintained 44 of the claims and canceled three.

Business Development

* Geron and Corning Incorporated entered into a collaboration and license agreement for the development and commercialization of synthetic surface matrices for the growth of hESCs. Geron and Corning Life Sciences will work together to develop synthetic growth surfaces to replace the biological surface coatings that are widely used today to grow hESCs.
* Invitrogen licensed Geron intellectual property related to the growth of hESCs to develop, manufacture and sell media, additives and reagents for use by hESC researchers subject to certain commercial use restrictions.

OUTSIDE NOTES

There was alos talk that the UK's Tony Blair was out visiting biotech companies to develop more stem cell and genomic initiatives in the UK. While Genentech (DNA), Stem Cells (STEM), and Gilead (GILD) were noted as the target visit companies, this has implications for the whole group. These stem cell companies are the potentially largest beneficiaries as most are small and would be leveraged winners to any developments there. Some other stem cell companies are Aastrom (ASTM), ViaCell (VIAC); and this Osiris Therapeutics (OSIR) that is set to IPO this week will be the first pure-play stem cell company we have seen come out in years.

Jon C. Ogg
July 31, 2006

Confusion Engulfs Yahoo!

Stocks: (YHOO)(GOOG)(MSFT)(TWX)

Amtech/JSA Research upped Yahoo! from "Hold" to "Buy" today according to Briefing.com. MarketWatch reported that First Global Securities downgraded the net giant on concerns that it will continue to lose share to Google and Microsoft's MSN.

With Yahoo!'s shares off almost 2% to $27, the bearish view seems to be ascending. AOL's announcement that it would launch a major video site probably did not help Yahoo!'s cause.

It is becoming increasingly difficult to determine who is right about Yahoo!. One thing is for certain. Very few stocks have seen their prices cut nearly in half (from $43.66 in January to $25 this month) while growing at a rate of 30%. Especially a company as large as Yahoo! ($5.3 billion in 2005 according to Yahoo!Finance). Morningstar projects that Yahoo! will continue to grow at a 23% per annum clip over the next five years. Not bad.

Depending on which measurement service investors look at, Yahoo! is still the most visited web destination in the world. It is not a "one legged table" like Google. Short-term, diversifying beyond search may have hurt Yahoo! some, but over time having a number of strong online businesses should help the company. The identity crisis at AOL may also benefit Yahoo! A seemless transition from its subscriber model to advertising is likely to be difficult for the Time Warner web unit. MSN also seems to be making little progress. ComScore says that Microsoft's share of the global search market is a mere 9%.

If Yahoo! is well-positioned as a combination search and content destination, the share price will catch up to the success of the business model. If that happens, Yahoo! is will be on its way back toward $40.

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

Sirius Radio's Dead Cat Bounce

Stocks: (SIRI)(XMSR)

Share of Sirius jumped up 4% on new that it had signed a deal to put it products in Mitsubishi cars. Not all of them, just four models.

Now, Mitsubishi sells about 8,000 cars a month in the US, so the arrangement is with one of the smallest car marketers in North America.

With the Sirius stock at $4.30 on a 52-week high/low of $7.98/$3.60, almost any news about distribution of the company's products is good news.

But, Sirius still trades at 18 times its revenues, and that is probably too expensive.

Rival XM Satellite recently reported a loss of $232 million for its last quarter. Revenue did grow 82% to $228 million, but the company cut its year-end subscriber target. XM has set a goal of being profitable by the end of 2006, but management stated after its poor performance last quarter that generating cash in Q4 would be more of a challenge.

The market often assumes that what is bad for XM is good for Sirius. Not necessarily. Several analysts have suggested that the behavior of XM subscriber base will be the same for Sirius as its base gets closer to 7 million users. That would mean a higher churn rate. The theory, which will not be proven until Sirius grows some, is that once a base of customers hits a certain level, higher cancellation rates are inevitable.

Wall St. continues to have concerns that Sirius may have to raise more money to reach profitabilty and dilute its already huge count.

One thing is certain. Most of the large car companies are now partners with one or both of the satellite radio companies. Investors can tell that when a Mitsubishi deal rates press.

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

Will Private Equity Call On Avon?

Stocks: (AVP)

Avon's earnings were not particularly good, but the company has the advantage of being able to say that they were not supposed to be. The company has cut 10% of its work force and several layers of management, and the costs of much of that restructuring were in the quarterly numbers out today.

Revenue at the company did rise 5% over the same period last year, hitting $2.08 billion. Operating profit was down 35% to $225 million, but some of the drop can be attributed to restructuring.

The company's cash position equals its debt. The cash flow from operations for the quarter was almost $290 million. Shareholder equity is $1 billion.

The question is whether a private equity firm would pay 13 times net tangible book value.

If the company can be engineered as a private enterprise to produce cash flow of $1.5 billion, the company's $17 billion market cap may not be a huge obtacle. The stock now trades at $30. If it moves closer to its 52-week low at $24.33, it will be on a lot of radar screens.

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

Diversity is Tur-key at Semiconductor Companies

Stocks: (AMD)(INTC)

By William Trent, CFA of Stock Market Beat

Barron’s says the price war between Intel and AMD (our discussion here) should send investors to more broadly diversified (less PC-oriented) semiconductor stocks.

With semiconductor stocks, diversity is key-Barron’s Reuters.com

A price war between chipmakers Intel Corp. (INTC) and Advanced Micro Devices Inc. (AMD) highlights a slowdown in the PC market and investors intent on the semiconductor industry might do well to consider shares in companies with more diversified revenue streams, Barron’s financial newspaper reported on Sunday.

Diversity is seldom what you should seek in semiconductors. Typically you want pure-play exposure to an end market that is working. If there are no end markets that are clearly working, you may just want to avoid the semis altogether.

http://www.stockmarketbeat.com/

BAIT SHOP UPDATE: Foot Locker's Buyout & Who May Be Next

Stock Tickers: FL, FINL

Topics: M&A, Private Equity, Buyout, Merger, Acquisition, Foot Locker, Finish line

Foot Locker (FL) is up another 4% today as an article in Women's Wear Daily says they are clearing out inventory ahead of it selling itself to two private equity groups. The issue you have to ask is that since the street has gotten wind of this and buyout speculators have been in it, is the stock fully valued or close to it? Private equity buyers are probably not going to try to reward newer shareholders who have chased up the price, and Foot Locker executives and board members probably will not feel the need to reward last minute speculators either.

HERE is the link to the "WWD" article, but a subscription is required for the bulk of this article and we cannot post the rest because of copyright issues.

This brings up a point we have made to clients. If someone really wants to acquire Foot Locker (FL), then someone else should be looking at Finish Line (FINL) as a better buyout candidate. The ONLY real issue we have surmized in comparing the deal is that with so much private equity funding having been raised it allows the private equity firms to put more capital to work in a faster basis. We have a full comparison of the values and future strategies as well. There is still the issue of Class A and B shares, and that is something that could also require resolution.

If you would like to see the research we have compiled on this, please send an email to jonogg@gmail.com to receive this via email. This is one of the FREE Bait Shop reports we are making available, but it is only available upon request.

Jon C. Ogg
July 31, 2006

Wal-Mart's Bad News

Wal-Mart (WMT) made a number of announcements over the last several days. None of them were good. The market's view was that same store sales being up 2.4% was a net positive, and Wal-Mart's shares rose about 1% to $44.86.

The news about Wal-Mart's same store sales is only positive in light of its meager 1% increase in same store sales in June. The July figure is better, but no much above the rate of inflation.

Wal-Mart's retreat from Germany, at a loss of a reported $1 billion, demonstrates that the model that has been so successful in the US and places like the UK, does not necessarily work in all markets. Given the size of the German market, the lesson is a particularly difficult one. Wal-Mart's sales in Japan have also been disappointing. And, the company's earlier exit from South Korea may be further evidence that the Wal-Mart model does not play everywhere.

The last bit of news is the most difficult to read. Wal-Mart employess in China have begun o unionize workers in the company's stores. The unions are controlled by the state-run All-China Federation of Trade Unions. Some initial press reports about the organization of workers at the big retailer chain (WMT has 30,000 workers in China) indicated that the union was viewed as pro-management. However, the move puts the Chinese government at the wheel of the labor issue in Wal-Mart's stores, a measure that the firm is unlike to have wanted.

With sales in the US running about flat with inflation and failures in South Korea and Germany, Wal-Mart must look to markets like China and possibly India for its growth. Indian legislation is keeping the company out of that country for the time being. And, Wal-Mart is now a partner, probably unwillingly, of the Chinese government's labor union organization.

Wal-Mart still trades near its 52-week low of $42.31, and will have to do more radical "reinvention" to move out of its hole.

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

Erbitux New Woes for Imclone and Bristol-Myers Squibb

Stock Tickers: RGEN, IMCL, BMY

If you take a look at the summary of the press release you can tell that it won't kill the Imclone (IMCL) and Bristol-Myers Squibb (BMY) dealings, but it is probably going to require some substantial payments that retroact. That may also require one or both firms to restate past quarters if they cannot include it as a current one-time expense.

Repligen Corporation (RGEN) today reported that on July 28, 2006, the US District Court in Massachussetts issued a Summary Judgment ruling in favor of Repligen and The Massachusetts Institute of Technology (MIT) and rejected ImClone Systems' (IMCL) defense of patent exhaustion in the ongoing patent infringement lawsuit over the production of Erbitux®. In their complaint, Repligen and MIT allege that ImClone's production of Erbitux® infringes U.S. patent 4,663,281 which covers certain genetic elements that increase protein production in a mammalian cell. This patent is assigned to MIT and exclusively licensed to Repligen. ImClone has previously reported that it produced approximately $1 billion worth of Erbitux® prior to the expiration of the patent-in-suit in 2004 and that Bristol-Myers Squibb, ImClone's commercial partner, has paid ImClone $900 million in up-front and milestone payments as well as a 39% royalty on the net sales of Erbitux® in the United States. Repligen and MIT intend to seek damages adequate to compensate Repligen and MIT for ImClone's unlicensed use of the patented technology and they will also seek a multiplier of any damage award based on ImClone's willful infringement.

It looks like both RGEN and IMCL are halted pending the street digesting the news. Bristol-Myers seems to in one week have bad news after bad news hitting the tape.

Repligen (RGEN) has a mere $72 million market capitalization of its common stock. It only has about 2.8 million in stated revenues per quarter. As of last quarter it had $18.8 million in cash and equivalents with $2.9 million in current obligations and NO long-term debt.

Jon C. Ogg
July 31, 2006

WSJ Update

By Yaser Anwar, CSC of Equity Investment Ideas

AOL to Launch Portal for Videos
AOL plans an Internet video portal featuring content from both users and cable networks.

SanDisk Agrees to Buy msystems
SanDisk agreed to buy msystems for $1.55 billion in stock in the latest sign of consolidation in the flash-memory sector.


Verizon Introduces New Music-Playing Phone
Verizon Wireless will release a cellphone that plays music and resembles Apple's iPod as carriers edge into the MP3 market.


Live Nation to Buy Stake in Musictoday
Live Nation is to acquire a majority stake in Musictoday, which runs services for such acts as the Rolling Stones.


White House Will Skip Climate Talks
Blair is to meet with Schwarzenegger and a group of CEOs in California on climate change and clean energy, but Bush's top environmental adviser won't attend.


'Miami Vice' Busts 'Pirates' to No. 2
"Miami Vice" overtook "Pirates of the Caribbean" to capture the top spot at the weekend box office, taking in $25.2 million, compared to $20.5 million for "Pirates," which became Disney's highest-grossing release to date.


Faurecia Chief Is Investigated in Germany
Frankfurt prosecutors said they are investigating the CEO of car-parts firm Faurecia on suspicion he abetted corruption by covering up bribes.


Investor AB CEO Charts a Bold New Course
Sweden's Investor AB has been creating a ruckus akin to the wheeling and dealing usually associated with private-equity firms. Behind the change: Boerje Ekholm, who last year became the investment firm's new chief executive.


Sony Remains Guarded in Its Outlook
Sony remains conservative about its outlook, despite a strong fiscal first quarter on a rebound in its electronics business.


U.S. Court Upholds Ebbers Conviction
An appeals court upheld the fraud conviction and 25-year prison sentence of former WorldCom CEO Bernard Ebbers. (Court ruling)


Market Volatility Takes Investors for a Ride
Stock-market volatility could persist for at least several more weeks while investors continue to assess the Federal Reserve's strategy for fighting inflation. Share prices are ending July close to where they started.

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

Digging Into GDP

By William Trent, CFA of Stock Market Beat

The market rallied on Friday on news that the economy was weaker than expected, with all of the convoluted logic about the fed pausing on rate hikes and blah-de-blah. Far be it from us to take away the punchbowl. Yet, as often is the case, actually reading through the data yielded some interesting insights.

Consider the chart, which breaks the GDP number into its four main constituents: consumer (personal consumption), business (PDI), trade (net exports) and government spending.

The second quarter marked only the second time (though there were some close calls) that all four constituents had a positive impact. However, in one way that tidbit shows just how weak the economy has become. The last time we fired on all four cylinders, GDP grew at an annualized rate of more than 7 percent. This time it got us 2.5 percent.

The second thing we want to touch on is the maxim we keep hearing about how business will take over when the consumer tires out. Let’s face it: all of the other categories have, at least for one quarter, been a drag on GDP within the last four years. It seems reasonable to believe that the consumer may take a turn resting. As has been the case when other components failed to pull their share, isn’t it possible that total GDP could come in at a reasonable number - say 3 percent?
The problem here is one of magnitude. In the second quarter, total GDP was a little more than $13 trillion. In round numbers, $9 trillion of that was consumer, business and government put in a little more than $2 trillion each, and net exports took that “little over” back by being negative (they had a positive impact on GDP because they were slightly less negative than they were last quarter.)

So now let’s do the math, and assume that consumers spends 1 percent less than they did last year. That creates a $90 billion drag the others need to make up. But if we want the whole pie to grow 3 percent, that is $390 billion that needs to be added to GDP overall, plus the $90 that needs to be made up equals $480 billion. That would mean business and government each growing 10 percent, or one of them growing 20 percent. It just doesn’t seem all that likely.

There is one wild card, and that is net exports. If we made the assumption that consumers only bought less foreign goods, then the personal consumption would be neutral to GDP rather than a drag. But even in that optimistic (unless you are an importer) case business and government would have to grow faster than 8 percent each for the economy to grow 3 percent overall in the face of flat consumer spending.

http://stockmarketbeat.com/blog1/

LCD Market

By William Trent, CFA of Stock Market Beat

The good news is that companies are seeing the light and cutting back on planned capacity expansions.

CMO to delay equipment installation at 8G plant, say sourcesFurthermore, the lower prices are starting to spur some demand. On their recent earnings conference call, tech reseller CDW Corporation said:
Continuing the recent trend, average selling prices of large format LCD monitors have declined significantly year over year. The more affordable prices havedriven unit volume.

The bad news is that some manufacturers continue to pour on the capacity. Sharp will invest 500 billion yen (about US4.26 billion) to build a tenth-generation (10G) TFT LCD plant, with construction to begin in the third quarter of 2007 and volume production to begin in mid-2008, according to the Japanese-language Nihon Keizai Shimbun. The plant will process 2,850×3,050mm glass substrates into eight 57-inch panels or six 65-inch panels.

Prices are now expected to fall a further 25% by year-end for some categories:
The ASP (average selling price) for a sixth-generation (6G) substrate is expected to drop to 14,000-15,000 yen (US$119-128) by year-end, according to the Chinese-language Economic Daily News (EDN).

First-tier makers are now offering prices for a 6G substrate at 20,000-19,000 yen while prices from second-tier makers are about 22,000-23,000 yen, the paper indicated citing sources as saying.

Other news:
The currently tight supply of 19-inch monitor panels will ease by September, when supply will have increased at panel makers, according to assistant general manager Gatti Park at LG Taiwan, as quoted by the Chinese-language Apple Daily.

Samsung Electronics sustained profitability for its LCD division in the second quarter despite weak LCD TV sales, inventory pile-ups and an ASP (average selling price) reduction while LG.Philips LCD turned to losses during the period. There are several factors that contributed to Samsung’s success, including an earlier ramp up at its seven-generation (7G) LCD plants and strong support from downstream LCD TV brands.

Taiwan liquid crystal display panel maker AU Optronics Corp. said its second quarter net profit dropped nearly two-thirds because of steep price declines.

http://stockmarketbeat.com/blog1/

Plavix Settlement Fallout

Stock Tickers: BMY, SNY, CEPH

Bristol-Myers Squibb (BMY) is down 1.8% pre-market at $24.01 after the state attorneys general rejected their pact with Apotex over generic Plavix. This was formalized on Friday afternoon, but had been telegraphed before this after the earnings because of the DOJ/FTC issues. This of course means that Sanofi-Aventis (SNY) was left in the lurch as well.

What is interesting is that Cephalon (CEPH) is trading lower in sympathy, but even worse in terms of percentages. CEPH stock was down as much as almost $5.50 pre-market, but is now trading down $3.73 at $62.31 in pre-market trading. This company is merelt deemed as a potential patent "at risk" situation because of its patent agreements with generic companies over its Provigil, which "could" face the same scrutiny at some point. While this seems extreme, that is the way the ball bounces sometimes.

Jon C. Ogg
July 31, 2006

Pre-Market Stock Notes (July 31, 2006)

(ABT) Abbott Lab gets Humira FDA approval for treatment of ankylosing spondylitis.
(ADBL) Audible in pact with Apple over books.
(ARM) Arvin Motors $0.73 EPS vs $0.70e.
(ASMI) ASM Int'l up 5% after earnings overseas.
(ATVI) Activision gets letter on stock options from SEC.
(ATW) Atwood Oceanics $0.87 EPS vs $0.73e.
(AVP) Avon $0.40 EPS vs $0.37e.
(BMY) Bristol Myers and Sanofi failed to win antitrust clearance over its Apotex settlement over Plavix from state attorneys general.
(BRCM) Broadcom suspended its buyback plan until it can get its quarterly filing in.
(BYD) Boyd Gaming filed to sell 11.8M shares for holders.
(CELL) Brightpoint $0.16 EPS vs $0.16e; $549.9M vs $565+M(e).
(CNTF) China Techfaith announced $40M for share buybacks.
(DALRQ) Delta reportedly said no to a merger with US Air according to WSJ.
(DCO) Docummon $0.31 EPS vs $0.29e.
(EBAY) eBay filed to sell 15M shares of common stock for holders.
(ENSI) Energy South $0.20 EPS vs $0.19e.
(EXC) Excelon $0.85 EPS vs $0.81e.
(FLSH) M-Systems Flash up 9% pre-market as San Disk will acquire it for $36 per share in stock.
(GEHL) Gehl $0.75 EPS vs $0.73e.
(GERN) Geron -$0.14 EPS vs -$0.15e.
(GMRK) Gulfmark $0.63 EPS vs $0.49e.
(GVHR) Gevity $0.36 EPS vs $0.35e.
(HERO) Hercules Offshore $0.70 EPS vs $0.63e.
(HTRN) Healthtronics CFO stepped down.
(HUM) 0.53 EPS vs $0.36e.
(IRBT) iRobot gets $3M navy order.
(ITRI) I-Tron filed to sell $300M in notes.
(LWAY) Lifeway Foods is paying $8M to acquire Helios Nutrition.
(MNTA) Momenta Pharma filed new drug application with the FDA over an anticoagulent.
(NOC) Northrup Grumman may sell its navigation operations for up to $1 Billion.
(PD) Phelps Dodge trading up 4 points after merger update.
(PFE) Pfizer named the replacement for Hank McKinnel earlier than planned.
(PYX) Playtrex $0.17 EPS vs $0.15e.
(QTWW) Quantum Fuel -$0.27 EPS vs -$0.20e.
(RGC) Regal Entertainment $0.23 EPS vs $0.27e.
(SGP) Schering-Plough Japan has approved Temodal for malignant glicoma.
(SLAB) Silicon labs in litigation settlement with PWER.
(SNDK) SanDisk is acquiring FLSH for $1.55 Billion.
(STAA) STAAR Surgical-STAA gets approval to market Visian ICL in China.
(TTEK) Tetra Tech positive article on water bet according to Barron's.
(TWX) Time Warner's AOL will launch video portals this week according to WSJ.
(UAUA) UAL $1.09 EPS vs $1.12e.
(WMT) Wal-Mart said its pit July s-s-s at +2.4% .

Select Analyst Calls (July 31, 2006)

AAPL raised to Buy at B of A.
AYE cut to Neutral at Credit Suisse.
BBG cut to Neutral at Goldman Sachs.
CENX cut to Underweight at MSDW.
CVX cut to Neutral at JPMorgan.
EQ raised to Neutral at JPMorgan.
IDXX raised to Neutral at Merrill Lynch.
ITY cut to Neutral at UBS.
JBL raised to Buy at Goldman Sachs.
JEC raised to Buy at Goldman Sachs.
LEA raised to Hold at Citigroup.
MAN cut to Neutral at Merrill Lynch.
ME started as Buy at Goldman Sachs.
NT cut to Neutral at RWBaird.
PD raised to Overweight at Prudential.
RNOW raised to Outperform at RWBaird.
SCHW raised to Outperform at MSDW.
SCT cut to Sell at Oppenheimer.
SNDK raised to Outperform at CIBC.
SPIL raised to Buy at Goldman Sachs.
SPSN started as Buy at UBS.
TFSM raised to Outperform at Piper Jaffray.
TGIC raised to Outperform at KBW.
UHS reitr Buy at Jefferies.
WCG cut to Neutral at Goldman Sachs.
WMG started as Equal Weight at Lehman.
XOM raised to Overweight at JPMorgan.

Morgan Stanly raised its equity allocations for model growth portfolio from 65% to 70%; bonds were trimmed by 5%.

McAfee Will Rise Again

Stocks: (MFE)(SYMC)

McAfee’s stock has been beaten like a red-headed mule. The company, best known for its computer anti-virus software, has been dogged by a history of poor corporate governance that has lead to financial restatements and the ouster of senior management for inflating revenue from 1998 to 2000. The company was known as Network Associates until recently.

McAfee announced its second quarter results with the proviso that they may have to be revised due to improper accounting for back-dated stock options. The company also said that previously issued financial statements “could not be relied upon”. That is, of course, a lot of bad news.

The company’s results were not half bad. Revenue rose to $277 million from $245 million a year ago. Net income was off to $31 million compared to $42 million in the period a year ago. The company’s cash position was just shy of $1.2 billion. McAfee expected revenue in Q3 to be flat with Q2 revenue. However, that would be a healthy increase from the 2005 third quarter when revenue was $253 million.

A little over a month ago, Friedman Billings Ramsey had an “outperform” rating on the stock with a price target of $35. The firm pointed to healthy cash flow, a “compelling valuation” and the launch of the new Falcon consumer anti-virus line as reasons to look at the stock. It is easy to look at the Friedman Billings analysts as dupes and lamebrains, but, in the long run they may be right.

The McAfee announcement of a less than stellar second quarter and possible restatements dropped the stock to below $21, before it closed at $22.35. This is well below the twelve-month high of $33.24. The company is actually doing relatively well. The last four quarters have shown revenue increases over the immediately previous quarter. The company had positive operating income in each of these periods.

McAfee is in a business that is likely to continue to growth as the number of threats to computer security expands. Aside from consumer PC anti-virus products, the company has carrier class security services used by large businesses and the government.

Because of the company’s revenue trend and the value of its products to both consumer and enterprise computer systems, McAfee is likely to be in reasonable shape to continue to increase it top line over the course of the next several year. With the company’s cash backed out, McAfee has a market cap of $2.5 billion against a revenue run rate of $1 billion.

Companies that get hit with earnings restatements and SEC investigations usually fall into one of two categories: those they are destroyed by the actions and those that pass through them with some distraction but move on to continued success. McAfee looks like it falls into the latter category.

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

Time For The NYT To Sell The Boston Globe

The New York Times Company has a stock price sitting at multiyear low as its advertising lineage and circulation continue to drop. Revenue at its newspaper online businesses grew 25% last quarter, slower that the online units of most other newspaper companies. The company’s debt was recently downgraded by S&P because of the cost of its new headquarters, deteriorating margins, and the closing of one of the company’s large printing facilities.

In addition to the other bad news, the company’s CFO retired, a little early it would seem, and the company’s flagship property was forced to cut the width of its newspaper to save costs.

Although none of the properties owned by the company is having a spectacular year, the real drag on the company’s financial progress is what the company quaintly describes as the New England Media Group, known to the rest of the world as The Boston Globe. The NYT bought The Globe’s parent in 1993.

In the second quarter of 2006, advertising revenue at the New England Media Group fell 10% to $109 million. Circulation revenue fell 7% to $40 million. Both figures accelerated downward from the numbers in the first quarter.

Based on the most recent numbers, the New England Media Group will have annual revenue of about $1.2 billion this year. Based on the multiples that successful publicly traded newspaper companies get today, the operations could be worth as much as $1.7 billion. The New York Times showed total debt of $1.4 billion at the end of Q2. Times management has said that they won’t sell the unit, but, who knows, if their jobs depend on it.

Imagine the Times, debt free, with its New York flagship, regional newspapers (which are good little money makers) and broadcasting unit, in a position to drive forward on the Internet and make a go of it. Certainly a better picture than a stock trading at $22, down from over $40 in the Fall of 2004.

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

The Money Center Bank Problem: Citi and B of A

Stocks: (JPM)(C)(BAC)(WFC)


The environment that has been driving near-record results at the nation’s largest money center banks is running out of steam. Not unlike the year 2000, when the banks hit record high stock prices, problems in consumer lending and investment banking cut some of the stock prices of the big money centers by as much as 50% by 2003.

Because of the success of the stocks at the large banks, investors have been pressuring the management at Citigroup to improve returns, or even break the bank into pieces to improve shareholder value. The bank has been trading at $48, around its 52-week low. By contrast, Bank of America has been trading near its 52-week high at $51.66. Another huge U.S. bank, Wells Fargo, also trades near a one-year high at $72.41. So does JPMorgan, which is just a $1 below its 12-month high at $45.48.

While Citicorp may be viewed as the worst off of the lot, all the banking firms face the same, acute problems.

The consumer-based real estate mortgage business is in retreat. As a matter of fact, mortgage defaults are rising. According to a recent article in the Chicago Tribune: "For many people, buying meant using exotic mortgage products such as adjustable-rate mortgages, with low initial rates that typically jump after a few years, which can raise payments by thousands of dollars a year. As interest rates rise, experts say potential buyers should be cautious before agreeing to one of these loans .A person can lose money on a home — especially if the housing market cools, as many analysts predict. People in over their head with mortgage payments who made a low down payment might have to sell a house for thousands less than they have to pay their lender."

According to RealyTrac, which keeps track of problem real estate loans, delinquencies rose 25% this spring compared to a year ago. The firms said that there were 272, 000 homes facing foreclosure in the second quarter.

Jamie Diamond, the head of JPMorgan and Citi’s CFO have both made statements regarding their concern about the potential problems in their consumer lending businesses. Quoted in the Houston Chronicle, they voiced their worries about consumer credit: Jamie Dimon, JPMorgan Chase's chief executive officer, said credit delinquencies and defaults have been at extremely low levels. This has allowed banks to reduce reserves against possible defaults, adding to their profitability.That's changing, Dimon warned.He said rising interest rates and a likely increase in bankruptcy filings — which were depressed after the bankruptcy law was toughened last fall — could lead to credit card losses at JPMorgan Chase of "several hundred million dollars" in the third quarter, and perhaps as much as $500 million before year's end."In credit cards, we know it's going to happen. ... We're telling people upfront," Dimon said. Sallie Krawcheck, Citigroup's chief financial officer, also expressed concern about credit quality as consumers grapple with the higher minimum payments on credit card bills that went into effect earlier this year. Still, she said, consumers were handling the rule change better than expected.

Consumer credit card and mortgage issues are only a part of the problems facing the banks.

Private equity deals and investment banking income are also facing a slowdown. The record pace of corporate buy-outs cannot continue. At JPMorgan, net income from investment banking rose 37% in the last quarter to $839 million.

A firm that tracks private equity investment says that the pace of such deals is at a record level according to Reuters: “The rise in private equity-backed deals comes as the volume of global mergers and acquisitions has risen to $2.18 trillion in the year to date, topping the $2.13 trillion notched up during the same period in 2000 at the height of the Internet boom, Dealogic data shows” But, as was true in the rush of money that hit the market six years ago, the financing environment cannot defy gravity forever.

After the heady days of 2000, JPMorgan’s stock dropped from over $60 to under $20 in 2003. During the same period, Citi’s stock fell from about $60 to $30. Bank of America’s traded flat.

As the market in private equity cools and consumers struggle with rising rates in adjustable rate mortgages, money center bank stocks could easily hit two or three year lows in 2007.

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

Barron’ Digest July 31, 2006 Issue

Stocks: (COH)(RRC)(DNR)(EP)(TEVA)(CHKP)(SFUN)(PDSN)(INTC)(AMD)(TXN)(MCHP)(LLTC)(ADI)(TTEK)(DVA)(OMN)(CMCSK)(BG)


Coach, the luxury goods marketer, will likely raise fiscal 2007 guidance. Investors have been concerned about the profit growth at Coach, and the drop of its stock from a high of $37.40 to the current price of $27.56. The company says that sales have shown positive trends, especially in it stores, during June and July. The company’s new Legacy line has been selling well, according to the company CEO “blowing out” of store.

RoundRock Capital is looking for bargains in natural gas stocks. Among those it likes is Range Resources which has a large inventory of low-risk prospects and efficient costs of finding new reserves. Of the 521 wells it drilled or recompleted in the first half, 99% were successful. The firm also likes Denbury Resources, an exploration and production company which is the largest producer in Mississippi.

El Paso has cut costs and is beginning to grow again. The oil and gas company may be trading at a discount to the aggregate value of its divisions. On that basis, UBS says that the company is worth $19.62 looking at the private value of each of its units. However, the company stock trades at only $15.60.

China’s economic growth could be limited by sever water shortages, political and social problems and major health and environmental issues. Parts of the government structure are also highly corrupt. Rapid credit growth and an investment booms may also lead to profit drops and bankruptcies. The bank system has problems with embezzlement, fraud and bribery. Some analysts also believe that economic confrontation between the US and China is highly likely.

Israeli stocks may do well despite unrest in the area. Many of the company’s large companies sell most of their products and services outside the country. Teva Pharmaceutics has seen its shares rise recently. Many of the largest companies in the country are south of where the major fighting is centered. Check Point Software’s stock has dropped 5% since July 10, but the company now trades at a relatively inexpensive 12 times forward earnings. WR Hambrecht also thinks semiconductor stocks Saifun Semi and PowerDsine could be oversold.

Intel and AMD may be facing a decelerating PC market. More diversifies semiconductor stocks may be better investing bets for the time being. This would include microcontroller makers, Microchip Technology, analog semi companies Linear and Analog Devices and wireless chip company Texas Intruments.

Motorola’s management is talking about overtaking Nokia as the world’s largest cell phone maker. Over the last seven quarters, the company’s global market share has gone from 13.5% to 22.1%. Nokia’s has been flat at 33%. Most of the company’s success in cells has been based on the popular RAZR phone. The company has just introduced seven new handsets to add to the 50 million RAZRs sold since it was introduced.

Tetra Tech, which was hurt by the telecom bust is not focusing on water projects like dams and river cleanups. Analysts think that the company could add 12% to its backlog to more than $1 billion by the end of their fiscal in September. Standard Washington Research Group values that company at $22 compared to a current price of $15.54.

Epoch Investment Partners gives its market Pick and Pans. On the positive list are DeVita, Phonak Holding, OMI, Comcast, C&C Group, Bunge, and China Shineway. The investment firm is negative on AMD.

Douglas A. McIntyre

Returns Accrue When Accruals Don't

From Value Discipline

As many of you may know, I hold the CFA (Chartered Financial Analyst) designation. I am very proud to have completed this rigorous program. For many of us, the deeper learning and understanding only begins after this point. Continuing education through seminars, workshops, abstracts, and our professional journal, The Financial Analysts Journal (FAJ) is available. For those who are serious about investing as a career, it is the credential of choice. Please contact the CFA Institute, for further information.

In two interesting articles in the current FAJ, the issue of earnings quality is examined. Previous pioneering work by Richard Sloan indicated that net operating cash flow is more closely associated with future income and stock returns than accruals. His work examined annual accruals.In the current edition, Joshua Livnat and Massimo Santicchia looked at quarterly accruals and found that what has become known as the "accrual anomaly" applies to quarterly information as well. "Companies with extremely high (low) current quarterly accruals have significant and negative (positive) abnormal returns through the subsequent four quarters." In other words, stocks with earnings which show high accruals tend to provide low returns.

In the second article, Qiao Liu and Rong Qi study the persistence of the accrual anomaly and why sophisticated investors have not taken advantage of this mispricing.

What are accruals and how can the average lay investor use this fact?Accruals arise from GAAP...say a business expects great future sales and buys a pile of inventory to sell for future periods. It guesses wrong. In the calculation of earnings, the cost of inventory sold is matched against revenues generated. However, the excess inventory remains an asset on the balance sheet. In the operating section of the cash flow statement, the effect of the accumulation of excess inventory is a use of working capital that can be seen as a reduction in net operating cash flow.

Accruals can be current operating assets and liabilities such as inventories, receivables, and accounts payable, but non-current operating accruals exist as well such as deferred taxes.In short, most investors tend to view earnings reports quite literally and treat all aspects of reported earnings as having equal value, even though the accrual component of reported earnings has been demonstrated to be less reliable, and consequently have less value than the cash component.How do you find out about accruals? Cramer will not scream them to you nor will Maria Bartiroma breathe them at you! You've got to dig for them yourself.

Go to the 10-Q in Edgar or in some cases, to the press release of the company. Ensure that net income for the period is less than cash flow from operations.A quick and dirty solution to looking at cash flow from operations comes from Anumati.com. A free registration is required.

Enter the symbol and turn to the cash flow statement for the appropriate period. Compare the top line, "Net Income" versus the bottome line of the operating section, "Cash From Operating Activities." Companies with very high accruals will show net income greater than Cash Flow from operating Activities.

In truth, the analysis of the CFFO is a little more intensive than this. Various components of cash flow from operations (which in the past, have arisen from tax effects of stock options) may complicate or overstate CFFO.But as a first step toward better understanding the economics of the business in which you invest, this is important analysis.

When accruals tend to be low, returns tend to be higher than one would expect. When accruals are high, the market values these "earnings" as having lesser quality, and returns are lower than one would expect.

In short, returns accrue when accruals don't!

http://www.valuediscipline.blogspot.com/

The Economy, Bonds & Interest Rates

By Yaser Anwar, CSC of Equity Investment Advisors

Bond yields declined for the third week in a row as weaker than expected economic data diminishes the odds of additional Fed rate hikes (2nd Q GDP was reported rising only 2.5%, well below the 3% expected).


According to surveys conducted by ISI Group on a weekly basis, there is the sharp and rapid decline in new home sales expectations, which is not new. The surveys also points to the increasing odds of a hard landing in housing which will echo throughout the economy, since housing has been responsible for alot of the employment.




In a study released last week, the Dallas Fed noted that the fraction of components experiencing annualized increases of more than 3 percent had grown to 57 percent, from 33 percent in December. Prices have risen more in the past three months than in the preceding three months, regardless of whether owners' equivalent rent is included or excluded. A model developed by a Fed researcher puts the odds of a recession occurring in the next year at more than 35 percent.


PIMCO finds that real house prices are pro-cyclical and tend to reach a maximum near business cycle peaks, often after a prolonged period of buoyant growth in activity has raised output above its potential level and inflation pressures have begun to emerge. With the core PCE deflator in the GDP report increasing 2.9%, in line with expectations but above the Fed’s comfort level, could lead to Fed raising rates further.


The bond market is signaling a slowing economy, an impending pause in the Fed's rate hiking campaign and lower bond yields going forward. If the Fed takes rates to 5.75 it will exacerbate the inversion of the yield curve & longer-term be more beneficial to the bond market by further dampening inflation pressures and creating a headwind for the economy.


The credit spreads are also indicating a cooling of in the economy. A slower economy increases credit risk, hence the expansion in the risk premium demanded by creditors.


Real house prices fall for about five years and their previous run-up is largely reversed. Real GDP growth slows during the first year or so after house prices peak as do growth rates of private consumption and investment.


An index of trucking companies sales expectations shows that while the its absolute level is in neutral territory, the index suffered its largest decline in the history of the survey. This is another indicator that the economy is slowing faster than many expect (Pointing to a possible Fed hike sometime soon).




Bond prices usually bottom several months before the last Fed Funds hike as the market begins to anticipate the Fed, which in turn is attempting to anticipate the economy and inflation. With the Fed near the end of its tightening cycle and the economy increasingly looking vulnerable, it may present an opportunity to add some bonds in your portfolio.

Sources: ISI Group, Reuters & PIMCO

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

Europe Stock Market Report 7/31/2005

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

European markets were off slightly just before 5.30 AM New York time.

The FTSE was down .3% to 5,959. Barclays was up .1% to 634.5. British Airways was up 1% to 393.25. BP was down .4% to 648.5. BT was up .1% to 239.5. GlaxoSmithKline was down ..6% to 1484. Prudential was down 1.1% to 571. Reuters was down .1% to 395.75. Unilever was down .6% to 1264. Vodafone was down 1.5% to 117.5.

The DAXX was off .2% to 5,694. Bayer was down .7% to 38.82. BASF was up .6% to 63.04. BMW was up .4% to 40.45. DaimlerChrysler was up .4% to 40.61. DeutscheBank was down .5% to 90.71. Deutsche Telekom was down .9% to 12.16. SAP was down .2% to 142.97. Siemens was off .2% to 62.9.

The CAC 40 was off .2% to 5,020. Alcatel was up 1.6% to 8.93. AXA was up .4% to 26.98. France Telecom was down .3% to 16.38. ST Micro was up 1% to 11.66. Vivendi was down .3% to 26.51.

Douglas A. McIntyre

Media Digest 7/31/2006

Stocks: (GM)(HBC)(SNDK)(FLSH)(NOC)(VZ)(WMT)

According to Reuters, GM and the UAW are supporting the new pension bill which will be voted on by the US Senate. The bill requires all major corporations, except some major airlines, to fully fund their pensions within seven years.

Reuters says banking giant HSBC has a profit increase of 18% in the first half of the year.

Reuters writes that Sandisk will buy Msystems, which develops memory for mobile phones. The price is $1.55 billion in stock.

According to the Wall Street Journal, two California defence operations have been put up for sale. One is Northop's navigation system unit, which could be sold for $1 billion. The other is Wyle Labs, which is on the market for under$400 million.

The WSJ writes thatAOL says it plans a video content portal for both material provided by users and cable TV content.

The WSJ reports that Verizon Wireless will release a new handset that plays music as the cellphone company moves into the MP3 market.

The New York Times reports that a Chinese union has begun to organize workers at Wal-Mart in China. The union is known for supporting management rather than employess.

Douglas A. McIntyre

Asia Markets 7/31/2006

Stocks: (CAJ)(FUJ)(HMC)(NTT)(SNE)(TM)(CHL)(CN)

Most Asian markets were up.

The Nikkei was higher by .7% to 15,457. Canon was up .9% to 5510. Daiwas Securities was up 2.9% to 1281. Fuji Photo was up 1.9% to 3860. Hitachi was up 1.4% to 734. Honda was down 1.2% to 3780. Japan Airlines was down .9% to 211. Mazda was up .4% to 746. NEC was up 2.1% to 634. NTT was up .8% to to 599,000. Softbank was up 2.2% to 2105. Sony was up 1% to 5280. Toshiba was up 1.4% to 741. Toyota was up .7% to 6060.

The Hang Seng was up .4% to 17,017. Cathay Pacific was up .1% to 13.94. China Mobile was up .4% to 50.45. China Netcom was up .3% to 14.18. HSBC was up .1% to 140. Lenovo was down .2% to 2.47. PCCW was up .6% to 4.87.

The KOPSI was up .1% to 1,298.

The Straits Times Index was up .5% to 2,442.

The Shanghai Index was down 3% to 1,613.

Douglas A. McIntyre

Media Digest 7/30/2006 Management Buy-Out Pitfals

According to Reuters, Hilton Hotels reached agreeement with its North American hotel workers. The agreement covers the next five years.

According to the Sunday Telegraph, Swiss company Xstrata, plans to raise $5.1 billiion in a rights issue to underwrite the costs of buying Canadian mining company Falconbridge.

According to the Boston Globe, Morgan Stanley is in talks to acquire 20 acres of waterfront land in Boston that is currently owned by News Corporation.

According to the Wall Street Journal, CA Inc, the former Computer Associates, appointed Nancy Cooper as its new CFO as part of an effort to rebuild the company which has been involved in an accounting scandal.

The New York Times writes that buy-out deals of public companies, turning them into private enterprises, may no be a good deal for shareholders if company management is involved. The premium payed for management-led buyouts is only 20%. Buy-outs lead by outside firms paid an average premium of 27.5%. The data is based on stock prices average of the 30 days before a buy-out was announced.

Media Digest 7/29/2006

Stocks: (MNI)(GCI)(FAL)(PD)(PFE)(WMT)(LCC)(NOK)(T)(BLS)(MOT)(VZ)(ATVI)

According to Reuters, a courts will not block the sales of three California papers that McClatchy bought in its acquisition of Knight-Ridder. The antitrust suit was filed against several companies including MediaNews Group, Gannett and Hearst.

Reuters writes that Inco dropped its plans to buy Canadian mining company Falconbridge. Xstrata, a Swiss company has increased its holdings in Falconbridge. Inco itself may now be in play, although US firm Phelps Dodge has bid to acquire the company.

The Wall Street Journal reports that Pfizers board has named its general counsel, Jeffrey Kindler, to become the drug giant's next CEO.

The WSJ also reports that U.S. Airways approached Delta about a possible merger. Delta apparently rejected the offer.

The WSJ also writes that same-store sales at Wal-Mart were up 2.4%, the high end of the projected range. The figure showed a rebound from slower growth in June.

The WSJ writes that a proposal by Bristol-Myers and Sanofi to delay a generic version of Plavix by drug firm Apotex was rejected by state attorneys general. The move by state officials appears to signal a tightening of restrictions on deals between generic drug makers and branded drug companies to keep generics off the market for some time period.

The Wall Street Journal reports that Chevron's net rose 18% to $3.45 billion in its most recently reported quarter.

The New York Times reports that the ability of handsets to make WiFi calls has telephone companies concerned. Cell companies like Nokia, Samsung and Motorola will introduce phones with the new feature. The success of these projects could pose problems to Verizon Wireless and Cingular, which is owned by AT&T and BellSouth.

The New York Times also reports that Wal-Mart will exit the German market selling its 85 stores to a German retailer at a loss of $1 billion. Wal-Mart faced stiff competition from other retailers in the country.

The New York Times also reports that the SEC has asked for options data from Activision, the video game company.

Douglas A. McIntyre

XM Shareholders Grab the Pom Poms

You can imagine on a Friday when the market is up a little over 1% and you see +4.2% on SIRI and +16% on XMSR some heads had were being scratched.

We, well let me say I, have been pretty critical of XM Satellite Radio (XMSR) and on Sirius Satellite Radio (SIRI). It isn't so much about the company or about the prospects of the company, but the performance of the stock has been just atrocious. XMSR has lost more than 50% this year and SIRI is not that far behind. These guys need to deliver for shareholders with some new great initiatives. If it is a merger, great. If it isn't then they better do some better content deals and more bundling deals. Or maybe they just do nothing after releasing bad news since that seemed to work today.

Early this morning there was a very brief note on CNBC about the chances of deal happening or not, maybe that was taken to an extreme. This has been mentioned before by us, by CNNMoney, and by numerous others with SIRI and potentially several others being potential acquirers. As of today, there was nothing known publicly.

Its earnings were out yesterday. We had no corporate press releases this morning for this, but there was an S-4 filing after the close. The company's SEC filing shows 2 different exchange notes of $600 million and $200 million, but this will not result in real net proceeds going to the company per se. It looks like there may be some more favorable terms for the company, but on a Friday after the close it is almost academic (particularly if I am on the way out to a baseball game). Here is the summary:

USE OF PROCEEDS

The exchange offer is to satisfy certain of our obligations under the registration rights agreement covering the notes. We will not receive any proceeds from the issuance of the exchange notes. In consideration for issuing the exchange notes as contemplated in this prospectus, we will receive, in exchange, an equal number of outstanding notes in like principal amount. The form and terms of the exchange notes will be identical in all material respects to the form and terms of the outstanding notes, except as otherwise described under “The Exchange Offer—Terms of the Exchange Offer.” The outstanding notes surrendered in exchange for exchange notes will be retired and canceled by us and cannot be reissued.

The funny thing is that RBC lowered its target to $20 today, Bear Stearns had no rating change but noted some caution over near-term prospects, and CIBC downgraded it early this morning to a Sector Perform. That analyst at CIBC probably isn't answering the phine this weekend.

XMSR traded 19.7 million shares, compared to about 8.8 million on an average day. The August $12.50 Calls traded over 7,400 contracts, but that isn't even the equivalent of 1 million shares leverage on a translations basis. If they have any huge corporate news announcements on Monday or over the weekend you can be sure there will be some investigations into a news leak. Have a nice weekend.

Jon C. Ogg
July 28, 2006

Jon can be reached at jonogg@gmail.com. He does not own any securities in or have any positions in companies he writes about.

Weekly Wrap (July 28, 2006)

Daily Change:
DJIA 11,219.70; Up 119.27 (1.07%)
NASDAQ 2,094.14; Up 39.67 (1.93%)
S&P 500 1,278.55; Up 15.35 (1.22%)
10YR-Bond 4.99%

Point Changes for the week in US Index trading:
DJIA: +351.32
NASDAQ: +73.75
S&P 500: +38.26

Stock Tickers: MSFT INTC IBM JPM AA C CAT GE MMM UTX HON JNJ PFE KO MCD WMT AXP MO T XOM GM DD BA MRK

This was one of the best weeks for the markets since last year. Israel's attacks into Lebanon haven't spilled over elsewhere and the street has convinced itself that a Q2 reading on GDP of 2.5% is an engineered soft landing out of the Fed. They are now betting that August will essentially be it for the fed rate hikes.

With well over 250 companies reporting earnings each day, it is pretty difficult to single these out. We decided once again to show a wrap-up of how the DJIA 30 components have performed since each reported earnings. We will have some DJIA and S&P components having their estimates trimmed by rating and analytics agencies, but the earnings from the DJIA components have actually been ok. Here we compare the average DJIA component's closing price the day before earnings to the close today (July 28). We have now had 22 of the 30 DJIA components report earnings or give guidance since the start of the month.

PRIOR EARNINGS

Microsoft (MSFT): on July 20 after the close MSFT beat earnings at $0.31 EPS vs $0.30e, but announced its two $20 billion share buyback plans.
July 20 Close: $22.85
July 28 close: $24.28

Intel (INTC): on July 19 after the close INTC reported earnings of $0.15 EPS vs $0.138e, but we won't bother reminding the poor guidance impact.
July 19 close: $18.49
July 28 close: $18.19

IBM (IBM): on July 18 after the close IBM reported EPS at $1.30 vs. $1.29e.
July 18 close: $74.26
July 28 close: $76.96

JPMorgan (JPM): on July 19 pre-market JPM reported $0.99 EPS vs $0.87e, but its CFO said to use $0.94 as EPS so it still Beat Estimates.
July 18 close: $40.71
July 28 close: 45.46

Alcoa (AA): On July 10 after the close AA beat earnings with $0.90 EPS vs $0.86e, but it was $0.86 after estimates so it met expectations.
July 10 close: $33.41
July 28 close: $29.70

Citigroup (C): Citigroup reported on July 17 pre-market EPS of $1.05 from operations vs. $1.05e, but items created a missed earnings reaction.
July 14 close: $47.58
July 28 close: $48.33

Caterpillar (CAT): on the morning of July 21 CAT reported EPS of $1.52 vs $1.43e.
July 20 close: $69.08
July 28 close: $71.18

General Electric (GE): GE reported on the morning of July 14 EPS of $0.47 EPS vs $0.47e.
July 13 close: $32.67
July 28 close: $32.95

3M (MMM): MMM on July 7 right before the open came clean and lowered guidance ahead of earnings.
July 6 close: $81.39
July 28 close: $70.47

United Tech (UTX): On July 18 pre-market UTX beat earnings with $1.09 EPS vs. $1.01+e.
July 17 close: $57.96
July 28 close: $62.09

Honeywell (HON): HON reported pre-market on July 20 of $0.63 EPS vs $0.61e, but items were a concern.
July 19 close: $38.24
July 28 close: $38.25

Johnson & Johnson (JNJ): J&J posted earnings pre-market on July 18 of $0.98 EPS vs $0.97e.
July 17 close: $60.91
July 28 close: $62.89

Pfizer (PFE): on July 20 pre-market PFE reported earnings at $0.50 EPS vs $0.48e.
July 19 close: $23.30
July 28 close: $26.00

Coca-Cola (KO): on July 18 pre-market KO beat earnings with $0.74 EPS vs $0.72e.
July 17 close: $42.70
July 28 close: $44.52

McDonalds (MCD):MCD on July 17 pre-market gave preliminary guidance of $0.57 EPS vs $0.56e.
July 14 close: $33.04
July 28 close: $35.29

Wal-Mart (WMT): WMT on July 6 pre-market issued EPS guidance of $0.70 to $0.74 on lower sales vs. $0.73e.
July 5 close: $47.02
July 28 close: $$44.50

THIS WEEK's EARNINGS

American Express (AXP): On July 24 AXP reported EPS of $0.76 vs $0.74e, was $0.78 from operations.
July 21 close: $50.62
July 28 close: $52.19

Altria (MO): On July 25, Altria posted EPS of $1.41 vs $1.37e.
July 24 close: $79.49
July 28 close: $80.65

AT&T (T): Only July 25 AT&T reported EPS of $0.58 vs $0.53e.
July 24 close: $27.78
July 28 close: $29.99

Exxon Mobil (XOM): On July 27 Exxon showed $1.72 EPS vs $1.64e.
July 26 close: $66.60
July 28 close: $66.98

General Motors (GM): on July 26 GM showed $2.03 EPS after gains and benefits, well above estimates. The bottom line is debatable, but it was a huge beat.
July 25 close: $30.66
July 28 close: $32.30

DuPont (DD): on July 25 DD showed EPS at $1.01 EPS vs $0.95e.
July 25 close: $40.67
July 28 close: $40.15

Boeing (BA): on July 26 Boeing posted -$0.21 EPS vs -$0.21e.
July 25 Close: $83.75
July 28 close: $78.84

Merck (MRK) Merck posted earnings on July 24 of $0.73 EPS vs $0.65e.
July 21 close: $37.36
July 28 close: $41.10

These are the earnings we are still expecting: VZ PG WMT HPQ HD AIG BA DIS.

Jon C. Ogg
July 28, 2008

Wal-Mart Leaves Germany; Where Do They Leave Next?

After reviewing Wal-Mart's (WMT) essential failure and exit sale in Germany, this has to make you wonder where else the company may decide to exit next.

For starters Count CHINA Out as far as a market they will exit. It has about 60 stores and plans to open 15 or 16 more in the next year. China is considered the Holy Grail for Wall Street, so even if Wal-Mart had to vacate China they would do it gradually and it would be years off most likely. Wall Street would also view leaving China as a serious blow.

Here are the international markets the company operates in: Argentina, Brazil, Canada, China, Costa Rica, El Salvador, Germany, Guatemala, Honduras, Japan, Mexico, Nicaragua, Puerto Rico, United Kingdom

Before we get too far here, let's identify this. They are selling 85 stores in Germany. Terms are undisclosed, but they will be taking roughly a $1 Billion charge. They were NEVER liked in Germany and if you go back through your historic releases you will see that their expansion plans into Europe have been fought tooth and nail. Europe already has its own hyper-markets and they do not want anymore. The EU governments can't afford any more either. These hyper-markets have already wiped out untold amounts of mom and pop shops, and with the amount of unemployment the EU nations don't want to support any more unemployed.

There are a couple of lay-up economies that they seemingly wouldn't leave. Mexico and Canada would seem to be a permanent core focus, as there are still many opportunities in those countries and they are on our borders and easier to manage. It will also keep its focus on the UK more likely than not.

It also in recent years made a large investment for Japan via its stake in Seiyu, so it may be unlikely that they exit there.

Could the company be looking into trimming other Latin American markets? They could easily look at the El Salvador, Costa Rica, Guatemala, Honduras, and Nicaragua as potential cuts. This is leaves out Argentina and Brazil, but who knows.

Here is what the company said about itself on the website:

The division has posted impressive financial results as well. Wal-Mart International announced that 2006 fiscal year end sales reached $62.7 billion, an 11.4 percent increase over the previous year, and that operating profit rose to $3.3 billion, an increase of 11.4 percent over the prior year. In 2006, Wal-Mart International plans to open 220 to 230 units in existing markets. Relocations or expansion of existing stores will account for approximately 35 of these units, while the remainder will represent new operating units for the company.

We are talking about the same Wal-Mart that has been in trouble in the US. Forget about the social impacts and the moral debate of Wal-Mart for a second. After all, we are discussing the stock. The chart doesn't lie. The company has an image issue, has much more negative press than the believable good press they get. Small communities (and large cities) now fight to keep them out. What does that tell you? They have a $184 billion market cap and they now average over $80 Billion in revenues Per Quarter. It has a market equivalent P/E with the S&P at about 16. It is also at the lower-end of its 52-week trading range of $42.31 to $50.87, and is at the lower-end of a 3-year $42.31 to $60.00 trading range (see 3-year chart above).

They really need to decide which markets to exit next it would seem. The street is actually rewarding them for throwing in the towel today with shares up almost 2% at $44.33. They are looking at new concept stores in the US. It is very possible that they just finally reached their maximum capacity to grow, but that may be unfair. It just seems that they need to focus where they are wanted rather than where they want to go impose their will and might.

They very well may look at other markets, but they need to use Germany as the lesson. If you are being fought relentlessly from entry, maybe you should rethink your plans. If the street is going to reward them even with a $1 Billion charge and for walking out with your tail between your legs, then they should use this as an opportunity to sell other markets that are not as profitable.

Jon C. Ogg
July 28, 2006

EchoSar's Wildest Dreams

Stocks: (DISH)(DTV)

The management and shareholders of EchoStar must think that the bankers at the local saving and loan left the vault open and put a sign on the door that says "Free Money". With local cable companies offering the "triple play" of VOIP, television, and broadband and the telcos about to offer IPTV over fiber to the home, Echostar hit a 52-week high at $35. Its low for the period is $24.44 which it hit in November of last year.

According to Morningstar, it takes EchoStar about two years to get back the acquistion costs of a new customer. The cost to convert hardware and systems, plus content costs, will grow with the demand for HDTV and other costs. There is, of course, always the problem that satellite TV does not work during a heavy rainstorm. Not a bad point to make if someone is selling cable or telco fiber products door-to-door.

Recent growth at EchoStar has been decent, but hardly spectacular. In the December 05 quarter, revenue was $2.18 billion. In the March 06 quarter, revenue hit $2.29 billion, a 5% increase. Operating income went from $252 million in the Decmber period to $274 million in the quarter ending in March.

The real engine behind the run-up in Echostar's stock is merger rumors. Pretty thin. It is also speculation to assume that the merger would value Echostar much higher than its current price. EchoStar trades at 1.74 times sales while DirecTV is at 1.62 times. Then, there is the thorny issue of antitrust and the anthropoids at the FCC.

Investing on merger chatter can be risky business. Has EchoStar's value really gone up 40% in a little over six months?

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

Conexant Falls Too Far

It does not take much bad news in this market for a stock to be flogged within an inch of its life. Conexant Systems, which makes semiconductors for broadband communications and digital home systems, has some big one-times expenses including a write-down of some Mindspeed warrants and a patent litigation settlement with Texas Instruments.

The company also guided that the next quarter will be about flat with the one just reported. Not great news.

But, the company is hardly going out of business. Revenue for the quarter ending June 30 was $251.6 million compared to $197.4 million in the quarter a year ago. The company's operating loss was $5.7 million compared to a loss of $37.8 million in the quarter last year. The company's non-GAAP core operating income was $$25.5 million compared to a loss on that basis of $11.2 million last year.

Conexant has shown revenue growth in each of the last four sequential quarters, and it is now saying it will have a period when it does not grow for at least a quarter.

Although the company has seen a slowdown in some of its business segments, all is not lost. One of the Conexant's key markets is still growing quickly according to the company: "In Broadband Media Processing, we continue to see strong customer demand across our set-top box portfolio, and we anticipate that these products will deliver yet another quarter of double-digit revenue growth".

Conexant's stock is off from $3.90 in late April to $1.68, very near its 52-week low. Is the company really worth less than half of what it was three months ago? That's probably a bit of an overreaction.

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

Intel's New Chips Can't Fix A Broken Industry

Stocks: (INTC)(AMD)(DELL)(GTW)

Intel's new Core 2 Duo chips are a marvel. The deliver more processing power, use less battery power, and throw off less heat. But, as gun owners will tell you, people get killed as often with a 22 caliber as with a 45 model. The market may not want a better chip.

Intel cut the prices on its older chips as much as 61%, which hurts competitor AMD, but does not necessarily help Intel. The PC manufacturers are squeezed. Companies like Dell, Lenovo, and Gateway are desparate to increase sales and margins, and a chip that is a better mouse trap may not be the solution.

PC companies that want to improve margins want the old chips at a 61% rake off, not an expensive new chip that most consumers cannot tell from the Pentium 4.

Dell may have wanted AMD chips when they had better performance that Intel's. But the new Core 2 Dual can run as much as $999, and that may not be much help to a manufacturer pressured ny margin problems.

Don't look for the Core 2 Dual to save Intel's bacon. Nice product, but how many people really want it? Maybe that's why Intel's stock, trading near its 52-week low at $17.60 is only up 1% on the product launch.

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

GeoMet IPO Priced

GeoMet (GMET) today announced the pricing of its initial public offering of 5,000,000 shares of common stock at a price of $10.00 per share, at the lower-end of the $10.00 to $12.00 range. Banc of America acted as the sole book-runner with A.G. Edwards & Sons and Raymond James acting as co-managers.

GeoMet, Inc. is an independent energy company engaged in the exploration for and development and production of natural gas from coal seams. Its principal operations and producing properties are located in the Cahaba Basin in Alabama and the Appalachian Basin in West Virginia and Virginia. It controls additional coalbed methane development rights, principally in Alabama, British Columbia, Colorado, Louisiana, Virginia, and West Virginia.

It is surprising that an energy play is pricing at the lower-end of the range, but this deal generated very little buzz in IPO and underwriting circles.

To Your Health

By William Trent, CFA of Stock Market Beat


Summary: Rising costs harpooned the HMOs, but could have been foreseen by looking at the detailed PPI data.
In the latest Value Line Industry Survey on the drug industry they say:

The major pharmaceutical companies that dominate the Drug Industry will report June-quarter results over the next few weeks. Year-over-year comparisons are likely to be generally unexciting, primarily reflecting pressures on the top line from significant patent expirations and the resulting assault from generic competition. The silver lining in the drug sector’s multiyear descent, however, are valuations that have reached extraordinarily low levels, from which the downside risk appears manageably low and the dividend yield temptingly high.


The New York Times says the pharmaceutical industry is beginning to reap a windfall from a surprisingly lucrative niche market: drugs for poor people.

PPI data shows that hospital costs are rising faster:

As are pharmaceutical costs:


But a doctor’s visit is not rising as quickly.


Watch List news:

Israeli generic drug maker Taro Pharmaceutical Industries Ltd. said Friday it received notice it may be delisted from the Nasdaq Global Select Market for failing to file its annual report on time. In July the company said it was completing an audit of financial statements for the year ended Dec. 31, 2005 and expects to finish the audit in August. Taro has requested a hearing before Nasdaq’s listing qualifications panel to review the possible delisting. Its shares will remain listed pending the review.

Home healthcare company Apria Healthcare Group Inc. (AHG) said earnings ballooned from a year-ago period weighed down by a hefty charge, and said its finance chief is stepping down. In the second quarter, Apria’s net income increased to $18.5 million, or 43 cents per share, up from $3 million, or 6 cents per share, a year earlier. Year-ago results were hurt by a charge for a $20 million settlement of a government lawsuit over Medicare billing. Analysts, on average, expected earnings of 40 cents a share, according to a Thomson Financial survey.

Biosite says will pay in settlement of patent litigation

Other news:

Johnson & Johnson (JNJ) earned $2.82 billion, or 95 cents per share. A year go it earned $2.59 billion, or 86 cents per share. Excluding special items, J&J earned 98 cents per share. Analysts, on average, expected 97 cents per share, according to Reuters Estimates. Company sales rose 4.7 percent to $13.4 billion, a bit higher than Wall Street expectations of $13.29 billion.

Pfizer earnings rise on sales growth

ImClone profit up, stock sinks


The author may hold a position in the securities discussed.

http://stockmarketbeat.com/blog1/

Getting Defensive

By William Trent CFA of Stock Market Beat

In reviewing yesterday’s Durable Goods report, one segment jumped out at us: Defense aircraft and parts. A look at the table to the right, which presents the year/year change in shipments, orders, inventories and backlog shows that something interesting may be going on.

Shipments have been poking along at barely above last year’s numbers (and actually below last year in June.) The lag from orders to shipments can be extended in aircraft (less so for parts) so the decline in orders from April was a predecessor to June’s decline in shipments. This was also foretold in the stock prices, which peaked in March (ahead of the rest of the market) and in most cases have not fully recovered.So what has happened to orders since April? They have been rising at an accelerating pace.

Our bet is - you guessed it - defense aircraft and aircraft parts should have strong shipments ahead. Meanwhile, the performance of related stocks has been mixed this year. Names worth researching include L-3 Communications, Rockwell Collins, Precision Castparts, Boeing, Lockheed Martin and Teledyne.

http://stockmarketbeat.com/

Rackable Getting Racked

Rackable Systems (RACK) is feeling the wrath of what can happen to high growth companies if they miss on any cylinders. The company beat estimates yesterday with $0.28 EPS vs $0.22 estimates and revenues were $88.64 million vs. $84.4 million estimates. The guidance is light, and that has shares down over 30% pre-market. The company forecast $0.18 to $0.21 EPS vs $0.21 estimates, and revenues at $80 to $85 million vs. $85.25M estimates. Its fiscal EPS targets were put at $0.98 to $1.02 vs. $0.96 estimates, and revenues for the year are put at $345M to $355M vs $345M estimates.

The company is blaming a slowdown in business with one of its largest customers due to decreased cap-ex spending. There was also a much larger portion of the income tied to interest income from its cash balance.

Even with shares down over 30% at $23.30, this is still nearly double from the 52-week lows. Rackable has also traded as high as $56.00 this year.

ChevronTexaco Misses EPS Targets

ChevronTexaco (CVX) did what no one anticipated after the huge Exxon Mobil (XOM) numbers Yesterday. They missed earnings expectations. It reported EPS at $1.97, which up from the $1.76 EPS number last year but lower than the $2.21 EPS estimate. Even if you add back in the charges of $0.13 from hurricane damage and other items it is still short. Revenues were just over $53.5 billion. Shares had been trading on 52-week highs yesterday before this release, but are now trading down 2.2% at $66.23 pre-market.

Pre-Market Notes (July 28, 2006)

(ABAX) Abaxis $0.11 EPS vs $0.08e.
(ADBL) Audible -$0.03 EPS vs -$0.05e; but revenues $19.1M vs $21.3M(e).
(ALEX) Alex & Baldwin $0.68 EPS vs $0.50e.
(ALSK) Alaska Communications $0.31 EPS vs $0.06e (on items before charges); R$85.1M vs $84M(e).
(AMMD) American Medical $0.23 EPS vs $0.17e.
(ANDE) Andersons $0.66 EPS vs $0.71e; stock down 12% pre-market.
(ANLT) Analytical Surveys filed to sell 9+ million shares for holders.
(APC) Anadarko Petroleum $1.28 EPS vs $1.26e.
(APCC) Amer Power Corp $0.13/$560M vs $0.17/$548M(e); unsure if EPS is comparable.
(ARDI) AtRoad -$0.02 EPS vs $0.01+e; unsure if comparable.
(AXL) Amer Axle $0.40 EPS vs $0.35e.
(BCGI) Boston Communications -$0.05 EPS vs -$0.14e.
(BDX) Beckton Dickinson $0.81 EPS vs $0.79e.
(BHI) Baker Hughes $1.07 EPS vs $0.98e.
(BLDR) Builders First Source $0.79 EPS vs $0.76e.
(CA) CA is considering layoffs according to online reports.
(CAMD) California Micro $0.07 EPS vs $0.03e; guides EPS in-line.
(CCJ) Cameco $0.21 EPS vs $0.18e.
(CEG) Constellation Energy $0.56 EPS vs $0.46e.
(CENX) Century Aluminum $1.92 EPS vs $1.82e.
(COLM) Columbia Sportwear $0.13 EPS vs $0.05e.
(CSH) Cash America $0.31 EPS vs $0.31e.
(CVH) Coventry Health $0.85 EPS vs $0.82e.
(DENN) Denny's $0.02 EPS vs $0.00e.
(DSCM) Drugstore.com -$0.02 EPS vs -$0.04e.
(DRIV) Digital River $0.41 EPS vs $0.38e.
(DSCO) Discovery Labs -$0.13 EPS vs -$0.23e.
(ENS) EnerSys filed to sell 12.5M shares.
(GNSS) Genesis Micro $0.04 EPS vs $0.00e; was $0.11 before option charges.
(FALC) FalconStor Software $0.03 EPS vs $0.02e.
(FORM) FormFactor $0.32 EPS vs $0.28e.
(FRNT) Frontier Air $0.10 vs $0.05e.
(FSS) Federal Signal $0.24 EPS vs $0.21e.
(FSTR) L.B.Foster $0.28 EPS vs $0.21e.
(GMET) GeoMet 5M share IPO priced at $10.00, at the bottom of its $10-12 range.
(GNW) Genworth $0.72 EPS vs $0.68e.
(GPN) Global Payments $0.41 EPS vs $0.38e.
(HAS) Hasbro authorized $350M for share buybacks.
(HCR) HCR Manor Care $0.58 EPS vs $0.54e.
(HIG) Hartford Insurance $1.83 EPS vs $1.70e.
(IDXX) Idexx Labs $0.78 EPS vs $0.64e.
(IR) Ingersoll Rand $0.95 EPS vs $0.95e.
(ITMN) Intermune -$0.42 EPS vs -$0.35e.
(ITT) ITT $0.80 EPS vs $0.77e.
(KLAC) KLA-Tencor $579M vs $574M(e); will not release earnings until options probe is released.
(LNCE) Lance $0.21 EPS vs $0.14e, unsure if comparable because revenues were light.
(LWSN) Lawson lowered guidance and said the CFO is leaving.
(MCK) McKesson $0.60 EPS vs $0.62e.
(MFE) McAfee $0.30 EPS vs $0.31e; guides next quarter lower; will miss filing dealine.
(MGLN) Magellan Health $0.52 EPS vs $0.41e.
(MHK) Mohawk $1.73 EPS vs $1.56e.
(MOBE) Mobility $0.04 EPS vs $0.01e.
(MRCY) Mercury Computer beat earnings but lowered guidance.
(MRT) Mortons $0.15 EPS vs $0.14e.
(MSCC) Microsemi $0.28 EPS vs $0.27e.
(MSTR) Microstrategy $1.21 EPS vs $1.19e.
(NATI) National Inst. $0.25 EPS vs $0.19e.
(NNI) Nelnet $0.82 EPS vs $0.64e; unsuree if comparable.
(NTGR) NetGear $0.30 EPS vs $0.27e.
(NTY) NBTY $0.43 EPS vs $0.37e.
(NYX) NYSE $0.39 EPS vs $0.35e.
(ODP) Office Depot $0.43 EPS vs $0.40e.
(PKI) Perkins Elmer $0.26 EPS vs $0.26e.
(PXLW) Pixelworks -$0.16 EPS vs -$0.17e.
(RACK) Rackable Systems down 30% on earnings and revenue warning.
(RMBS) Rambus accepted the lower damages award that had been reduced in recent weeks against Hynix.
(RNWK) RealNetworks $0.22 EPS vs $0.20e.
(SIVB) SVB Financial $0.36 EPS vs $0.60e, but had charges.
(SMI) Semiconductor Manufacturing gets design manufacturing pact with Qualcomm.
(SOHU) Sohu.com $0.19 EPS vs $0.19e.
(SWIR) Sierra Wireless $0.15 EPS vs $0.10e; guides next quarter lower.
(SYNA) Synaptics $0.15 EPS vs $0.14e.
(TE) Teco Energy $0.30 EPS vs $0.24e.
(TFX) Teleflex $0.92 EPS vs $0.83e.
(THQI) THQ -$0.16 EPS vs -$0.20e.
(TUNE) Microtune $0.03 EPS vs $0.02e.
(TWTC) Time Warner Telecom is making a $531M acquisition of Xspedius.
(WDC) Western Digital is conductubgf its own options probe.
(WMI) Waste Mgmt $0.45 EPS vs $0.43e.
(WMT) Wal-Mart sold its German stores for an undisclosed sum to Metro AG.
(WSPI) Website Pros 3.5+ million share secondary priced at $9.25; was originally set for over 4 million shares.
(YRCW) YRC Worldwide $1.62 EPS vs $1.56e.

Business Week: positive article on Bear Stearns (BSC), positive article on Bally Tec (BYI), positive on Emisphere,.

GDP at 8:30 AM EST.

Cramer noted Valero (VLO) and Halliburton (HAL) positively. Positive on Kellogg (K) after interviewing the CEO.

Have Pirates Boarded Apple's iPod?

Stocks: (MSFT)(AAPL)

Rob Glaser, CEO of RealNetworks, is well-known for his colorful and often unintelligible comments on his competition. He hates the success of Apple's iPod because it has largely frozen Real out from any substantial success in the online music business.

During RealNetwork's earning announcment and call with investors, Glaser made two points about the iPod. One went over almost everyone's head. He called the iPod "the biggest Three Card Monty ever seen". It is fairly hard to imagine exactly how the music player is like a game of deception using playing cards, so it may have to be left at that.

Glaser's second comment was more troubling, at least for Apple investors. He commented that Apple was ignoring the iPod's use for "pirated" music.

There are a number of ways to alter the iPod's basic functions. It is possible to download music onto an iPod from other devices without buying the content from the iTunes story. This breaks the record industry rule that each download must be accompanied by a payment.

The legal issues around this kind of downloading are complicated. Typically, the consumer is at fault for "illegal" downloads. But, operations like Kazaa and BitTorrent have learned, the courts can go after them for setting up systems that "enable" downloads that violate copyright laws.

Apple finds itself in a sticky wicket. Another industry executive has accused it of aiding and abetting piracy of the intellectual property belonging to the record companies.

Apple's huge success with the iPod has not been without drawbacks. Among them is the accusation of Singapore based Creative Technology that the iPod violates its patents on portable multimedia players.

The iPod's issues as a device that can be used for playing "pirated" content is now front and center as something that Apple must face. Even President Bush has said that one of his staffers downloaded content from another player without going through a "store" and paying for the content.

The tremendous success of the iPod make it a target for a number of ground-breaking issues, and investors should not be surprised if, inside some courtroom, the debate over the iPod's status as a "pirate device" gets settled.

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

Microsoft's Wrong Turn: Could Its Stock Go Below $20

Stocks: (MSFT)(YHOO)(GOOG)(TWX)

Steve Ballmer, Microsoft's CEO, told analysts that he want to turn Microsoft into a "multi-core" firm with four key businesses. These would be the operating system business, the enterprise Office business, online operations like MSN and Microsoft Live, and an entertainment and device business. He seems to be off to the right start. Company executives said that the think the oft-delayed Vista upgrade to Windows will launch on its new projected date, if it is ready. The company also said it would spend "hundreds of millions of dollars" on its iPod competitor, called Zune.

Key to the company's succcess will be having search technology be a function of all of its software and not a "destination", a clear shot across the deck of rival Google. Microsoft is so far behind in search share of market that catching Google, or even Yahoo!, would appear to be nearly impossible.

At the center of the company's strategy is the delivery of software over the internet which will replace the notion that functions like the operating system, word processing, spreadsheets, and other functions will be loaded on PCs and servers before they are shipped.

Since MSN, Xbox, and the company's move into the delivery of products like VOIP and IPTV has not proved to be a huge success, the gamble on the delivery of the new Vista system and its component parts is critical. Microsoft admits that it loses money on every Xbox shipped. MSN is behind Yahoo!, Google and AOL in audience, and Zune's profits are at least five years away by the company's own calculations.

Microsoft is projecting revenue growth of its Office franchise at as much as 10% for the fiscal year ending June 30, 2007. That assumes that Vista is launched in a timely manner, and that Microsoft's ability to sell more of its software online will work. Vista ships to corporate customers in November.

Aside from the risk that Vista adoption will happen on Microsoft's timetable, the idea of selling software online, via a "subscription" model is still largely unproven. The applications that have been successful in online adoption are largely free like the Google spreadsheet offering and eBay's Skype VOIP software. The huge distributions of some of these applications proves only one thing: if you give away software, you may get a lot of takers.

Microsoft's bet on online delivery of its products to increase penetration and revenue is a significant gamble on a business model that is largely unproven, and its is build around the delivery of the company's most profitable franchises. Microsoft can hope that MSN, Xbox and Zune will become larger operating income contributors, but so far the evidence of that does not point to tremendous success.

With so much at stake, and so much at risk, its is not surprising that Microsoft's stock trades at $23.87, not much above its 52-week low. Even news of a gigantic share buyback has not moved it up much. If Microsoft's changing strategy to build its "four pillar" business falters at all, the stock could drop below $20.

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

Europe Stock Market Report 7/28/2005

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

Stocks in Europe were relatively flat at 5.30 AM New York time.

The FTSE was off less than .1% to 5,926. Shares in Barclays were up 1.2% to 634.5. BP was up .4% to 651. British Air was up .1% to 389.25. BT was off .3% to 236. GlaxoSmithKline was down .1% to 1484. Prudential was down 3.8% to 573. Reuters was up .4% to 397.75. Unilever was up .6% to 1266. Vodafone was up .4% to 116.

The DAXX was off .1% to 5,655. Bayer was up .4% to 38.45. BMW was up .7% to 40.09. DeutscheBank was down .3% to 89.55. Deutsche Telekom was down .3% to 12.11. SAP was up .3% to 142.8. Siemens was down 1.4% to 62.46.

The CAC 40 was off .4% to 4,984. Alacatel was down .2% to 8.67. AXA was down .4% to 26.48. France Telecom was down .9% to 16.22. ST Micro was down 1.8% to 11.38. Thomson was down .9% to 12.36. Vivendi was off 1.3% to 28.21.

Douglas A. McIntyre

The Outlook For Commodity Prices

By Yaser Anwar, CSC of Equity Investment Ideas

The current volatility in commodity prices begs the question of whether this is the start of a bear market or just a correction in a very long-term bullish trend. Historically commodity bull markets last upto 10-15 years.


The odds are good that the bull market that began in 01 has not yet run its full course.


The important thing to remember is that no great bull market has been immune to such corrections. Even the Nasdaq in the 1990s and gold in the 1970s saw corrections of as much as 30 percent in the context of a longer-term trend higher.


Brazil, Russia, India & China's industrialization alongside rapid growth in the entire developing world will act as key forces to sustain structural demand for commodities, from steel to platinum & gold reserves to oil.


Gulf of Mexico oil and gas production still hasn't fully recovered from hurricanes Katrina and Rita. And supplies were severely interrupted for months after the storms last year. If another major storm were to affect drilling operations in the region, supplies of oil and gas could be cut off once again, causing another shortage and spike in energy commodity pricing.


Furthermore, real commodity prices are still low relative to their long-term trend, despite rapid increases in recent years. One example would be Natural Gas, which is selling roughly around 59% of their Crude equivalent value.


Bottom line: The secular bull market in commodities remains intact.

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

Media Digest 7/28/2006: WSJ, NYT, Reuters

Stocks: (BMY)(MSFT)(SNE)(HCA)(PETC)(XOM)(AET)(C)(BAC)(AAPL)(DCX)(XMSR)

According to the WSJ, the FBI raided the office of the CEO of Bristol-Myers as part of a criminal antitrust investigation.

Reuters writes that although Microsoft is acquiring companies at a record rate, it still plans to rely on its own R&D for its major growth in the future.

Reuters said that Sony's losses in its game division may rise in Q3, probably due to higher chip costs for its Playstation 3.

The Wall Street Journal says that unusual trading patterns before major deals were announced at Petco, HCA and other companies is raising concerns about insider trading.

The WSJ reports that ExxonMobil's profits were up 36% to over $10 billion, making it the second best quarter in the oil companies history. Shell's profits rose 40% on higher oil prices.

The WSJ also writes that because Aetna could not raise premiums quickly to keep pace with medical costs sent the stock down to a 52-week low of $33.25. Profit for its most recent quarter was down 1%.

According to the WSJ, Bank of America is close to overtaking Citigroup as the nation's most valuable bank based on market capitalization.

Also reported in the WSJ, DaimlerChrysler's net almost doubled on strength at its Mercedes unit. Sales at Chrysler were hurt by falling demand for its SUVs and trucks.

The WSJ writes that XM Satellite Radio's loses increased to $232 million in the latest quarter compared to $148 million in the period a year ago. The company cut its year-end subscription goal to 7.7 million from 8.2 million.

The WSJ says the Microsoft confirmed that it would launch a multimedia player, Zune, to compete with Apple's iPod and would spend "hundreds of millions of dollars" on the project.

The WSJ also writes that Intel launched its new line of 10 microprocessers called Core 2 Duo. The chips provide more calculating power while requiring less power consumption.

The New York Times writes that the IRS is now involved in the options repricing scandal checking to see if the practice affects company tax obligations which could rise into the millions of dollars for the 40 companies being reviewed.

The NYTs writes that at Microsoft's meeting with Wall Street analysts, the company said it would invest heavily in moving software delivery to the internet.

Douglas A. McIntyre

Asia Markets 7/28/2006

Stocks: (HIT)(HMC)(NTT)(SNE)(TM)(CN)(CHL)(HBC)(PCCW)

Asian markets bounced up.

The Nikkei rose 1.1% to 15,343. Canon was up 1.3% to 5460. Daiwa Securites was up 3.4% to 1245. Hitachi was up .1% to 724. Honda was down .8% to 3820. Nissan was down .5% to 1244. NTT was up .7% to 594000. Softbank was up 1.5% to 2060. Sony was up 4.2% to 5230. Toyota was up .5% to 6020. Yahoo!Japan was up 1.1% to 46700.

The Hang Seng was up .4% to 16,984. Cathay Pacific was up .6% to 13.94. China Mobile was up 2.2% to 50.4. China Unicom was up .1% to 6.99. HSBC was off .4% to 139.6. Lenovo was up 1.2% to 2.53. PCCW was down .2% to 4.84.

The KOPSI was up .1% to 1,297.

The Straits Times Index was down .7% to 2,429.

The Shanghai Composite was down .8% to 1,662.

Douglas A. McIntyre

Cramer's MAD MONEY (July 27, 2006)

Cramer discussed two different energy plays for different reasons.

He thinks that Valero (VLO) will blow away earnings potentially by as much as $1.00 per share. He said the analysts haven't raised their earnings estimates even after the company told analysts they would beat earnings and they have all the cheaper gas since they refine all of their own gasoline.

On Halliburton (HAL) Cramer said a negative research call hurt the stock when it was at the lows, but Cramer disagrees. He said it is an opportrunity and he's giving it a "M'om Back!" and buying on weakness.

Cramer interviewed the CEO of Kellogg (K). Cramer said K is Buy.

Market Wrap for July 27, 2006

Stock Tickers: MSFT, NTBK, BMY, BG, VCI, SYMC, AKAM, XOM, XMSR, SIRI, BRCM, WDC, WIND, WBSN, BEAS, TIBX, FILE, AVID, ACTI

DJIA 11,100.43; Down 2.08 (0.02%)
NASDAQ 2,054.47; Down 15.99 (0.77%)
S&P500 1,263.19; Down 5.21 (0.41%)
10YR-Bond 5.04%

Microsoft (MSFT) closed down 2% at $23.87 after saying Vista would likely come out on time in the analyst meeting, and after having a malfunction during their speech to text demonstration.

The analyst call of the day is Keefe Bruyette & Woods downgrade of NetBank (NTBK), NTBK closed down 6.6% at $5.31.

Bristol-Myers Squibb (BMY) fell a sharp 7.5% at $24.04 after actually beating earnings estimates. Unfortunately they have a DOJ issue over generic Plavix and the settlement they agreed to with Apotex in Canada.

Bunge (BG) recovered a 5.4% to $54.36 after beating earnings expectations and giving easily liveable guidance for the rest of the year.

Valassis (VCI) rose 1.8% to $20.32 after actually issuing an earnings warning. Maybe things won't get worse, or maybe the street thinks they have an acquirer in the wings.

Symantec (SYMC) beat earnings estimates last night, and its short interest had climbed from the month before, so it was a springloaded runner today. SYMC closed up 9% at $17.26.

Comcast (CMCSA) beat its earnings expectations and closed up almost 5% at $34.20.

Akamai (AKAM) was one of the huge winners on the day afterbeating estimates yesterday; AKAM closed up 22.8% at $36.86.

Exxon Mobil (XOM) closed close to flat after posting its second $10+ billion net income.

XM Satellite Radio Holdings (XMSR) posted wider losses and lowered their year-end subscriber targets, but managed to close up 4.9% at $10.87. Its rival Sirius (SIRI) also closed up -/25% at $3.97.

Several mid-cap and large-cap tech stocks ran after Jim Cramer touted them as takeover targets on his MAD MONEY show yesterday. Here is the list with stock changes: Broadcom (BRCM) up 4% at $22.92, Western Digital (WDC) down 0.8% at $16.71, Wind River (WIND) down 1.4% at $8.02, Websense (WBSN) down 0.8% at $18.31, BEA Systems (BEAS) down 1.2% at $11.76, Tibco (TIBX) up 0.3% at $7.71, Filenet (FILE) down 1.1% at $30.73, Avid Tech (AVID) down 0.9% at $34.30, ActivIdentity Corp. (ACTI) up 3.3% at $4.70.

Tomorrow we have the Preliminary Q2 Gross Domestic Product-GDP report. This will show us how we did in the quarter and how the price deflator went. Expectations are approximately 3% (down from 5.6% in Q1) for nominal GDP. With tomorrow being friday, the earnings should peter out around 10:00 AM with no major reports scheduled for after the close. That should leave the financial markets trying to predict the outcome of the fighting in Israel-Lebanon.

Earnings tonight: AYE, ADBL, CLS, CENX, CF, CSTR, DRIV, FFH, FRNT, IOM, KCP, KLAC, LPNT, MCK, TUNE, NYX, RSYS, SOHU, SPF, SRCL, THQI, VLCM, WEBM, WDC, & YRCW

Jon C. Ogg
July 27, 2006

Why I Like Keeke Bruyette & Woods (NTBK)

Yesterday was a controversial call on Internet banking pure-play stock NetBank (NTBK). Our article noted that the stock was only down almost 6% on what was really bad news and that the stock should go much lower. The NTBK stock must have gotten lost in the shuffle since it was in a filing and with 500 companies reporting earnings each day. The stock closed down just over 11%, obviously worse than when we pointed it out. NetBank is down an additional 8% at $5.23 today (and had been down at $5.00) after Keefe Bruyette & Woods downgraded the stock to a Market Perform from a Market Perform rating.

Honestly, if it was my money I would probably at least cover some of this if I was short. Covering all of it probably isn't merited here. The fundamentals are just too poor and there is likely not any acquirer that could even come close to winning shareholder approval yet. That will change through time as more and more shareholders become owners around the lower prices.

Yesterday's article can be linked to HERE

Keefe Bruyette & Woods isn't just great because they had the same viewpoint as us, that isn't the point at all. As a matter of fact we intentionally seek out differing views so that the rest of the picture can be more evident when appropriate. They are great because they have some key insight on the financial sector, and they do not shy away from covering smaller banks or financial institutions that would otherwise be completely unnoticed from the investment community.

Speaking of "KBW" as they are referred to in our "Analyst Calls" article, the company is currently waiting to come public via an IPO. Hopefully the last two brokerage IPO's didn't put a hex on the IPO of the company. KBW is a great niche firm. They have rebuilt their personal infrastructure after tragically losing so many talented employees in the 9/11 terrorist attacks and they are strong. If this gets a poor reception if and when it is able to come public, it should be worth really looking into. This obviously depends on the financials and who ends up with all the purse strings, but on the surface they are just in a great spot of the investment banking community.

Jon C. Ogg
July 27, 2006

Jon Ogg does not own securities in companies that he writes about and he can be reached by email at jonogg@gmail.com

Are M&A Guys Calling On Finisar?

Stocks: (FNSR)(JDSU)

Everyone wants to believe that the business of building optical components for network equipment vendors is a good business. The theory is that Finisar and JDS Uniphase will power the rising market in additional network capacity for telecom companies. But, there are more than a few companies playing in the optical equipment maker field. And, Finisar does not have the balance sheet that companies like JDSU do.

The company has had some encouraging news recently. It won a large patent suit against DirecTV and aside from a settlement, Finisar will get $1.60 for each TV set-top that DirecTV deploys.

Finisar also had a decent quarter for the period ending April 30. The company announced results on June 7. Revenue for the quarter hit $102 million up from $75 million a year earlier. And, the company had an operating profit of $5 million. The company's cash and short term investment increase about $2 million from the immediately previous quarter.

Wall St. thought the numbers were lackluster, and drove the stock down 24% the day after earnings came out. The company had a heady run over the 52-week period, starting below $1 and moving up to $5.49 this May. So, results had to be spectacular to keep the run going.

Investors have begun to bet that the future for the company is dimming. The short position in the company rose 55% for the period posted in mid-July moving to 27.3 million shares. Finisar trades 14 million shares a day, so the coverage ratio is not bad, but the increase is a sign of eroding confidence that a company as small as this can make its way in a very competitive market.

Finisar would be an excellent fit with JDS Uniphase.(Short interest in JDSU dropped 7.6 million shares to 83.2 million in July.) It has to have occurred to both companies. They are, essentially, in the same business and both struggling. The amount of overhead that could be taken out in a consolidation would likely increase the cash flow from the Finisar operations well above the $2 million it was able to produce last quarter. The company does hav a large convertible preferred instrument that would have to be taken care of in a transaction, but the quants at any first-tier investment bank can work that through.

If someone tells you that bankers and the managements at JDS Uniphase and Finisar have not give all this a great deal of thought...

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

Bristol-Myers Back in the Doldrums

Bristol-Myers Squibb (BMY) pulled a classic move today. They killed their chart. If the $24 handle does not hold, then there is another support level around $23.10 and then again at $21.75-ish. Unfortunately BMY has been a tightly traded stock in a $21+ to $26 trading band for most of the last two-years. BMY used to trade over $50 in 2001 and 2002. So for now it just looks like more of the same.

Drug and healthcare companies have actually finally come back in favor as the poor fundamentals seem to have gotten as bad as they could have gotten. Many have been rewarded for good news, and Pfizer (PFE) and Merck (MRK) proved that for you last week.

The earnings out of BMY fell from $0.50 last year down to $0.34 EPS (and $0.35 outside of items) this year for Q2. Revenues were Down 2% year-over-year, but the street was under both of these numbers. The company didn't do as poorly as the street was expecting, but here was the bomb: its settlement with Apotex over generic Plavix is at risk from the FTC and a criminal probe is being conducted.

Bristol-Myers Squibb and Sanofi-Aventis (SNY) reached an agreement earlier this year with Canadian drugmaker Apotex to ward off generic competition for Plavix until 2011. Apotex had sued to have the Plavix patent invalidated so it could sell a generic version of the drug. This deal is now being reviewed by the Federal Trade Commission and by state attorneys general and there is a large risk that the FTC may not approve the settlement. The potentially more-damaging aspect is that the antitrust division of the Department of Justice is conducting a criminal investigation of the Apotex litigation.

Plavix sales for 2005 were in the $5 Billion vicinity between the BMY and SNY. You can see why they are concerned over this today. Unfortunately, now that the company is back in the $24 area it looks like they are just back in the longer-term range until this issue is resolved.

Jon C. Ogg
July 27, 2006

Chart courtesy of Bigcharts.com

Bunge Proved the Naysayers Wrong

We noted back on June 26th that the reaction to Bunge’s (BG) earnings warning may be too much. The company this morning put out earnings ahead of lowered expectations and the 2006 guidance of $3.50 to $3.67 EPS was in-line with estimates of $3.59. This still gives it a forward P/E of 15, which shouldn’t hurt too many feelings out there. On June 26, BG closed at $49.00 (down from $52.44 before the warning), and shares are currently up at $54.50. This is also viewed as a defensive or secular stock because they are the largest pure-play on soybeans in the US. The “defensive stock strategy” may be a help to the stock, but the negative news last month was just blown out of proportion. Those two reasons are why the shares are actually now higher than before the warning. BG shares have traded north of $60 on numerous occasions over the last 18 to 20 months, but they haven’t been able to stay there. That still leaves plenty of room from here to there.

Jon C. Ogg
July 27, 2006

U.S. Employment: Soft Landing Ahead

By Yaser Anwar, CSC of Equity Investment Ideas

Despite some hype this week that a blockbuster payroll report loomed, the June gain was below the average of the past 12 months, continuing a trend that started in April. A further moderation looms.


Corporate profit growth is expected to cool, and while we do not foresee a contraction ahead, executives are still likely to respond if our forecast for weaker consumption pans out.


I doubt that mass layoffs will occur (unemployment claims remain fairly low), but new job creation is likely to cool further.


The contraction in temporary employment during the past six months indicates that some cautiousness is developing and is a harbinger of weaker total payroll growth.


In sum, employment growth should slow over the balance of the year, enough to keep consumers from overspending, but not so much as to trigger a recession.

Source: BCA

http://equityinvestmentideas.blogspot.com/

Sell into this strength 'cause Fed will raise rate

By Yaser Anwar, CSC of Stock Market Beat

The government reported that orders to U.S. factories for big-ticket jumped by a durable goods stronger than expected 3.1& in June, powered by a rebound in demand for commercial aircraft.


The Labor Department said that the number of Americans filing claims for unemployment benefits last week fell by 7K to 298K, indicating continued strength in the labor market even though job growth has slowed in recent months.


For June, orders for durable goods, items expected to last at least three years, totaled $216.3 billion, an increase of $6.52 billion from the May level.


Excluding transportation, orders were up a solid 1 percent in June with strength being shown in demand for computers, communication equipment and primary metals such as steel.


Tomorrow's GDP report, which i expect to be stronger than expected (atleast 3.2%), will further add to my belief that Fed will now raise rates two more times.


Bottom Line: The strength in business investment shows the economy, even though slowing, is still doing better than expected. Falling unemployment claims means companies are hiring thus adding wage pressure. The market is showing strength due to two days of stellar earnings by Dow components (CAT, BA, GM & XOM). I think you should sell into it 'cause the Fed will be raising rates two more times.

http://equityinvestmentideas.blogspot.com/

Advertisers Embrace Analytic Tactics

By Yaser Anwar, CSC of Equity Investment Ideas

With Internet ad spend spiraling upward, JupiterResearch finds advertisers changing tactics to keep a lid on spending for their "key word" advertising.


Jupiter research associate Sapna Satagopan told a July 18 audio conference for Jupiter clients that simply making high bids for the top three key words—which are parceled out in blind auctions—will be increasingly "irrational" given ad price escalations. The first page of results from any consumer-directed Web search contains three slots for key word ads that are most coveted.


She notes that Jupiter's U.S. Paid Search Forecast, 2005 to 2010 estimates the average cost per click (CPC) for each consumer response to such key word ads will spike 14% from 2005 to 2007.



To keep ad spend efficient, a Jupiter survey U.S. Search Engine Marketing Executive Survey, 2006 found that five advanced tactics are now the first choice to direct key word ad spend for about three quarters of "sophisticated" advertisers. The most popular of the five is making future buys based on past buys with the highest return on investment (ROI), irrespective of changes in consumer traffic. Sophisticated advertisers accounted for one-quarter of advertisers in the Jupiter search marketing survey; they spent the most on ads and tended to use complex media tools.
Besides ROI at 28%, the other top criteria cited by surveyed advertisers in buying key word ads included:

• 20% spread their ad spending over increasingly more search engines to achieve consumer
traffic goals;

• 12% place based on search marketing revenue;

• 9% cite analysis of cost of goods sold per spot;

• 4% rely on bidding tools such as Google's bidding interface, third party vendor tools such as
Atlas Search as well as agency-provided tools.

"These are smarter ways to bid," says Satagopan. As the accompanying table indicates, only 10% of these sophisticated advertisers are primarily relying on internally-generated estimates. And just 7% of sophisticated advertisers in 2006 are bidding high simply to concentrate ad spend on just the top top-positions for key word ads—an elementary tactic. "This is good news as 'irrational' bidding is down for sophisticated marketers," notes Satagopan.


She noted that advertisers juggle several considerations when buying key words such as "digital camera" or "automobile." Advertiser ads accompany search results in Google, Yahoo!/Overture, Ask.com and other search engines.


Jupiter estimates the average click will cost an advertiser 47 cents in 2005, from blending the figure for expensive products such as houses at perhaps $20 per click down to low-cost key key words for mundane consumer items such as soda pop at 5 cents.


With Yahoo's search engine project being delayed, this gives Google the upperhand (not like it didn't have that already) to further boost its market share. Google has also improved its Adwords interface & customer service is alot better than before. Once the Fed stops raising rates (Historically, The Fed has to cut rates every 9-12 months after they stopped raising rates) i believe the market will pay a higher multiple for Google.

Sources: Excerpts from Kagan Research Newsletter & Jupiter Research

http://equityinvestmentideas.blogspot.com/

What Are the New Home Sales Really Telling You?

June NEW home sales were posted at -3% to 1.13M units annualized, and May was revised lower from 1.23 million to 1.17 million annualized. Based on what all of the homebuilders have been telling us for months and months, this really should not be a surprise. The consensus estimate was about 1.16 million units annualized.

So is 30,000 homes a huge difference? That represents only a monthly run of 2,500 homes spread out across the US. Inventories of new homes from homebuilders are up at a record 566,000. That is estimated at 6.1 months supply. This number is still high, but it is not like the doctor telling you that you have mesothelioma and you are terminal.

Broken down by region: The WEST was the only good market as it increased 8.2% in the West (AZ,CA,OR,WA). They fell 11.3% in the Northeast (NY, NJ, MA, etc.), 7.9% in the Midwest (MN, IL, OH) and 6% in the South. This number in the South is actually surprising considering that the Texas market is still strong. Some of this may be tied to Louisiana. There are MANY more places for sale that are existing homes and you can easily see many more "For Sale By Owner" signs. That is a clear mark of a weakening market, but is this still all that bad?

Back in the days before free money mortgages and instant online approvals and ridiculous incentives it took a much longer time to sell a home. New communities being built were also much smaller in scale. Now that all the homebuilders seem to be public, it seems the demand from shareholders states that homebuilders have to keep wowing everyone. That isn’t sustainable. Back in the 1950's there were some crazy projections that Chicago would essentially be tied to New York City in one giant megalopolis. If you have ever made that drive, you will know how ridiculous that sounds (besides that, you would have to go through Gary).

The iShares Dow Jones US Home Construction (ITB) are unfortunately too thin to gauge this. Pulte Homes (PHM) already just reported earnings and a more reasonable guidance, and its shares are actually up 1.2% at $30.43. Shares of Lennar (LEN) are up 0.5% at $45.46, but that is 1% under the intra-day highs. Beazer Homes (BZH) had slipped into negative territory but shares are now up 0.4% at $40.68.

The record was 1.41 million annualized last year in August. Sales of new single-family homes closed out 2005 at 1.282 million units, 6.6% above the previous annual record of 1.203 million in 2004. If you compare this current number, the total new homes sold were 976,000 in all of 2002 and only about 908,000 in 2001. Back in the 1990's these were often much lower.

It looks like the market is just learning to adapt with what is a more realistic housing market. It goes without saying that these homebuilders need to take a building breather and focus on their core earnings instead of endless building. That is what the street is telling them anyway.

It is always hard to catch a complete bottom and it is often that sectors which have fallen from grace can take months or even quarters to base out, but it sure feels like these are trying to form a base. Almost every homebuilder has been down 50% from their December 2005 to January 2006 highs. We have seen them base before and then endured them going lower still, so once again it is impossible to say they have definitely bottomed. It just feels as though the market is saying that it has finally tried to price in all the bad news. These won't turn around on a dime, but it is definitely worth trying to do some homework here in this group.

Jon C. Ogg
July 27, 2006

The Shorts Face the Guillotine At Symantec

Stocks: (SYMC)(YHOO)

The short position in Symantec at mid-July was huge. It had risen 23.9 million to 45.1 million, or 88%. Given that Symantec has the 11th largest short position of any stock traded on Nasdaq, the move was breathtaking.

But, the bet was wrong, or so it seems now.

Symantec revenue rose to $1.26 billion from $699 million in the year ago period. The revenue from the 2005 quarter did not include revenue from acquired company Veritas. The company raised its outlook for the year, and the CEO commented that the market had been overly concerned about the acquisition risk of Veritas.

The share of the company, famed for its Norton anti-virus software, jumped 10% top $17.38. The company now trades at 18% above its 52-week low. The company is still well shy of its 12-month high of $24.01, but getting out of the trough.

Short sellers obviously gambled that putting Symantec and Veritas together would be tough. The market also probably did not see the alliance with Yahoo! to distribute Norton software to the big websites customers. On the surface, it is a very good deal for Symantec.

Even Merrill Lynch rolled the dice a few days ago and cut Symantec to "neutral" from "buy". It could be that move cost some Merrill customer a few dollars.

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

Exxon Record Highs, Who Else is Under their 52-Weeks Highs

Stock Tickers: XOM, BP, RDS/A, OIH, VLO, CVX, IEO, IYE, IEZ, IXC

Exxon Mobil (XOM) reported an astounding $10.36 BILLION profit. This up over 35% from Q2 2005. EPS translated to $1.72 versus expectations of $1.64 to $1.65. Revenues were $99.03 Billion. While this is up from the $88.57 billion the year before, it is sequentially lower than Q1's $100.7 billion.

With the highest oil prices on average throughout any quarter, this is actually under what the company netted out in Q4 2005 at $10.71 billion.

Exxon Mobil said it spent $4.9 billion on capital and exploration projects during the quarter, up 8 percent from a year ago, while distributing $7.9 billion to shareholders in the form of dividends and share repurchases.

This stock is up 1.5% at $67.60 pre-market. That will show it at an all-time high and if this stock stays up here it will be representative of a technical break-out on the charts. We'll see if the charts rule the roost, but if it stays then it may have implications for the entire sector.

While this looks like a break-out for the monster Big Oil, there are many in the group that have lagged. The Oil Service HOLDRs (OIH) are up 1.5% pre-market too, but even over $145.00 they are still well under the May highs of $169+.

Competitors Royal Dutch Shell (RDS/A) are essntially on year highs, but BP Plc (BP) ADR's up 2.7% at $72.76 are actually under the 52-week highs of $76.85 from April-May. BP already reported earnings. Valero (VLO) is also up 1.1% at $67.00 pre-market, but their 52-week high is $70.75 from back in April. There is a myriad of secondary names, and we haven't even scratched the Asian and South American names. ChevronTexaco (CVX) is essentially on their highs as well.

We have several other iShares that can be looked at as well, but these are all near the highs.
-(IEO) iShares Dow Jones US Oil & Gas Exploration & Production
-(IEZ) iShares Dow Jones U.S. Oil Equipment & Services
-(IYE) iShares Down Jones US Energy
-(IXC) iShares S&P Global Energy Sector

So Far, So Good on the Earnings Front

By Chad Brand of The Peridot Capitalist

We still have a lot of reports to come, but so far second quarter profit reports have once again come in very strong. Aside from the obvious, a fairly strong economy, I think there are two key reasons why we are seeing strong corporate results.

The first is clean corporate balance sheets. Public companies are flush with cash which gives them a lot of flexibility in managing their business. Excess cash has been used for acquisitions as well as share repurchases quite heavily in recent quarters. M&A can be very accretive if done right, and buyback programs can add a penny or two to the bottom line in any given quarter.

The second reason earnings have been so strong, in my opinion, is because managements have finally figured out that the key is to under-promise and over-deliver. This is true in any business, public or private. However, in the go-go days of the late 1990's, stocks would only rise if the firms beat numbers and raised guidance every three months. CEOs had to be overly optimistic in everything they said in order to prop up their already richly valued stocks. As a result, expectations got way out of line and eventually the bar had to be ratcheted downward.

I think today is different. The trend has been to beat numbers and issue cautious guidance. This serves to hurt share prices right after results are released, but it brings expectations down for future quarters. Then, the company beats the reduced expectations the next quarter and again issues cautious guidance. The cycle simply repeats itself over and over again. Executives have finally figured out that hyping their company's future prospects can end badly if they fail to deliver on the lofty promises.

Readers of this blog know that I'd prefer companies shun quarterly guidance completely. However, if they insist on giving out financial projections every three months, at least most are setting the bar low enough that they can at least hit, and often even surpass, their projections.


http://www.peridotcapitalist.com/

All CSG Systems Go

By William Trent, CFA of Stock Market Beat

Analysts are paid to be paranoid, and sometimes the paranoia gets the better of us. One example of this was last week’s observation about Watch List member CSG Systems (CSGS) when we said that two press releases in one week was unusual for the company. We worried that they were trying to flood the market with good news ahead of potentially bad earnings.
We needn’t have worried.

CSG beat analyst estimates and raised guidance, sending the shares up 3 percent. Even after the move the company is trading at an enterprise value of just 12.5x its trailing free cash flow, a capitalization rate that implies approximately 2 percent annual free cash flowgrowth, which ought to be manageable. In fact, the company is projecting it will grow 25 percent this year (though that is somewhat of an anomaly). The company announced another share buyback, having already reduced the average share count by 2 million shares (four percent) in the last year. These are not just buybacks to replace shares issued to employees on stock option exercise. This is honest-to-goodness reduction in the share count.

So we misread this one. To be fair, it isn’t like we were pounding the table to sell. We closed out our argument with:
Now, before you pull out your order book consider a few points. First, really bad news like losing a top five customer would probably have been announced already due to the Sarbanes Oxley rules. Second, the stock is already pretty reasonably valued on an enterprise value to free cash flow basis. Third, the nature of the companies business results in earnings and cash flows that are quite stable. Of course, that overall stability sometimes results in market overreactions to small misses.

In the end, we may be reading too much into two stories that just coincidentally came out this week. But they caught our attention, and we figured we would bring them to yours.
But let’s not whitewash it. The jist of the piece was clearly negative and clearly wrong, and we want to own up to those just as we crow about our successful calls.

http://stockmarketbeat.com/blog1/

Rockwell Automation: Will Investors Ever Learn?

By William Trent, CFA of Stock Market Beat

Rockwell Automation (ROK) sells factory automation equipment. If ever there was an industry poised to do well in today’s economic environment, Rockwell is in it. Productivity growth is the only way manufacturing companies can keep up with low-cost providers.
Rockwell just posted an outstanding quarter.

According to Reuters:
Net income increased to $149 million, or 83 cents per share, from $127.3 million, or 68 cents per share, a year ago. Wall Street analysts expected net income of 81 cents per share, according to Reuters Estimates.

Sales of its products, which help factories run more smoothly, came in at $1.4284 billion, up 13.5 percent from $1.2647 billion a year ago. Analysts expected third-quarter sales of $1.3989 billion.
Rockwell expects full-year 2006 results to “modestly exceed” its prior forecast of earnings per share from continuing operations of $3.25 on 11 percent revenue growth.

Not the kind of news one expects to send a stock down more than 10 percent for the day. In part, Wall Street was disappointed that after beating estimates the full-year guidance wasn’t really raised. In fact, some analysts consider the company to have reduced guidance:
Deutsche Bank analyst Nigel Coe wrote in a research note that the profit beat Wall Street expectations largely due to a lower-than-expected tax rate. The lower tax rate, he said, means that “the quality of this (full year profit forecast) number has been lowered.”

Whatever. Management reiterated on the call their past comments that the tax rate can jump around from quarter to quarter due to the timing of various items.This all brings us back to April, 2005. The stock sold off sharply because the company “missed” its earnings target for the quarter. Problem is, Rockwell doesn’t give quarterly guidance. The high ticket prices of their equipment means there is too much volatility in quarterly numbers just because a sale occurs a few days earlier or later than the quarter end. No matter. Wall Street came up with their estimates and punished the stock for failing to meet them.

Of course, the company went on to exceed the annual guidance it had provided, the selloff marked the low of the year and by the following April the share price had nearly doubled.

Can the same thing happen again? Possibly. The stock is now trading at about 16x the consensus estimate for fiscal year ending in September 2007. That is not dirt-cheap in today’s market, but not outrageous either. Now consider some of management’s comments on the conference call:
We are currently in the teeth of a major correction in demand from our Detroit automotive market. Sales from the Detroit region were down almost 50% this quarter, which in turn reduced total company growth by more than a point, Logix growth by about two points, and control systems’ conversion margin by about five points. In the past, a correction of this magnitude would have had significant consequences for Rockwell Automation. Our ability to deliver double-digit growth during such a correction would have been unimaginable 10 years ago. Quarter four will see a similar 50% year-over-year sales decline in Detroit – and we expect to again deliver double-digit revenue growth.

Currently, we still believe we’re in the 11th quarter of the expansion (of industrial capital spending), and if you look at the historical definition of those expansions, it would last anywhere between 25 and 35 quarters, and I think what we’re continuing to see is disciplined spending by our customers.

This is a solid company that backs up its promises. While it had gotten expensive for today’s market, there was no need for the panic selling following its earnings report.

http://stockmarketbeat.com/blog1/

Back to Basics

By William Trent, CFA of Stock Market Beat

Summary: Higher
Value Line says the following in their latest Metals & Mining Industry Survey:

Thanks to good recent price and earnings momentum, the Metals & Mining (Diversified) Industry continues to be ranked near the top of all the industries covered by Value Line in terms of Timeliness. Equities of companies here, however, have not been immune to the considerable volatility that the stock market has experienced thus far in 2006, arising partly from fears that record oil prices will spark a pickup in inflation and ultimately damage the economy. The Metals & Mining Industry, though, has tended to perform better than many other sectors, supported mainly by strong commodity prices. Another contributing factor has been heightened merger activity, as managements are hoping that the current industry up-cycle will last longer than previous ones, given the rise of China, India, and other developing nations. That said, several issues here are good selections for relative price action for the coming six to 12 months.


PPI data showed that pricing remains strong for most of the basic materials.


Organic chemicals bucked the trend:
But steel looks like it may be rising again (right).

Zinc shortfall was 120,000 t short of demand for the first five months of the year, because of higher consumption of the metal used to galvanize steel, the International Lead and Zinc Study Group said. Watch List Companies

Freeport-McMoRan Copper & Gold Inc. (FCX) reported second-quarter profit more than doubled, as higher prices helped offset a shortfall in copper production at its vast Grasberg mine in Indonesia. Net earnings jumped to $367.3 million, or $1.74 per share, from $175 million, or 91 cents, in the same quarter of 2005. In June, Freeport said copper production at Grasberg would be below estimates because of an unusual amount of clay in the section being mined. Glamis Gold Ltd. (GLG) finalized an agreement with the Guatemalan Government to begin payment of income tax effective July 1, 2006. The temporary exemption from the payment of income tax would have expired at the end of 2007. The earlier payment of the income tax will accelerate improvements to services and infrastructure in areas near the Marlin Mine and complement the employment and economic benefits currently being provided (2005 activity details can be found on the Glamis website under Properties-Marlin-Reports/Technical Items-2005 AMR). The funds will also be used for increased capacity building within government ministries with mining responsibilites. Assuming $600 gold and $10 silver prices the income tax will be approximately $4.8 million in 2006 and $10 million in 2007 based on current production guidance.

Sasol, Solidarity reach deal, three-day strike ends

Other News

Xstrata of Switzerland said it would increase its all-cash bid for the Canadian mining company Falconbridge a second time, by 7.2 percent, to 19.2 billion Canadian dollars ($16.9 billion).

World No. 2 gold miner Newmont’s output will be slightly down in 2006 and 2007 before it begins to rise in 2008, CEO Wayne Murdy said, adding that he expected gold prices to remain strong for years.

Palamin reports 8% rise in H1 copper production Falconbridge 2Q Copper Output Up 6% At 107,500 Tons BHP’s carbon-steel materials unit, which produces iron ore, coking coal and manganese, was the largest contributor to earnings in the six months ended December, earning $2.3 billion, or 34 percent of total pretax profit. Iron ore output has fallen for two straight quarters for BHP before this one, partly due to wet weather and as its expansion works limit production. Copper production rose 16 percent to 311,700 tons in the three months ended June 30, it said. Nickel output rose 31 percent to 41,600 tons. Its metals production rose as last year’s A$9.2 billion ($6.9 billion) acquisition of WMC Resources Ltd. made BHP the world’s third-largest nickel producer and one of the biggest copper producers.

Teck Cominco reports record net earnings of $613 million for the second quarter

Inco produced 140 million pounds of nickel during the quarter, which was 26% higher than a year-earlier production. Cash cost of sales for nickel unit, after by-product credits was well below at US$2.08 per pound, 26% lower from costs for prior-year quarter.

Global miner Rio Tinto Ltd has boosted its iron ore production to record levels, after fighting back from a cyclone-affected first quarter to take full advantage of a recent iron ore price hike. The miner produced 33.32 million tonnes of iron ore in the second quarter, up four per cent on the previous corresponding period.

http://stockmarketbeat.com/blog1/

Shorts Flee Sun Micro (SUNW)

If the world of short sellers in any indication, Sun Microsystems has better days ahead. The short position in the big hardware company fell 21.6 million shares to 38.2 million in mid-July.
It's good news for Sun shareholders.

The company has already demonstrated that it may be in the early stages of turning the corner. Revenue in the last quarter hit $3.83 billion. Sun's EPS and revenue were both better than the Wall St. consensus. Investors were particularly pleased to see service revenue up 25% to $1.3 billion. This unit probably has more promise that the computer systems part of the company.

The stock rose on the news and now stands at $4.27, up 20% from its 52-week low.

If the shorts keep moving out, or get pushed out, of the stock by a rising share price and improved results, the stock could run back toward $5.

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

Pre-Market Notes (July 27, 2006)

(AAI) Airtran $0.33 EPS vs $0.28e; stock up 6%.
(AB) Alliance Berstein $0.89 EPS vs $0.82e.
(ABI) Applied Bio $0.35 EPS vs $0.34e.
(ACXM) Acxiom $0.20 EPS vs $0.18e.
(AEIS) Advanced Energy $0.40 EPS vs $0.30e.
(AET) Aetna $0.64 EPS vs $0.63e.
(AKAM) Akamai Tech $0.20/R$100.59M vs $0.18/$94.8M(e).
(ALA) Alcatel $0.13 EPS vs $0.12e.
(AN)AutoNation $0.42 EPS vs $0.43e.
(APPB) Applebees $0.34 EPS vs $0.29e.
(ARG) Airgas $0.48 EPS vs $0.45e.
(ARQL) Arqule -$0.21 EPS vs -$0.27e.
(ARRS) Arris $0.24 EPS vs $0.23e.
(ASCA) Ameristar Casinos $0.32 EPS vs $0.24e.
(AXYS) Axys Tech $0.24 EPS vs $0.23e.
(BANR) Banner $0.77 EPS vs $0.58e.
(BBW) Build-a-Bear Workshop $0.15 EPS vs $0.09e.
(BFAM) Bright Horizon Family $0.40 EPS vs $0.37e.
(BG) Bunge $0.03 EPS vs $0.02e. Guided in-line for the year.
(BIDU) Baidu.com $0.21 EPS vs $0.18e; guides next quarter higher.
(BLUD) Immucor $0.17 EPS vs $0.16e.
(BOBJ) Business Objects $0.31 EPS vs $0.28e.
(BOW) Bowater -$0.18 EPS vs -$0.30e.
(BSTE) Biosite $0.70 EPS vs $0.55e, unsure if comparable.
(BSX) Boston Scientific $0.31 EPS vs $0.29e.
(BZH) Beazer Homes $2.37 EPS vs $2.38e.
(CRA) Celera Genomics -$0.07 EPS vs -$0.19e.
(CAM) Cooper Cameron $0.64 EPS vs $0.57e.
(CCE) Coca Cola Enterprises $0.56 EPS vs $0.55e.
(CCMP) Cabot Micro $0.40 EPS vs $0.39e.
(CDNS) Cadence Design $0.23 EPS vs $0.22e.
(CELG) Celgene $0.11 EPS vs $0.10e.
(CEPH) Cephalon raised guidance.
(CKP) Checkpoint Systems missed earnings and lowered net guidance for 2006.
(CLF) Cleveland Cliffs $1.53 EPS vs $1.35e.
(CMCSA) Comcast $0.22 EPS vs $0.20e and lifted guidance slightly.
(COHR) Coherent $0.34 EPS vs $0.31e.
(COL) Rockwell Collins $0.70 EPS vs $0.70e.
(CONR) Connor Systems 3.5M share secondary priced at $25.50.
(CRUS) Cirrus Logic $0.10 EPS vs $0.09e.
(CTAS) Cintas doubled its existing share buyback plan to $1 Billion.
(CYBE) Cyberoptics $0.21 EPS vs $0.15e.
(CYBS) Cybersource $0.07 EPS vs $0.04e.
(CYCL) Centennial Communications filed to sell $700+ million in securities.
(CYH) Community Health $0.54 EPS vs $0.53e.
(CYNO) Cynosure $0.12 EPS vs $0.11e.
(CYTC) Cytyc $0.27 EPS vs $0.26e.
(DCX) DaimlerChrysler beat earnings expectatiions in Germany.
(DSS) Quantum DSS $0.02 EPS vs $0.03e.
(ELY) Callaway Golf $0.38 EPS vs $0.45e.
(EME) Emcor $0.56 EPS vs $0.50e.
(EPIC) Epicor Software $0.20 EPS vs $0.18e.
(ESRX) Express Scripts $0.75 EPS vs $0.73e.
(ESST) ESS Tech -$0.36 EPS vs -$0.31e.
(ETH) Ethan Allen $0.66EPS vs $0.64e.
(FIC) Fair Isaac $0.40 EPS vs $0.40e.
(GB) Wilson Greatbatch $0.32 EPS vs $0.25e.
(GDI) Gardner Denver $0.62 EPS vs $0.56e.
(GMR) General Maritime $0.80 EPS vs $0.58e; unsure if comparable.
(HET) Harrah's $0.95 EPS vs $1.01e.
(HGR) Hanger Orthopedic $0.13 EPS vs $0.11e.
(HLIT) Harmonic $0.00 EPS vs -$0.01e.
(HPC) Hercules $0.32 EPS $0.31e.
(HRS) Harris $0.65 EPS vs $0.61e.
(HSC) Harsco $1.28 EPS vs $1.15e.
(HSIC) Henry Schein $0.50 EPS vs $0.49e.
(IMAX) IMAX noted as takeover candidate of Sony and others in online reports.
(INCY) Incyte -$0.24 EPS as expected.
(INTL) Inter-Tel $0.18 EPS vs $0.20e.
(IPCS) iPCS -$0.62 EPS vs --$0.72e.
(IRM) Iron mountain $0.25 EPS vs $0.22e.
(ISRG) Intuitive Surgical $0.55 EPS vs $0.41e, but was $0.44 after items.
(ITRI) Itron $0.62 EPS vs $0.54e.
(KLIC) Kullicke & Soffa $0.24 EPS vs $0.19e.
(KOMG) Komag $1.21 EPS vs $1.14e.
(KTO) K2 $0.07 EPS vs $0.06e.
(KYPH) Kyphon $0.21 EPS vs $0.21e.
(LOOP) Loopnet $0.09 EPS vs $0.08e.
(LSI) LSI Logic $0.14 EPS vs $0.12e; guides next quarter $0.11-0.13 vs $0.14e.
(MBIA) MBI $1.50 EPS vs $1.44e.
(MIL) Millipore $0.72 EPS vs $0.67e.
(MLNM) Millenium Pharmaceuticals $0.01 EPS vs -$0.02e.
(MIPS) MIPS Tech $0.14 EPS vs $0.10e; unsure if comparable.
(MRVC) MRV Communications $0.01 EPS vs -$0.01e.
(MTSN) Mattson Tech $0.10 EPS vs $0.12e.
(NABI) Nabi Bio -$0.24 EPS vs -$0.20e.
(NETL) NetLogic Micro $0.32 EPS vs $0.32e.
(NEWP) Newport $0.22 EPS vs $0.16e.
(NGPS) NovAtel $0.62 EPS vs $0.54e.
(NVT) Navteq $0.25 EPS vs $0.28e; stock down 10%.
(NVTL) Novatel Wireless down 5% afterbeating expectations.
(OCAS) Ohio Casulaty $0.55 EPS vs $0.59e.
(OI) Owens Illinois $0.31 EPS vs $0.34e, but looks like it had charges in number.
(OSI) Outback Steakhouse $0.40 EPS vs $0.47e; unsure if comparable.
(PCCC) PC Connection $0.13 EPS vs $0.09e.
(PHM) Pulte Homes $0.94 EPS vs $0.91e.
(PHTN) Photon Dynamics $0.30 EPS vs $0.23e.
(PSYS) Psychiatric Solutions $0.29 EPS vs $0.27e.
(RADS) Radiant Systems $0.13 EPS sv $0.11e.
(RESP) Respironics $0.43 EPS vs $0.40e.
(RNT) Aaron rents $0.39 EPS vs $0.35e.
(ROCK) Gibralter Steel $0.66 EPS vs $0.62e.
(RRA) Rail America $0.20 EPS vs $0.21e.
(RSG) Republic Services $0.52 EPS $0.50e.
(RTN) Raytheon $0.65 EPS vs $0.63e.
(RUTH) Ruth's Chris Steak house $0.21 EPS vs $0.19e.
(SANM) Sanmina fell another 5% after-hours after saying they would offer earnings only after the options review; showed revenues $2.71 billion versus $2.73 billion.
(SCUR) Secure Computing $0.08 EPS vs $0.07e.
(SFNT) Safenet $0.22 EPS vs $0.23e.
(SHOO) Steven Madden $0.58 EPS vs $0.46e.
(SIGM) Sigma Designs announced a shareholder derivative suit againstthe company for stock options granting.
(SKX) Skechers $0.40 EPS vs $0.46e.
(SMG) Scotts Group $1.93 EPS vs $1.95e.
(SONO) Sonosite $0.16 EPS vs $0.13e.
(SRA) Serono $0.32 EPS vs $0.27e.
(SSTI) Silicon Storage has 2 different stock option issues that it disclosed.
(STNR) Steiner Leisure $0.61 EPS vs $0.59e.
(SYMC) Symantec gained 6% after beating estimates; next quarter looks lower but 2007 in-line to above range.
(TALX) Talx $0.22 EPS vs $0.20e.
(TLAB) Tellabs $0.16 EPS vs $0.14e.
(TOC) Thomson $0.34 EPS vs $0.31e.
(TQNT) Triquint Semi $0.04 EPS vs $0.03e.
(TRFC) Traffic.com -$0.23 EPS vs -$0.29e.
(TSCO) Tractor Supply $1.05 EPS vs $1.01e.
(TYL) Tyler Tech $0.09 EPS vs $0.07e.
(VRTX) Vertex -$0.60 EPS vs -$0.52e.
(WCN) Waste Connections $0.41 EPS vs $0.41e.
(WEBX) Webex $0.34 EPS vs $0.32e; guides next quarter $0.34-0.36 vs $0.35e; sees fiscal year in line to above mid-point.
(WFR) Memc Electronics $0.45 EPS vs $0.42e.
(WMGI) Wright Medical $0.15 EPS vs $0.13e.
(WOOF) VCA Antech $0.35 EPS vs $0.32e.
(XOM) $1.72 EPS vs $1.65e; profits were $10.36 billion.
(ZMH) Zimmer Holdings $0.83 EPS vs $0.82e.

XM Thud

XM Satellite Radio Holdings (XMSR) is trading down at $10.02 from the $10.36 close yesterday. The company also said they passed the 7 million subscriber mark.

Q2 revenue of approximately $228 million. EPS -$0.87 EPS vs -$0.69e (see items below).

Earnings notes: XM's net loss for the second quarter of 2006 was $229 million compared to a net loss of $147 million during the second quarter of 2005. The net loss for the second quarter of 2006 includes $105 million in de-leveraging and other non-operating charges that were not incurred during the second quarter of 2005. For the second quarter of 2006, the adjusted EBITDA loss (non-GAAP) improved to $46 million versus an adjusted EBITDA loss of $88 million in the second quarter of 2005. The primary differences between net loss and adjusted EBITDA are non-operating amounts and certain operating non-cash charges.

Company Revises Subscriber Guidance for 2006: Based on current marketplace dynamics and regulatory uncertainties concerning 'plug-and-play' radios, XM today also reported a change to its subscriber guidance for 2006, projecting that it will end the year with total subscribers of between 8.2 million and 7.7 million. The company will refine this range at the end of the third quarter when it expects to have a firmer sense of regulatory progress and availability of product for the fourth quarter, as well as retail sales trends. With this revised subscriber guidance, XM still expects to achieve positive cash flow from operations for the fourth quarter 2006 and the full year 2007, although its ability to do so becomes challenging toward the lower end of the subscriber range.

Remember, these guys need to do much more than this to keep shareholders happy.

Cramer's Technology TAKEOVER LIST

Cramer said many tech stocks could be takeover candidates. He said these fit the profile, but that doesn't mean they get bought. Look for profitable and battered stocks or where they are down on glitches; and fit a hole for a larger company. He also said not to avoid a company that may have had a near-term miss, as long as it would be a strategic play for other larger companies. Cramer noted that there are far too many technology companies and he could envision waves of mergers in the sector. Business Objects (BOBJ) was booted as was Symantec (SYMC) off of the lists. Here is the list:

Broadcom (BRCM)
Western Digital (WDC)
Wind River (WIND)
Websense (WBSN)
BEA Systems (BEAS)
Tibco (TIBX)
Filenet (FILE)
Avid Tech (AVID)
ActivIdentity Corp. (ACTI)

TWX: Dick Parsons and George Armstrong Custer

Stocks: (TWX)(NWS)

Generals and CEOs seem to have more lives than cats do. Custer had eleven horses shot from under him and was wounded in the leg during the Civil War. He was under fire on dozens of occasions. Dick Parsons has not had such a dangerous life, but he has been around. He was the president of a modest bank in New York. Later, he was recruited to TimeWarner, before the AOL merger. He not only survived the merger, but outlived Gerald Levine and Steve Case, the architects of the agreement. Parsons has even dodged an attempt by Carl Icahn to rally institutional investors, throw the CEO out, and break the company into pieces.

The problems for Mr. Parsons are serious again. He has done most of the obvious things to improve his company’s fortunes. Costs have been cut at the lagging divisions like the old-line publishing operation, Time, Inc. The company plans to spin out its cable operation, which is an extraordinary cash cow, in the hopes that it will “unlock shareholder value” by not being tucked in with AOL, Time Inc, the Warner studio and the company’s other operations.

Sobeit. Those things are done or in process and have almost certainly been priced into the stock. Ah, the stock. The chart of the company’s stock has graced hundreds of stories about Time Warner. Suffice it to say that, at $16.20, it trades near its 52-week low. The share price is 1.6 times sales. Even down-and-out rival Viacom trades at 2.4 times.

Now, Time Warner has decided that the only way to save its most visible problem, AOL, is to allow paid subscribers of its service free access to all of its content. The internet service provider will still charge for dial-up services, but will not promote them. Various figures have been put on the loss of revenue for making this move, but the one from the Wall Street Journal is as good as any--$1 billion out the door between now and 2009. To replace that, AOL would have to make a gross margin on its business that is larger than Yahoo!’s annual gross profit.

It won’t work. Time Warner’s operating income in the quarter that ended in March was $1.866 billion. If the AOL math for replacing subscription revenue with advertising is not perfectly executed, the costs to shareholders are near the edge of reasonable calculation.

If TimeWarner thinks $16 is a low share price, they ain’t seen nothing yet.

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

GM’s Stock Could Rise 75%, Again

Stocks: (GM) (DCX)


The stock in General Motors has risen 75% from its 52-week low of $18.33 to the current $32. A lot of Wall St. investors would suggest that anyone who thinks it will rise that much again this year should be put on anti-psychotic drugs. Maybe not.

GM’s revenue rose from $48.5 million in the quarter a year ago to $54.4 billion in the current quarter. Without one-times items factored in, the company made $1.2 billion. Cash on the balance sheet went up $500 million. The company made two other important announcements. One was that it would up its annual savings target by $1 billion to $9 billion per annum. The other was that the company’s new line of pick-ups and SUVs is doing well. Counterintuitive, given gas prices.

Now that the General has effectively thrown out Carlos Ghosn with good numbers and muscle-man statements about the pace of its turnaround, the question becomes how high is up?

GM’s stock trades at 10% of revenue. DaimlerChrysler trades at 25% of revenue. GM is not near where Daimler is from a balance sheet or earnings level, yet.

In January 2004, GM’s stock changed hands at $55, which is roughly 71% above the stock’s current price. The year 2003 had not been a bad one for GM. Revenue was $185.5 billion. Earnings before taxes were almost $3 billion, and, after taxes, $2.3 billion.

Take the quarter just reported, less one-time events, and annualize it. Revenue would be $216 billion. Income would be $4.8 billion.

If GM commanded DaimlerChrysler’s revenue-to-price ratio, the General’s stock would trade at $80. Not likely. But, if the company gets back to an annual income run rate of $4 billion, the idea of the stock hitting $55 is entirely possible. With annual cost saving of $9 billion a year, and a small tail wind in sales, GM may just get there.

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

Europe Stock Market Report 7/27/2006

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

Markets in Europe were higher at 6 AM New York time.

The FTSE was up .8% to 5,921. Barclays was up 1.5% to 625.5. BP was up 2.1% to 647.5. British Air was up 1.1% to 384.25. BT was down .3% to 236.75. GlaxoSmithKline was down 1.3% to 1487. Prudential was up 1.3% to 591. Reuters was down .1% to 396.25. Unilever was down .2% to 1256. Vodafone was up .2% to 115.75.

The DAXX was up 1% to 5,637. Bayer was up 1.4% to 39.38. BMW was up 3.2% to 39.9. DaimlerChrysler was up 2.3% to 39.74. DeutscheBank was up .8% to 89.27. Deutsche Telekom was down .3% to 12.06. Infineon was down 1% to 8.19. SAP was up 1% to 141.81. Siemens was down 2.8% to 62.7.

The CAC 40 was up .8% to 4,983. Alcatel was down 2.7% to 8.4. AXA was up 1.4% to 26.3. France Telecom was down 2.7% to 16.16. ST Micro was down .2% to 11.61. Thomson was up 6.6% to 13.44. Vivendi was up .3% to 26.51.

Douglas A. McIntyre

Nasdaq Short Positions July 2006

As of mid-July these were the major companies with large or significantly changing short positions:


Largest positions:

Sirius 110.1 million
Yahoo! 87.7 million
Microsoft 87.5 million
JDS Uni 83.2 million
Level 3 81.6 million
Intel 69.0 million
Charter Com 65,8 million
JetBlue 51.8 million
eBay 50.0 million
Symantec 45.1 million
Oracle 45.0 million
Cisco 39.1 million
Comcast 38.1 million
XM Sat 37.1 million
Amazon 36.6 million
Dell 36.0 million
Sun 32.8 million

Largest increases:

Symantec 21.3 million
Microsoft 14.4 million
Finisar 9.7 million
Transmeta 7.1 million
Yahoo! 6.4 million
Jetblue 6.1 million
Take-Two 5.5 million


Largest decreases:

Sirius 37.2 million
Level 3 23.4 million
Sun 21.6 million
Ciena 20.6 million
Atmel 11.8 million
Integrated Dv 9.1 million
JDS Uni 7.6 million

Largest short ratios:

Integrated Alarm 73 days
Renaissance Lrn 61 days
3D Systems 43 days
SCO Group 42 days
AtheroGenics 4o days
KVH Ind 39 days


Douglas A. McIntyre

Realtors: Home Prices May Fall

By Yaser Anwar, CSC of Equity Investment Ideas

The National Association of Realtors yesterday announced that home prices could start to fall nationwide in the coming months for the first time in a decade, reports USA Today.

They made the announcement on the heels of reporting that existing home sales tumbled in June, for the eighth time in 10 months. The NAR also said that the number of homes for sale reached its highest point since 1997.

David Lereah, NAR chief economist, tells USA Today that he expects “price numbers to start deteriorating.”

In some markets, prices are already falling. Prices of condos nationwide have fallen 2.1 percent in a year. Single-family home prices increased just 1.1 percent from last year.

“Prices got too high in some local markets,” Lereah said. “So you're seeing two things occur: Investors are leaving quickly, and regular home buyers are staying on the sidelines.”

As a result, there’s a 6.8-month supply of single-family homes and an eight-month supply of condos, according to the NAR. Compared to a year ago, existing home sales are down 8.9 percent.

“Markets which have been the hottest are quite likely to see home price declines,” John Ryding, an economist at Bear Stearns, tells USA Today. “In those markets, you could see declines for the year.”

In the West, which includes hot housing markets California, Nevada, and Arizona, sales of existing homes fell 17.1 percent in a year. The California Association of Realtors announced that home sales plunged 26 percent in a year and are off 20 percent for 2006.

“Affordability has probably hit a record low,” Robert Kleinhenz, deputy chief economist for CAR, tells USA Today.

In the Northeast, another hot housing region, sales fell 9.8 percent. The Midwest experienced a 6.2 percent decline in sales, and sales in the South fell 5.5 percent.

The Washington Post reports that home prices in the Washington, D.C. area are falling in certain areas for the first time in five years.

Peter Morici, an economist at the University of Maryland, tells the Post “prices could drop 10 percent by the end of the year, and perhaps by 20 percent ‘by the time it's all over.’”

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

WSJ Update

By Yaser Anwar, CSC of Equity Investment Ideas

GM's Loss Widens on Restructuring
GM reported a $3.2 billion loss that included $4.3 billion in charges, in part due to an employee-buyout program. But investors were cheered by the auto maker's cost-cutting efforts and a 12% jump in revenue.


U.S. SEC Issues Rules on Executive Pay
The SEC approved new requirements on disclosing executive pay, including stock-option grants.


Cease-Fire Remains Out of Reach
Fighting continued on the Israel-Lebanon border as the U.S., Europe and Arab countries pledged to forge a plan to persuade Israel and Hezbollah to put down their guns. The deal, however, fell short of an immediate cease-fire. (Transcript)


U.S. Fed Report Indicates Slower Growth
The Fed "beige book" found slowing economic growth and generally modest inflation, possibly giving the central bank another reason to stop raising rates soon.


Boeing Reports $160 Million Loss
Boeing swung to a $160 million loss as charges offset robust jet orders, and it signaled rising development costs for its 787 jet.



EMI Won't Pursue Bid for Warner Music
EMI plans to say that it is no longer pursuing a $4.6 billion proposal to buy Warner Music, the latest failure in efforts for a tie-up.


ABB's Net More Than Doubles
ABB said quarterly net profit more than doubled, boosted by continued strong demand for automation and power equipment.


Friendster Patent Could Hurt Rivals
Friendster is weighing whether to sue rival social-networking Web sites or take other action for alleged patent violations.


Major Telecom-Gear Vendors Revise Systems
Five telecom-gear firms plan major changes in network technology to handle multimedia services.


Amazon.com and Boeing Help Quash a Rally
Many stocks swooned in late afternoon, with Amazon.com and Boeing among the prominent decliners. But GM and Mercury Interactive advanced.

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

Media Digest 7/26/2006

Stocks: (WMG)(GM)(SNE)(CSCO)(MOT)(NT)(QCOM)(LU)(ALA)(SI)(MSFT)(BA)

According to Reuters, the music company EMI has decide not to buy rival Warner Music. The news took EMI shares down as much as 7%

Reuters said that Royal Dutch Shell's profits rose 36% in the second quarter, beating analyst estimates.

Reuters writes that GM's financial results put less pressure on the company's management to enter a three was partnership with Renault and Nissan.

According to the Associated Press, Sony had a profit of $276 million in the quarter that ended in June compared to a loss in the year ago period. Revenue rose to $14.9 billion. Sales at Sony pictures were up 42% due primarily to the movie "The Da Vinci Code".

According to the Wall Street Journal, five large telecom equipment manufacturers will introduce next-generation product that will have support for Internet Protocol Multimedia Services which will allow their customers to support voice, data and video services as consumers move from cellphones to PCs to TVs. The systems are initially being created for phone giant Verizon. The companies that will offer the technology are Cisco, Lucent, Motorola, Nortel, and Qualcomm.

The WSJ reports that Alcatel's profits dropped 8%. The telecom equipment manufacturer had declining margins in its wireless infrastructure business. The company said its profit would not change much next quarter as it competes with rivals like lower price Chinese manufacturers.

WSJ reports that the net at Siemens doubled to $1 billion, as results improved partially due in part to the sale of its money-losing mobile phone unit which it sold to Taiwan's BenQ.

The New York Times reports that Microsoft will market software designed for the health care industry. The company has purchased a company that makes clinical healthcare software which was developed by doctors.

The New York Times reports that Boeing swung to a lose in its last quarter due to costs of settling legal issues around ethics violations.

Douglas A. McIntyre

Asia Markets 7/27/2006

Asian markets were up broadly.

The Nikkei was up 2% to 15,180. Canon was down .6% to 5390. Daiwa Securities was down .1% to 1204. Fuji Photo was up .8% to 3760. Fujitsu was up 3.3% to 852. Hitachi was up .8% to 723. Honda was up 2.1% to 3850. Japan Air was down .5% to 208. NEC was up 1.7% to 588. NTT was up 1.4% to 590000. Nissan was up 2.4% to 1250. Ricoh was up 3.6% to 2295. Sharp was up 2.1% to 1905. Sony was up 2.2% to 5020. Softbank was up 3.3% to 2030. Toyota was up 1.4% to 5990.

The Hang Seng was up 1.7% to 16,897. Cathay Pacific was up .6% to 13.88. China Mobile was up 5.1% to 49.35. China Netcom was down .7% to 14. HSBC was up .9% to 140.1. Lenovo was up .8% to 2.52. PCCW was down 1.2% to 4.84.

The KOPSI was up 1.3% to 1,296.

The Straits Times Index was up 1.4% to 2,439.

The Shanghai Composite was down .7% to 1.675.

Douglas A. McIntyre

Cramer's Technology TAKEOVER LIST

Cramer said many tech stocks could be takeover candidates.

he said these fit the profile, but that doesn't mean they get bought. Look for battered stocks or where they are down on glitches; and fit a hole for a larger company. Business Objects (BOBJ) was booted as was Symantec (SYMC) off of the lists. Here is the list:

Broadcom (BRCM)
Western Digital (WDC)
Wind River (WIND)
Websense (WBSN)
BEA Systems (BEAS)
Tibco (TIBX)
Filenet (FILE)
Avid Tech (AVID)
ActivIdentity Corp. (ACTI)

Market Wrap for July 26, 2006

DJIA 11,102.51; Down 1.20 (0.01%)
NASDAQ 2,070.46; Down 3.44 (0.17%)
S&P500 1,268.40; Down 0.48 (0.04%)
10YR-Bond 5.036%

The beige Book sort of showed a Fed that was close to being done, and with an economy that was still partially left intact. That was just what the market wanted to hear and kept us from going too deep into the red for closing levels. Today was almost all about the earnings and guidance. If we posted all of the summaries you would be reading until tomorrow, so we just scooped a few different stories for the close.

We had a tale of two GPS-ies today. Both Trimble Navigation (TRMB) and SiRF (SIRF) looked ok on the earnings, but SIRF fell over 20% to close at $19.69 on weaker than planned guidance and TRMB rose 7.7% to close at $46.33 after beating expectations.

RF Micro Devices (RFMD) rose a sharp 7.3% to close at $6.40 after its ernings.

ConocoPhillips (COP) rose 1.7% to $68.60 after it posted even higher earnings than the street was expecting.

Norfolk Southern (NSC) led the transports much lower again after missing results; NSC fell 8,5% to $41.40. UPS (UPS) fell for a second day after it poor guidance yesterday closing down 5.5% to $67.83.

General Motors (GM) rose a sharp 4.3% to $32.00 after posting earnings over $2.00 per share after gains.

Panera (PNRA) fell 12% to $51.93 after it reported earnings and said a delay in pizza would impact the top line.

Under Armour (UARM) fell 1.9% to $40.67 after beating estimates and raising guidance, but the "whisper" number watchers wanted more.

Amazon.com (AMZN) fell a whopping 21% to $26.26 after it failed to meet EPS expectations yesterday, despite the good revenue guidance.

Black & Decker (BDK) posted a horrible day falling after it lowered earnings expectations; BDK closed down 6.8% at $71.15.

Flextronics (FLEX) actually rose about 6.5% to close at $11.29 after showing not all EMS, or dubbed outsourced manufacturers, have earnings issues; FLEX beat both revenues and EPS targets.

Sun Micro (SUNW) rose over 4% to close at $4.27 after it actually exceeded estimates on a non-GAAP basis and beat revenue expectations.

Internet banking pure-play NetBank (NTBK) fell over 11% to $5.69 after forecasting wider losses than plan, and after losing more accounts. That puts it at yet another year low for a closing price as investors don't want a bank that loses money even if it is close to book value and even if it is an Internet bank.

NON-EARNINGS NEWS

HCA (HCA) rose 0.7% to $49.60 after reports surfaced signaling that private equity giant Blackstone may be interested in competing against Bain and management in a buyout.

Google (GOOG) fell almost 1% to close at $385.50 after saying it would start showing advertisers when it suspected click fraud.

Amgen (AMGN) managed to close up almost 3% at $69.61 after Jim Cramer and TheStreet.com said this name looks good.

Encysive (ENCY) gained 7.8% after being the biggest loser of Tuesday.

Jon C. Ogg
July 26, 2006

Symantec, an Earnings Leak?

Shares of Symantec made a mystery run up mid-day ahead of earnings. The company just reported EPS of $0.24 on a non-GAAP basis vs $0.21 estimates and revenues of $1.26 billion vs $1.244 billion expected.The company looks like the forward quarter may be a bit light, but they are putting Fiscal Year 2007 ahead of plan at the mid-points. It offered $1.06-1.16, versus $1.09 estimates, and revenue estimates of $5.3 billion are reight in the middle of the new range just offered at $5.2 billion to $5.4 billion.

Since Symantec bought out Veritas the stock has been in the doghouse. Its shares closed up 2.2% at $15.78, and shares were up at $16.88 in after-hours trading. This may finally help shareholders who have been waiting for this to get off the mat. it would be interesting to see if this report was somehow telegraphed or if it made its way out a bit early, but as of now that is just a small thought.

Jon C. Ogg
July 26, 2006

Is XM Satellite Radio Really on the Block Ahead of Earnings?

Stock Tickers: XMSR, SIRI, NWS, CCU, CBS

Is XM Satellite Radio (XMSR) really a takeover candidate? The company reports earnings tomorrow and has a conference call at 10:00 AM EST, and after reviewing all the articles and research out there for tomorrow there was an article from CNNMoney.com that noted that some are wondering if XMSR is a takeout candidate.

Sirius (SIRI) has said they would consider this in the very recent past. Who knows for sure if that is in the works. The company has had major supply issues and no one is expecting a barn burner tomorrow from the company. The street expects them to lose -$0.66 EPS and post revenues of $221.5 million

The stock is down well over half this year and essentially at what looks like 3-year lows.

Clear Channel (CCU) is a 3% owner of the stock and they have been noted in the past as a potential acquirer.

CBS (CBS) has been noted before as a wanna-be acquirer.

Way way back there were some even speculating that Rupert Murdoch's News Corp (NWS) may want it if he could ever get it cheap.

We have noted in the past that XM and Sirius BOTH need to get their act together. Shareholders would likely not be too crazy about becoming a part of a large conglomerate whose growth has already been seen while shares are down in the dungeon shackles. XM really needs to do something to get off the mat, and finding someone wanting to buy them here while they are in the dirt isn't going to make current shareholders happy.

Jon C. Ogg
July 26, 2006

Waters Corporation (WAT)

From Value Discipline

Waters (WAT) is one of the leaders in designing and manufacturing scientific analytical instruments, especially in the areas of liquid chromatography, mass spectrometry, and thermal analysis. These instruments provide enabling technology for environmental studies, for chemistry and for pharmacology. The instruments detect, identify, purify, and measure a full range of compounds. Putting things into a financial perspective, this is a business that has generated a median return on invested capital of 25.6% in the last five years. Nice!

Waters got clocked yesterday by over 7% following the reporting of its 2nd quarter ended July 1. The market's reaction yesterday was somewhat perverse given the slight improvement in operating margins (50 bp) to 21.8% and an organic growth rate (ex foreign translation) of 9% or 7% with the forex. Operating margin was below some Street expectations and below the TTM 24.1% level.

From a cash flow perspective, the company generated free cash flow of $51 million post capex of $14.7 million. In terms of working capital, accounts receivable turnover showed slight improvement but inventories grew by $15 million which management categorized as $4 million in new Mass spec, $3 million in liquid chromatography, $3 million in forex effects, and $2 million in deferred shipments. The build up in new products in inventory is understandable, the deferral of orders, similarly, is no big deal.

The company also raised its E.P.S. guidance for the year slightly to $2.36 ex-stock options expense, $2.15 with stock options expense. Most companies' earnings would certainly be improved if we eliminated salaries and other compensation, and I regard stock options expense as real and genuine as I do any other compensation. On an apples to apples basis, the management is suggesting 18% EPS growth on a 8% lift in revenues for 2006 over 2005...good operating leverage.

The company did report that there was a double digit sales decline in the first half of the year to its US pharmaceutical clients, but that it anticipated that spending in U.S pharma will improve for the second half.

Some of the underlying trends were particularly interesting. In terms of Asia beyond Japan, namely India and China, sales were up by 36%. U.S. sales declined by 2%. Europe was up 2% and Japan was up 6%...clearly global trends in pharmaceuticals and other high value added sciences are going to be of great benefit to this company. In the conference call, the management also highlighted that sales Stateside to CROs and small pharmaceutical and generic companies was going very well.

The company indicated that free cash flow for the year 2006 should come in around $265 to $275 million.

Compare that with its prior free cash flow history:

2005....$247.02
2004....$193.21
2003....$122.42
2002....$181.68
2001....$146.74

The company has been deploying its free cash flow into share repurchases. WAT has a $500 million buyback with $114 million remaining. In the second quarter, the company bought back $80 million of stock, and clearly should complete this program by year end.

The company has introduced a number of exciting (especially to former biophysicists) products which should meet with decent demand. As research labs go, especially around universities and many industries, this tends to be a fourth quarter business. If you have an annual budget, it behooves you to spend it by the fourth quarter lest you lose it.

Liquid chromatography tends to take forever, and WAT has pioneered some very high performance chromatography which operates at nine times the speed of conventional chromatography with improved resolution and sensitivity.

In my view, an interesting way to invest globally in the emerging life sciences markets of Asia with lower risk. A shareholder friendly management that returns capital through effective buybacks and continues to generate significant returns on invested capital.

My valuation is the low $50's.

Disclaimer: I and my family do not have a current position in Waters. However, a number of clients do own a current position in this company.

http://www.valuediscipline.blogspot.com/

What Are Transports Signaling?

Stock Tickers: NSC, CSX, BNI, UPS, FDX, JBHT, YRCW, BA, RAIL

Today, it was Norfolk Southern (NSC) that hurt the transports. Norfolk Southern (NSC) is down 9% today at $41.17 after its $0.03 miss when it reported EPS at $0.89.

Would transports be lower today if Cramer didn't say that CSX (CSX) was now a Secular stock rather than a cyclical? Yesterday, Burlington Northern (BNI) beat earnings but fell after signaling that Q3 costs would rise 18%. We also saw UPS (UPS) get hit hard on their forecast, in what was actually its worst day ever. UPS is down again today by -4.4% at $68.64. Fedex (FDX) was lower yesterday with UPS, and FDX is down another 2.3% at $106.75. Even truckers J.B.Hunt (JBHT) is down 3.6% at $20.89 and YRC Worlwide (YRCW)is down 3.1% at $41.68.

Boeing (BA) is not a transport service operator, but they are the largest plane maker and are trading down 3.1% at $81.08 after it reported conservative numbers showing a loss for the quarter. Even Freightcar America (RAIL), the rail car manufacturer pure-play stock, is down 0.7% at $48.50.

It may be a stretch to say CSX could save all the transports, but much of this is more of the same. It doesn't look like the street needs to brace for a homebuilder sort of sell-off in the group where the stocks fall every day on bad news and barely show any signs of life on Not-Bad news, but who knows for sure. They are sure acting ugly. With transportation stocks being one of the key leading indicators for the future of the market and the economy it is sure making some think more defensively.

Jon C. Ogg
July 26, 2006

Is the SiRF Reaction Too Harsh?

Stock Tickers: SIRF, TRMB, GRMN

Should SiRF Technology (SIRF) be down 23% at under $20 today?

The company beat earnings last nite posting non-GAAP EPS at $0.20 and revenues at $57.2 million; but the net income was only clocked in at $0.03, a decline from the period they year before. Wall Street was expecting $0.19 and $57.3 million. If you look at the exceptions you may realize why NET was lower:

-excludes $1.4 million in amortization of acquisition-related intangibles,

-excludes $6.9 million in employee stock compensation expense,

-excludes $1.1 million of expenses related to acquisition-related contingent payments.

Weighted average shares outstanding used in computing diluted non-GAAP net income per share for the second quarter of fiscal 2006 were 56.0 million, compared with 52.0 million for the second quarter of fiscal 2005. The company made a small acquisition and the employees have sold shares.

Revenues grew 61% year-over-year. This rate may not continue, but you would think the street is smart enough to plan for the possibility that certain growth rates aren't reasonable forever. Gross margins were 56.3%. The below-consensus guidance was not showing the barn burning percentage growth investors have seen in the last 18 months, and that appears to be the culprit.

Credit Suisse led the disappointed crowd and exacerbated the impact by cutting their price target from $35 down to $20, right around the current price. Jefferies also took their target down, but said this is a good entry point and Cowen maintained their Outperform rating.

SIRF is now down over 50% from the 52-week highs and trades under 30 times forward earnings. The company makes GPS chips and has major contracts with many cell phone and GPS product providers. The street should also not punish SIRF for insider selling as the company had to delay an IPO for 4 years because of the dot.com bubble popping in 2000 and 2001, and the employees had essentially been underpaid for 4 years as a result of not having access to cashing in like at other companies in the late 90's and early 2000's.

This 23.9% drop to $19.52 may be the price a company has to pay when they miss any projections, but this sure seems extreme. SIRF has now lost over 50% from its 52-week highs. If they are going to treat SIRF in this manner you better pay attention and be careful about the other GPS providers.

So far Trimble Navigation (TRMB) managed to dodge the bullet after its earnings. TRMB is up 9.3% at $47.00.

Shares of Garmin Ltd. (GRMN) are down 1.4% at $98.98.

Jon C. Ogg
July 26, 2006

Verizon's Losing Hand

Stocks: (VZ)(T)(VOD)

Verizon is staking much of its future on the prospect that fiber-to-the-home will be a good bet. It won't be.

Verizon has a number of legs on its table. Cellular is going well. The Verizon Wireless business, that the company owns with Vodafone, is doing fine. In the last quarter, it added 1.5 million customers. With 52.6 million retail customers, it claims to be No.1 in that business.

Verizon still has a very strong wireline business for local and long distance, but it is shrinking. VoIP, cell users, and cable company phone offers are cutting into the company's cash cow.

Verizon's numbers have been going up at a slow but steady pace. In the period ending March 30, revenue was $22.743 billion, up 25% from the same quarter a year before. But, operating income dropped 7% to $1.632 billion.

According to Morningstar, Verizon has a hefty$34.6 billion in long-term debt. Capital expenditures in the last twelve months have totalled over $15.7 billion.

The Cap Ex is the crux of the matter. A faster network from fiber optic installations can increase broadband speed by 20x or greater, and allow services line online television. But, who wants it?

Broadband penetration of US internet households in now at 72% according to Nielsen. But, in an interview with Investor's Business Daily, and analyst for Nielsen said that this growth was "flattening off".

For the Verizon investment in ultra-fast broadband to work, investor have to make make several assumptions. One is that people will pay more for faster internet to allow Verizon to get a return on its Cap Ex. Another is that people will want to switch from cable to Verizon's product for faster speeds of broader programming offer. The last is that people care about faster speeds. In other words, consumers know how fast their broadband is and want something with much more bandwidth. It is not self-evident that any of these views of the future is a sure thing.

Verizon's stock is at $33. In late 2004, it was at over $40. It has very significantly underperformed the Dow and S&P of the last two years. According to Yahoo!Finance, Verizon has a price to sales multiple of 1.2. Smaller rival Qwest, which does not have Verizon's balance sheet or revenue, trades at 1.1. The premium should be much larger for Verizon.

Wireless and a shrinking fixed-line business is not going to pull Verizon's stock out of the mud if the early returns from its fast internet products are not steller. And, the odds are long there.

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

Most Actives Review: Starbucks

Stock Tickers: SBUX, PNRA, PEET, CBOU

Starbucks (SBUX) is down a sharp 4.2% at $33.90 this morning, on what is not really any company news. Panera (PNRA) fell 9% after their earnings, and that may be the culprit today. The company is set to release earnings on August 2, so we will likely not get much out of the company right before the report. Comparing PNRA and SBUX may not seem fair on the surface, but they are more alike than you think. Both are hip hang-out places that encourage lounging with W-Fi access, both try to appeal to your taste buds throughout the day, and Starbucks is going into more and more of a coffee andc tea PLUS food role rather than just a coffee, tea, and scones spot. Both have had high growth models and both have had high multiples. PNRA now trades at roughly a 30 P/E since its stock has lost 1/3 of the value since its 52-week highs; SBUX has a 49 P/E but is only about 15% off its 52-week highs. There have not really been any analysts out defending (or tying SBUX to PNRA) but you can probably expect that to occur.

Peet's Coffee & Tea (PEET) is also down 3.7% at $28.61 and Caribou Coffee (CBOU) is actually up almost 1% at $6.14.

Jon C. Ogg
July 26, 2006

Solely Internet Banking Woes: NetBank Stinks Up the Room

Offering higher CD deposit rates than most and not having banking branches has its costs.

NetBank (NTBK) disclosed much wider preliminary losses than expected, and the company lowered guidance. What is puzzling is why the stock is only down about 6%.

Regardless of if this is an ONLINE bank as opposed to bricks and mortar, this is a crummy story. Banks are not supposed to lose money. It doesn't matter if these guys are the Holy Grail model of Internet banking or not. A money-losing bank just doesn't make sense.

This customer data shows a 5th consecutive month of declining numbers on customers. It posted June 30 customer numbers yesterday at a total of 275,632; broken down as 26,574 business and 249,058 retail. The business customers peaked in November 2005 at 28,013 and the retail customers peaked in January 2006 at 257,982. You don't even want to know what the mortgage numbers show you.

What is even worse is that their ATM's are even lower on both a proprietary ATM basis and a third-party owned basis. Now that is just ludicrous. Did they pick such low traffic areas that no one used them? ATM's are just a pure cash-cow. About the only time anyone turns away from an ATM is if the ATM charges $2.50 or more for a transaction that isn't part of you bank, and even then most just bite the bullet and take out the money anyway.

The company said in their SEC filing that they have grown and showed increasing metrics, but it just doesn't look that way. The spreadsheet is tiny and that may be part of it, but that is also bothersome. If these guys are going to continue showing shoddy internal numbers like this then they really need to switch to quarterly numbers. That way the bad news will only be every 3 months instead of every month.

About the only saving grace here may be that the company was "on the list" of potential buyout candidates IF the excessive valuations ever came in to reasonable levels that a financial institution could stomach an acquisition of it. It never made it onto our BAIT SHOP because of valuations and prospects, and at current levels it will remain off it.

Over the last year the stock has slid from $10 to just under $6.00 now. It was almost as high as $12 two years ago, and was over $15 back in 2002. Stock prices are not any implication of value, and that is the issue. It COULD be feasible that with a small market cap of $272 million that someone may just go ahead and pay up for the depositors and customers, but this would likely be fought by shareholders that have been LONG AND WRONG for the time being. Financial companies do not like to buy money-losers either, as that hurts their comparative multiples and performance measures to peers.

We’ll have to go pick these numbers apart further, but they need a feasibility consultant in a serious way. Something is just wrong, no matter how you cut it. The latest available balance sheet before these losses would put this company under its book value and under its net tangible assets, but that is BEFORE this negative news. It is possible that someone would look at them for that reason, but if they are going to lose money this year and only have a small earnings number in 2008, then using the “old” book value may be irrelevant as gold to a dead man. Traders are likely comparing this data to the March 31 balance sheet, and that may be the only thing keeping this one from dropping further.

Another problem here may be that they truly compete against every financial institution now. What bank and credit union doesn’t offer every online service you would use? Only the tiny community centers presumably.


NetBank CDs below show the comparative data as to why having higher rates can hurt you.

NetBank CDs Rate APY*
6-Month CD 4.93% 5.05%
1-Year CD 5.31% 5.45%
18-Month CD 5.10% 5.23%
2-Year CD 5.35% 5.50%
3-Year CD 5.13% 5.26%
4-Year CD 5.14% 5.27%
5-Year CD 5.19% 5.33%
Nation Avg** Rate APY*
6-Month CD 3.41% 3.47%
1-Year CD 3.73% 3.80%
2-Year CD 3.87% 3.94%
3-Year CD 3.86% 3.94%
5-Year CD 3.93% 4.01%

Jon C. Ogg
July 26, 2006

TI And The Cell Phone Nation

Stocks: (TXN)(NOK)(MOT)(SNE)

It is incomprehensible that TI is not trading at its 52-week high. But, it is not eve close. The company trades at $29 on a 12-month range of $36.40/$26.77.

Revenue for the most recent quarter was up 24% to $3.7 billion. Some of TI's largest customers are growing at a rapid clip: Motorola, Nokia, and Sony/Ericsson.

Even Wall St. is bullish on TI's future prospectsas forbes.com heard from a Banc of America analyst: "Texas Instruments can continue to outgrow the semiconductor market with its strong positive in key segments including wireless handsets," said Sumit Dhanda, an analyst for Banc of America. But, after a brief bump when earnings were announced, there has been no follow-through buying wave.

TI has have exposure in the semiconductor industry, which is in turmoil on its best day. But, TI said that orders booked were up, again $767 million from the same quarter a year ago.

At this point, the reasons for the stock to rise outnumber those that would cause it to drop. It should trade closer to $36.

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

Does Online Ad Growth Make Yahoo! Look Cheap?

Stocks: (YHOO)(GOOG)(EBAY)

The FT recently wrote that online ad growth will move up at a compound rate of 22% from 2005 to 2010. Advertising revenue continues to move from newspapers, TV, and radio to the internet. And, Yahoo!'s share online eyeballs continues to be huge. The internet giant still has 402 million unique visitors worldwide, a number that no other web property can match.

So, what's up, actually down, with Yahoo!'s stock. There seems to be some panic that the world will fall apart. Wall of worry? Maybe. But, investors are not climbing it.

Yahoo!'s stock was at $43.66 in January and trades at $26.71, down 40% in six months. That's $20 billion in market cap, gone.

Yahoo!'s price to sales in now 6.3 according to Yahoo!Finance. Google is at 14.4. EBay is at 6.6.

The disparity between the price to sales multiple at Yahoo! and Google is too great. Overall ad revenue increases are going to level out the growth rates of the two companies, so the delta between them cannot exist forever.

Will Google's fall or will Yahoo!'s valuation rise. Probably some of both. Google may come back to the 10 times range, especially if it has one quarter that is short of phenomenal. But, Yahoo!'s should rise because the online ad revenue tide is rising inexorably. With its market share, Yahoo! cannot help but be pushed up.

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

Lucent/Alcatel Looks Like Loser

(LU)(ALA)

Today's earnings from Lucent seem to make the Alcatel statements that the purchase of the US equipment maker will add to its earnings look silly.

Lucent earned a paltry $79 million down from $372 million in the quarter a year ago. Cash and marketable securities dropped $272 million. Even revenue dropped from $2.34 billion in the quarter last year to $2.05 billion in the most recent quarter. Gross margin fell from 45% to 41%.

Despite the fact that the merger has been approved by regulatory agencies, it now looks downright stupid. Lucent's stock has fallen from $3.49 in April to $2. The stock will be lucky to hold that level today.

To make matters worse, Alcatel's tock has been pulled down by Lucents. The shares of the two companies now trade virtually in tandem. Alcatel's shares were above $16 in May and now trade at below $11, very near a 52-week low.

There may be no undoing the deal, but the management of the combined company has dug itself a hole with Wall St. that may take years to exit.

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

Competing Buyout Offer for HCA?

On Monday we were questioning WHY shareholders would accept such a low price on this HCA (HCA) buyout. Now there are market reports saying that Blackstone, another private equity behemoth, may enter a bid for the company. Management was so eager to accept a low price and low multiple that this is of no surprise.

This only helps the valuation of HCA and all the other hospitals. HCA's founder-led group does have the right to match any competing bids and there is a $300 million break-up fee.

With this being the largest version of legal insider trading you can possibly imagine, what does this tell you about the value of the hospital group if the largest one out there is up for grabs at low multiples?

HCA is up almost 2% at $50.17 pre-market.

Other hospitals are as follows:

HCA Inc. (HCA)
Health Management Associates I (HMA)
Community Health Systems, Inc. (CYH)
Triad Hospitals Inc. (TRI)
Universal Health Services Inc. (UHS)
Tenet Healthcare Corp. (THC)
Lifepoint Hospitals Inc. (LPNT)
Magellan Health Services Inc. (MGLN)
AmSurg Corp. (AMSG)

Jon C. Ogg
July 26, 2006

Glowwarn

By William Trent, CFA of Stock Market Beat

Corning Inc. (GLW), the largest maker of glass for liquid crystal display televisions and computer monitors, warned third-quarter results would miss analysts’ forecasts as customers try to reduce excess inventories. All but the most astute observers were apparently surprised by this, as the shares declined 8 percent in after-hours trading, and are now off 24 percent from the April high.

According to the Reuters story:
The market “has been over-hyped a little bit,” said John Harmon, an analyst at Needham & Co. who has a “strong buy” rating on Corning’s stock.
“But these are natural seasonal patterns,” he said. “As there’s more capacity added in the industry, these seasonal patterns will be more pronounced.”

The market was over-hyped a lot, and it is hard to see how adding capacity will make seasonal patterns more pronounced. If there is limited supply, seasonal changes in demand can have a big impact. If there is lots of supply, the seasonality should matter less. At any rate, the LCD makers have been insisting that a seasonal uptick was right around the corner for months now. Consumers have been buying up flat panel TVs at a rapid rate, but the manufacturers built supply even faster, then blaming their mistakes on lower than expected TV sales in advance of the Super Bowl/Olympics/World Cup/Fall TV Season/Holidays… well, we’re getting ahead of ourselves.

“We need to be cautious about the potential negative impact that economic conditions and political tensions could have on consumer sentiment,” Chief Financial Officer James Flaws said in a statement. “The LCD market is strongly weighted toward the fourth quarter and we need a robust retail holiday season to achieve our goals.”

If only the consumer can hold on for another six months.

http://stockmarketbeat.com/blog1/

At Your Service

By William Trent, CFA of Stock Market Beat

Summary: Services are holding up fairly well in the current market.PPI data for telecom shows that recent mergers have resulted in a less hostile pricing environment:
Watch List News
National Geospatial-Intelligence Agency Awards $69 Million Contract over five years to Accenture for Human Capital Management.

Leading customer care and billing solutions provider CSG Systems (CSGS) reported an upside earnings surprise and promoted Mike Scott to executive vice president and chief operating officer.

Credit reporting agency Equifax (EFX) earned $69.6 million, or 53 cents per share, up 11 percent from $62.6 million, or 47 cents per share, during the same period a year ago. Excluding certain items, the company earned 51 cents per share. Sales rose 7 percent to $387.7 million from last year’s $363.4 million. Analysts were looking for earnings of 50 cents per share on sales of $388.4 million. Shares fell on concerns of slowing growth in the face of declining mortgage applications.

Fidelity National Information Services, Inc. (FIS), a leading global provider of technology services to financial institutions, announced financial results for the second quarter of 2006. Consolidated revenue increased to $1.02 billion, Net earnings increased to $66.0 million and Net earnings per diluted share was $0.34. “FIS generated another quarter of solid operating performance. Year-to- date pro forma revenue growth of 6.2% and EBITDA growth of 10.4% are in line with our original full year expectations,” stated FIS Chairman William P. Foley, II. “With strong sales growth in the first half of the year and the recent launch of our new item processing and BPO operation in Brazil, we are increasing our full year outlook to reflect pro forma revenue growth of 5% to 7% percent, EBITDA growth of 10% to 12% and cash earnings per diluted share of $2.06 to $2.12.”

Rent-A-Center, Inc. (RCII), the nation’s largest rent-to-own operator, announced a messy quarter but the stock rallied sharply on an increase to guidance. The Company reported total revenues for the quarter ended June 30, 2006 of $583.6 million, a $3.0 million increase from $580.6 million for the same period in the prior year. Reported net earnings for the quarter ended June 30, 2006 were $39.8 million, or $0.56 per diluted share, representing an increase of 7.7% from the $0.52 per diluted share, or net earnings of $39.6 million for the same period in the prior year, when excluding the benefit of the 2005 tax audit reserve credit. “Our second quarter same store sales continued a positive trend in 2006,” commented Mark E. Speese, the Company’s Chairman and Chief Executive Officer. “Our same store sales increased 1.1% for the quarter, which is primarily related to changes in our promotional activities as well as an increase in the number of units on rent,” Speese continued. “In addition, we believe our customer has adjusted to the current level of fuel costs. As a result of these factors, we are raising our fiscal 2006 guidance to $2.08 to $2.15 diluted earnings per share from $2.00 to $2.10,” Speese stated.

Other News
Standard & Poors downgraded Convergys (CVG) on fears that it will lose major customers.

http://www.stockmarketbeat.com/

Plantronics Does it Again

By William Trent, CFA of Stock Market Beat

We said in June that Plantronics was spending too much on advertising. In May we were harsher, saying Plantronics should fire their marketing director. Now, after yet another disappointing quarter (and guidance for yet another still) they are going to reduce their marketing costs. Sort of.

According to the press release:
Given the weaker environment which has been developing, we reduced the level of marketing expenditures we had planned for the first quarter and re-evaluated elements of the marketing campaign planned for the balance of the year. Based on our review, we re-allocated certain funds to shorter-cycle marketing programs that should yield a better return on investment in the near-term. We are continuing to evaluate the extent and types of marketing programs we will undertake for the balance of the year.

In other words, fewer expensive commercials talking about how they were the headset Neil Armstrong used on the moon, more “head on down to Headset HQ and get yourself a headset now buddy!” cross-promotions with retailers. While it certainly marks an improvement, we continue to puzzle over why they need advertise at all. The consumer businesses that should be the beneficiary are doing so poorly we can’t imagine it being any worse without the ads.

The company is blaming the poor consumer revenues, by the way, on Apple:
Based on Altec Lansing’s historical seasonality, we expected a revenue decline in the range of 5-10%. The actual 17% sequential revenue decrease was driven by weaker U.S. retail market conditions for iPod-related accessories.

Didn’t Apple just report better than expected iPod sales? Did customers just suddenly stop accessorizing them?

We think we’ll fall back to the recommendation we made in May. In the meantime, if you are thinking of bottom fishing you should check out the valuation piece we wrote in June. At the time we said a 3.6 percent free cash flow yield just doesn’t cut it when CDs are paying five percent. With the after-hours sell-off today the yield is up to 4.4 percent based on 2005 free cash flow, but rising receivables and inventories suggest cash flow may be lower this year. We’ll let you do the math.

http://www.stockmarketbeat.com/

How to Curb Click Fraud

Stock Tickers: GOOG, YHOO, MSFT, TWX

How can an ad behemoth help fight click fraud? Simply by showing an estimated amount of click fraud to each party. That is what Google will now do. This seems like a straight approach to the problem, and you only wonder why this wasn't the immediate solution.

Google (GOOG) plans simply to start telling companies how often users suspiciously click on their ads fraudulently and/or accidentally to curb the issues around click fraud. These clients end up paying each time that people or web spiders click on their ads. There have even been times that competitors of one company have gone out and clicked all the ads that their rivals have in an effort to suck up all of the competitor advertising budgets.

Marketers and individual businesses have complained that Google, Yahoo!, MSN, AOL and other Internet search providers have done little to nothing to police this. Hopefully this will help a serious issue.

Jon C. Ogg
July 26, 2006

Microsoft Questionably Entering Digital Music Biz

Stocks: (MSFT)(IBM)

By Chad Brand of The Peridot Capitalist

Microsoft (MSFT) bulls hoping that Windows Vista and a splash into the digital music industry with "Zune" branded mp3 players and music downloads will boost the company's fortunes are set up for disappointment. Does anyone really think consumer electronic buffs are going to get excited to replace their iPod with a Zune player? Having a closed system architecture will make it even harder for Microsoft to take meaningful market share. And why are Ballmer and Co. targeting the overcrowded, low-margin digital download business?

The bigger potential boon to Microsoft's financial results in 2007 relates to an upgrade cycle centered around Windows Vista. I can't get too excited about the prospects for Vista either. I don't know anyone who is running Windows XP today thinking "Man, I sure wish Microsoft would upgrade their operating system." There just is no reason for most people to go out and buy a new system or even upgrade an existing one to Vista.

All of our favorite computer tasks (email, web surfing, document management, digitial music and photos, etc) work just fine on XP.Microsft stock is not expensive, and you will get some dividend payments here and there, but significant capital appreciation is pretty much unlikely. The company reminds me a lot of IBM, a tech giant that has been dead money for a long time, with no resurgence on the horizon.

http://www.peridotcapitalist.com/

Analyst Calls (July 26, 2006)

There are many other analyst calls, but there are so many earnings coming out that the earnings are taking precedent as that is news and the analyst calls are opinion and reaction.

AMZN cut to Underperform at Piper Jaffray.
BLS raised to Buy at B of A.
BOBJ cut to Hold at Citigroup.
CBHI cut to Mkt Perform at FBR.
CHH cut to Underperform at Bear Stearns.
CYMI raised to Buy at B of A.
DRIV raised to Buy at Oppenheimer.
ENMC cut to Neutral at First Albany.
ENCY cut to Neutral at Oppenheimer.
GILT started as Outperform at Cowen.
GYI cut to Neutral at CSFB.
HWCC started as Outperform at William Blair.
KRC raised to Buy at Deutsche Bank.
LECO cut to Hold at BB&T.
MHP raised to Buy at Merrill Lynch.
MTCT cut to Mkt Perform at FBR.
MWE started as Overweight at Lehman.
ROH raised to Buy at B of A.
SNCR started as Buy at Deutsche Bank.
SUNW raised to Outperform at Bear Stearns.
T reitr Outperform at CIBC.
WAT raised to Outperform at Bear Stearns.
WSM cut to Neutral at B of A.

Pre-Market Notes (July 26, 2006)

S&P Fair Value +$3.53.

(ACE) ACE Ltd. $1.74 EPS vs $1.58e.
(ACPW) Active Power -$0.12 EPS vs -$0.13e.
(ACTU) Actuant $0.05 EPS vs $0.04e.
(AFL) AFLAC $0.75 EPS vs $0.71e.
(AMP) Ameriprise $0.79 EPS vs $0.77e.
(AMZN) Amazon.com was down over 10% after missing EPS target.
(ARNA) Arena Pharma -$0.40 EPS vs -$0.42e.
(ATAC) Aftermarket Tech $0.31 EPS vs $0.32e.
(BA) Boeing -$0.21 EPS vs $-0.22e; R$15B vs $14.97 billion estimate; raising 2007 internal target, but that is in-line with street.
(BEAV) BE Aerospace $0.24 EPS vs $0.21e.
(BGC) General Cable $0.80 EPS vs $0.49e; raised Q3 guidance.
(BIIB) Biogen-Idec $0.57 EPS vs $0.48e.
(BWLD) Buffalo Wild Wings $0.28 EPS vs $0.28e.
(BYD) Boyd Gaming $0.47 EPS vs $0.57e.
(CACS) Carrier Access $0.00 EPS vs -$0.03e.
(CB) Chubb $1.41 EPS vs $1.16e.
(CEC) CEC Entertainment $0.38 EPS vs $0.39e.
(CKSW) Clicksoftware $0.02/R$8M vs $0.01/$7.2M (e).
(COP) ConocoPhillips $3.09 EPS vs $2.81e; Revenues were a tad light.
(CSGS) CSG Systems $0.33 EPS vs $0.31e.
(CX) Cemex $0.84 EPS vs $0.91e.
(CYMI) Cymer $0.55 EPS vs $0.56e.
(DO) Diamond Offshore $1.27 EPS vs $1.23e.
(DOV) Dover $0.77 EPS vs $0.76e.
(ERTS) Electronic Arts licensed a Korean online game maker line called NOWCOM.
(ESLR) Evergreen Solar -$0.11 EPS vs $-$0.15e.
(EXBD) Corporate Executive $0.53 EPS vs $0.52e.
(EZPW) EZCorp $0.40 EPS vs $0.36e.
(FDRY) Foundry lowered revenue guidance.
(FISV) Fiserv $0.63 EPS vs $0.60e.
(FLEX) Flextronics $0.18/R$4.1B vs $0.16/$3.85B(e).
(FTI) FMC Tech $0.75 EPS vs $0.72e.
(GLW) Corning $0.26 EPS vs $0.25e on items, but guides Q3 lower.
(GM) GM reported earnings over $2.00 per share vs. $0.55 on items; stock up 5% pre-market; revenues were higher but items are included in this.
(GPRO) Gen-Probe gets additional FDA questions on Tigris.
(GSK) GlaxoSmithkline down over 2% after reporting earnings overseas; showed very positive data on Bird Flu vaccine.
(GYI) Getty Images $0.58 EPS vs $0.61e.
(HMC) Honda Motor $0.68 EPS vs $0.58e.
(HPQ) Hewlett Packard is acquiring Mercury Interactive for $4.5 billion in cash and debt.
(HUMC) Hummingbird recommended for shareholder to NOT Tender $27.75 offer from Open Text.
(IDTI) Integrated Device Tech $0.25 EPS vs $0.21e.
(IM) Ingram Micro $0.32 EPS sv $0.32e.
(ISSI) Integrated Silicon -$0.15 EPS vs -$0.04e but on items.
(JNY) Jones Apparel $0.45 EPS vs $0.41e.
(LIZ) Liz Claiborn $0.46 EPS vs $0.45e.
(LLTC) Linear Tech $0.37 EPS vs $0.37e.
(LTBG) Lightbridge $0.05 EPS vs $0.14e (has items); lowered guidance.
(LU) Lucent $0.02 EPS vs $0.03e; merger with Alcatedl still on track to close by year-end.
(MANH) Manhattan Associates $0.34 EPS vs $0.28e.
(MERQ) Mercury Interactive gets $52 Buyout from Hewlett Packard.
(MNC) Monaco Coach $0.03 EPS vs $0.00e.
(MNCP) Motient filed to sell 55M shares of stock for holders.
(MNST) Monster Worldwide $0.31 EPS vs $0.30e.
(MUR) Murphy Oil $0.93 EPS vs $0.92e.
(NRPH) New River in collaboration pact with Shire.
(NSTC) Ness tech $0.16 EPS as expected.
(NTBK) Netbank lowered guidance to wider losses.
(OMM) OMI Corp $0.78 EPS vs $0.69e.
(PAS) Pepsi Americas $0.50 EPS vs $0.50e.
(PLT) Plantronics $0.28 EPS vs $0.31e.
(PNRA) Panera $0.44 EPS vs $0.44e.
(PRAI) PRA International $0.31 EPS vs $0.28e.
(PVSW) Pervasive Software $0.10 EPS vs $0.07e.
(PX) Praxair $0.75 EPS vs $0.71e.
(QLGC) Qlogic $0.21 EPS vs $0.20e.
(RADA) Radica Games is being acquired by Mattel for $11.55 cash.
(RBAK) Redback Networks $0.10 EPS vs $0.07e.
(RFMD) RFMicro $0.09 EPS vs $0.09e.
(RHI) Robert Half $0.39 EPS vs $0.39e.
(SCHW) Scwab announced $500M for share buybacks.
(SCSS) Select Comfort $0.19 EPS vs $0.17e.
(SEE) Sealed Air $0.70 EPS vs $0.72e.
(SFUN) Saifun Semi $0.34 EPS vs $0.30e.
(SHEN) Shenendoah Tel $0.36/R$41.4M vs $0.39/$35.5M(e); unsure if comparable.
(SGTL) SigmaTel stock up 16% after reporting narrower losses than expected.
(SIE) Sierra Health $0.54 EPS vs $0.52e.
(SIRF) Sirf Tech $0.20 EPS vs $0.19e.
(SNA) Snap-on Tools $0.60 EPS vs $0.49e.
(SOLD) Housevalues $0.11 EPS before items vs $0.06+e; CFO resigned.
(SPIL) Siliconware $0.22 EPS vs $0.18e.
(STM) STMicro $0.21 EPS vs $0.17e.
(SUNW) Sun Micro now up 3.9% pre-market; company reported loss on higher revenues, but was actually profit before all one-time charges.
(SUPX) Supertex $0.39 EPS vs $0.37e.
(SVVS) Savvis filed to sell $300M securities for holders.
(SWK) Stanley Works $0.90 EPS vs $0.86e.
(SYNP) Synplicity $0.08 EPS vs $0.04e.
(TASR) Taser $0.02 EPS vs $0.03e; but slightly above expectations on revenues.
(TIN) Temple-Inland $0.98 EPS vs $0.77e.
(TMO) Thermo Electron $0.42 EPS vs $0.40e.
(TRMB) Trimble Navigation $0.55 EPS vs $0.52e.
(VOCS) Vocus $0.04 EPS vs $0.03e.
(WBSN) Websense $0.25 EPS vs $0.24e.
(WIRE) Encore Wireless indicated up 6% pre-market after greatly exceeding the two analyst estimates.
(WLP) Wellpoint Health $1.17 EPS vs $1.14e.
(WM) Washington Mutual is selling its funds group to Principal Financial for $740 million.
(WNS) WNS Holdings IPO priced 11.2 million shares at $20.00, top of $18 to $20 range.
(XLNX) Xilinx $0.24 EPS vs $0.26e; sees revenues down 5% sequentially;
(ZBRA) Zebra $0.39 EPS vs $0.37e.

Ford's Way Forward To Bankruptcy

Stocks: (F)(GM)(TM)(HMC)

Recent news in the car industry has been very bad for Ford. Bad enough that the prospect of a Chapter 11 file has increased significantly.

Honda's earning for the last quarter were outstanding. Net profit rose 30% to $1.23 billion. The company pointed to strong sales of its fuel efficient cars as one of the major drivers of the results. Demand for its Civic and CRV crossover car were particularly strong. These sales, coming during a period when gas is above $3 are likely to take away from the big trucks and SUVs sold by Ford.

Higher raw material costs are pinching margins more than they have in the past for large auto makers. Even the chairman of Ford's European operations is concerned: "2006 will be a bad year for Faurecia," Chairman and Chief Executive Pierre Levi said on July 24. "I decline to make a forecast for the second half or later because of the uncertainties related to the production volumes and costs."

Ford has had to increase incentives on its flagship vehicle, the F-150 pick-up. The truck is not only the largest selling vehicle for Ford. It has also traditionally produced huge margins per vehicle. With incentives now as high as $4,500, that is no longer true.

Ford's loss in Q2 was a surprise, but the company lost money nonetheless, to the tune of $123 million. Ford acknowledged that its model line was out of step with the current can buying environment: "We did anticipate that the world would not remain static and that things like crossovers and cars would actually play a bigger role in the industry's future, and, therefore, we planned them to play a bigger role in our future," Chairman and Chief Executive Bill Ford told The Associated Press. That changeover could take several quarters, at least, and it is time Ford does not have.

Ford's market share in the US is now 17.3%. In 1990 is was closer to 26%. And, the share figure has not found a bottom dropping further this year as car makers like Honda and Toyota suck up buyers at an increasing rate.

Ford has shuttered a number of plans and cut its US workforce. The company has cut its dividend in half, but it was hardly worth it to save $98 million a year at such a large company. And, cost cuts will come more dearly now: "Rob Hinchliffe, an analyst with UBS Investment Bank, said that it is getting harder for Ford to find more cost saving opportunities", quoted at 7Days.com.

Industry reports show that 70% of Ford's sales are from SUVs and pick-ups, the kind of vehicles that American buyers are turning away from.

The final, and perhaps most damning news for Ford, is that no one is coming courting to set up a global partnership with Ford. GM has suitors in Renault and Nissan. Toyota has also been rumored to be looking at a GM partnership. But Ford no one has approached Ford, at least not at a level that the company would have to report to its public shareholders.

Ford's future is grim, and bankruptcy may be the only way to shed itself of legacy costs and contracts, even if the Ford family is vocally against it.

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

Level 3's Level Quarter (LVLT)

Wall St. was toubled by Level 3's quarter results, which means that they don't appreciate how far the company has come.

The company's quarterly revenue was $1.53 billion, well above analyst's estimates. The stock fell about 7% to $4, but a few brave souls in the financial community still see the company's longer term potential. One of them is at CIBC World Markets: "Level 3 is facing a difficult six-month transition due to declines in legacy revenues, but its growth businesses IP transport and VoIP are performing well," said Timothy Horan, an analyst at CIBC. "We should begin to see positive operating leverage in 2007 and beyond."

The company reported a loss of $201 million, but about $40 million of that was due to an amended credit facility charge. However, the company had positive operating cash flow of $62 million. The company had very impressive growth in come of its large operating segments. Information services revenue grew from $504 million in the quarter a year ago to $695 million in the quarter just reported.

The company now trades down a third from its 52-week high of $6. With the company showing robust growth and positive operating cash flow, the stock should be moving up and not down.

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

Nissan Earnings Kill GM Partnership (GM)

No one really believes that the management of GM wants to set up a three way partnership with Renault and Nissan. The board of the auto giant has little choice as fiduciaries. They have to look at any reasonable public request to improve the company's fortunes, especially when it is championed by 9.9% shareholder Kirk Kerkorian. But, Nissan and Renault chief Carlos Ghosn would like to run the three-way tie up, no matter what he has said. Having one CEO over the entire operation also has the benefit of making sense. But, GM management would probably be shown the door, and its slow but steady turnaround plan would be savaged in favor of a more radical plan to cut the car makers costs.

GM staying independent may have its benefits. A cash infusion from Renault and Nissan would certainly make it more difficult to convince the UAW that GM is struggling and needs more concessions from the big union.

But, Ghosn has shot himself in the foot. Nissan's stock has already fallen over 30% since May. But, a good quarter could have turned that around. Unfortunately for Ghosn, operating income at the Japanese auto maker fell 26%. Not exactly a ringing endorsement of the turnaround abilities of the globetrotting executive.

GM's management can now take a perfunctory look at the Kerkorian plan for a three-way global partnership, and, then, quietly throw it into the garbage.

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

European Stock Market Report 7/26/2006

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

Markets in Europe were up modestly at 5.30 AM New York time.

The FTSE was up .3% to 5,869. Barclays was up .5% to 613. BP was up .5% to 633. BT was off .3% to 239. GlaxoSmithKline was up 1.2% to 1548. Prudential was up .6% to 386.5. Reuters was up 2.6% to 387.25. Unilever was flat at 1253. Vodafone was off .9% to 114.75.

The DAXX was up .2% to 5,577. BASF was up .5% to 62.64. BMW was down 1.2% to 38.4. DeutscheTelekom was down .6% to 12.05. Deutsche Bank was up .1% to 87.82. DaimlerChrysler was off .3% to 38.62. SAP was up .3% to 142.07. Siemens was up 1.1% to 64.68.

The CAC 40 was up .1% to 4,939. Alcatel was up .6% to 8.74. AXA was up .2% to 25.97. France Telecom was down .3% to 16.62. ST Micro was down 2.3% to 11.72. Vivendi was up .7% to 26.38.

Douglas A. McIntyre

Why I'm a short-term bear

By Yaser Anwar, CSC of Equity Investment Ideas


Positive surprises have outnumbered disappointments by more than 5:1 for companies within the S&P 500. The median firm has reported YOY growth of 13.1%, & 3.4% ahead of expectations. With another round of double digit earnings growth, i'm still short-term bearish & have reason to believe the S&P will sell off this fall.
How so? We’ve already seen some evidence of that slowdown in data released during the past few weeks, today's report on consumer confidence didn't do any good to the reasoning that Fed will be stopping soon (I believe atleast two more rates hike to 5.75), as confirmed by today's stronger dollar action.

A model developed by a Fed researcher puts the odds of a recession occurring in the next year at more than 35 percent. This possibility, alongside with uncertainty surrounding the US midterm elections, traditional seasonal weakness in September/October & the conflicts in Mideast, leads to the conclusion there’s potential for another sell off this fall.

The Nasdaq looks much weaker than the S&P. Nasdaq has broken its June lows and retested its October 2005 lows last week, which it could not hold as evident by the Nasdaq Summation index (image below). That level of support has held reasonably well & that this at least establishes the potential for a bottom. (Historically, major market bottoms occur after the index falls close to -1000, we're at 827.)


The follow-through days have been lackluster, where indexes have rallied strongly only to give back the gains, thus further undermining the potential of a reversal in the current bearish trend.

As i mentioned in my 'Soaring Oil Prices' post that, "the global economy has been coping with high and rising oil prices for five years, but a choke point may be at hand because the most recent price gains are not being fueled by strengthening demand."

With the AAII sentiment level being at an extreme of 58% bearishness, sure makes one try to think contrarian. I think it would be wise to wait till around September/October, to bottom pick stocks & ride the bullishness through November. (Nov. to April, have been historically the best months for S&P)

Lastly, i'd like to present a comment from one of my favourite blogs: 'At These Levels' says, "Conventional wisdom says to look for a bottom just before the November election. Approval ratings suggest Republican majorities in both houses of Congress are at risk. There are clearly identifiable election-year cycles at work, the most famous of which occurs during the second year of a presidential term. Such years in recent memory are 1990, 1994, 1998 and 2002. Not all were terrible come December 31, but all saw some violent action. In other words, be prepared." I strongly agree with that.

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

Soaring Oil Prices: Threat To The Global Economies

By Yaser Anwar, CSC of Equity Investment Advisors

The risks of an oil supply shock are rising as Middle East tensions escalate.

Crude oil prices spiked further as worries that a full-scale war between Israel and Lebanese factions could develop.

The list of potential supply disruptions was already long and this latest crisis is adding to market tensions.

The global economy has been coping with high and rising oil prices for five years, but a choke point may be at hand because the most recent price gains are not being fueled by strengthening demand.

Consequently, oil prices are exacerbating the budding global economic slowdown.
While it is not clear how the geopolitical situation in the Middle East will play out, any further upward pressure on oil prices will undermine global growth prospects and equity markets, while boosting government bond prices.

Source: BCA

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

Media Digest 7/26/2006

Stocks: (HPQ)(AMZN)(HCA)(HMC)(SUNW)(PFE)(T)

According to Reuters, Hewlett-Packard will buy troubled business software maker Mercury Interactive for $4.5 billion.

Reuters writes that Amazon fell as much as 9% after hours on disappointed profits and a tepid forecast for the balance of the year. Expenses were higher than expected.

According to the New York Times, the Blackstone Group may try to top the existing $21 million offer to take hospital company HCA private.

The Wall Street Journal writes that the net income at Honda Motors rose 30% to $1.2 billion. The company sold 896,000 vehicles in the period ending June 30.

The Wall Street Journal also reports that Sun Microsystems had a loss in the most recent quarter. Sales rose 29% to $3.83 billion, based to some extent on revenue from companies that Sun has acquired. The company had a net loss of $301 million.

The Wall Street Journal also reports that AT&T had an 81% increase in quarterly proft, due largely to revenue increases from the SBC merger. Second quarter net income was $1.81 billion. The company said that it had strong increase in its internet business and cellular phone operations, but landline phone business continued to drop.

The New York Times reports that Pfizer will apply to regulator to sell its new heart drug, torcetrapib, as a standalone pill rather than in combination with cholesterol drug Lipitor,

The New York Times reports that Nissan posted disappointing results. The company said its operating profit fell 25.7% to $1.3 billion. The announcement was a blow to the reputation of Carlos Ghosn who is trying to create a three way partnership among GM, Renault and Nissan.

Douglas A. McIntyre

Asia Markets 7/26/2006

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

Asian markets were mixed with the Nikkei down.

The Nikkei was off .8% to 14,884. Canon was up .7% to 5420. Daiwa Securities was down 1.4% to 1205. Fuji Photo was off 1.3% to 3730. Honda was up .5% to 3770. Japan Air was up 1.5% to 209. NEC was down .2% to 578. NTT was down 1.2% to 582000. Nissan was up sharply, 3.5% to 1221. Sharp was down 1.4% to 1865. Softbank was down 4.1% to 1966. Sony was down .7% to 4910. Toshiba was down .7% to 720. Toyota was down 1% to 5810.

The Hang Seng was up .1% to 16,597. Cathay Pacific was up .4% to 13.84. China Mobile was up .2% to 46.9. China Netcom was up 1% to 14.1. HSBC was up 1% to 138.7. Lenovo was down 4.7% to 2.47. PCCW was down 1.4% to 4.89.

The KOPSI was down .1% to 1,279.

The Straits Times Index was off .1% to 2,405.

The Shanghai Composite was up .1% to 1,687.

Douglas A. McIntyre

Cramer's MAD MONEY (7/25/06) Buy CSX, Sell WWY

Cramer started MAD MONEY saying sometimes cyclical stocks look secular and sometimes seculars look cyclical. He was discussing consistent growth as whatthe street wants, but avoid big growth when it has big shortfalls. Secular are the goods always are in demand such as Food, Power, Water, and Gas.

Cramer said he thinks the street has mispriced stocks in this are:

He said CSX (CSX) is now a secular growth story rather than a cyclical. He thinks you should buy CSX on today's weakness after it fell more than 1%.

He also said Wrigley (WWY) is being viewed as a secular stock but it is really a cyclical name now with it at a 22 P/E. He thinks you should Sell WWY after today's 5+% gain.

The Sun Didn't Set on Sun Micro

Sun Microsystems (SUNW) said it wanted to BUY REVENUES last year. Its acquisition of StorageTek helped it post revenues of $3.828 Billion for this quarter, up from the same quarter last year revenues of $2.974 Billion. Sun was expected to post revenues of $3.63 Billion on the last available look.

The company also reported a net loss of $0.09 EPS on a GAAP basis, but look at what this included as far as charges:

$86 million in acquisition costs;

$63 million stock option related expenses;

$228 million in restructuring;

$8 million in related tax effects to restructuring;

$70 million in impairment of intangibles (from acquisitions);

$54 million in settlement income;

$4 million loss on equity investments;

$58 million tax charge;

$14 million from repatriating foreign earnings.

These items accounted for -$0.13 off of EPS according to the company. If you trust what the company is saying, this means that the company arguably swung to a profit. It really looks like all of the headlines stating "SUN SWINGS BACK TO LOSS" may be the reasons that the shares are only up 1%.

The company generated $410 million cash for the quarter, and it said cash and equivalents ended the quarter at $4.848 billion.

The company didn't offer any formal guidance other than saying they have started the year out with over $1 Billion in backlog. The street is probably waiting to see what the company says for any guidance before endorsing numbers that are being evaluated differently from source to source. These numbers actually look ok as long as you don't have to use the valuation multiple benchmark since this is SUNW, but others are reporting this on a GAAP basis. Until SUNW gets all restructuring and non-operating expenses behind operations it may be hard to use GAAP earnings on this company. Shares closed up 1.7% in regular trading at $4.09, and shares were at $4.12 in after-hours trading.

Jon C. Ogg
July 25, 2006

BAIT SHOP Takeover: H-P Buys Mercury Interactive

Stock Tickers: MERQ, HPQ, IBM, ORCL

A name that has been in takeover and merger & acquisition circles on and off for years is Mercury Interactive (MERQ), an enterprise software company that provides software and services to the business technology optimization (BTO) marketplace.

After the close today Hewlett Packard (HPQ) announced it would acquire the company for $52.00 per share. HPQ said the $4.5 debt and equity deal will take away $0.04 from EPS on a non-GAAP basis for fiscal 2007, but will be accretive to 2008 non-GAAP EPS by $0.02. This tender will begin shortly and should close in the fourth quarter according to the companies. Mercury closed at $39.00 on the day, and the stock was back up around $50 this time last year; Mercury also trades with a 36.6 P/E and H-P trades with a 25 P/E.

This will give the company some resources to encroach IBM's (IBM) turf. The company has said it was willing to acquire service revenues, and that is just what this does. IBM shares are not trading up or down, and this is not imapcting Oracle (ORCL) in after-hours trading either.

Mercury's management is likely thinking this will remove the SEC Wells Notices as well, so don't be surprised if that is brought up by analysts. This $52 buyout price should appease almost shareholders, so any outstanding issues may get swept under the rug. We'll know soon enough.

Jon C. Ogg
July 25, 2006

UPS Was a Precursor to Amazon

It looks like UPS (UPS) was a precursor to Amazon.com (AMZN) after it was all said and done. Amazon.com reported $0.05 EPS and revenues of $2.14 billion versus $0.07 and $2.11 billion estimates. The company guided next quarter revenues $2.17 to $2.33 billion vs $2.22 billion estimates, and it put fiscal revenues at $10.15 to $10.65 billion versus $10.02 billion.

This EPS shortfall was of course rounded down, but the street is punishing them on margins. Shares closed down $0.72 on the day and is down another 11.2% at $30.42. This looks on the surface like if it holds that it is going to be establishing a new lower trading band.

Jon C. Ogg
July 25, 2006

Stem Cell IPO Next Week: Osiris Therapeutics

Next week we have Osiris Therapeutics (OSIR) coming public via an IPO, and this will be the first pure-play IPO in the STEM CELL arena in years. Osiris was founded in 1992. It even filed to come public back in 1997, but had to withdraw its IPO in 1998.

The pricing range is $11.00 to $13.00 for an estimated 3.5 million shares, and this will represent about 13% of the float (NOT an exact number) based on the last information. Jefferies, Lazard Capital Markets, and Leerink Swann are the underwriters. It looks like the company said it will have 36.6 million shares outstanding.

The company in 2005 lost $19.995 million on revenues of approximately $957,000.00; the company also ended last year with $43.3 million cash and equivalents, $47.7 million long-term debt, $64 million in mandatory redeemable convertible preferred stock, an accumulated deficit of $142 million and total stockholder equity Deficit of $73.6 million.

It derives its stem cells from adult bone marrow and they believe that they will have Universal Compatibility. They also claim to be able to grow up to 5,000 treatments from a single bone marrow donation. Osiris also claims their stem cells can be stored frozen at the point of care instead of requiring the weeks of preparation other treatments require.

We’ll have to see how successful the IPO is, but with the controversy in stem cells you can imagine this will garner a lot of media attention.

Jon C. Ogg
July 25, 2006

IPO Watch: Alient Technology (RFID)

Alien Technology (RFID), a radio frequency identification products company, is set to price its IPO this week. It looks like it is 9M shares at a range of $10.00 to $12.00 from Bear Stearns, Cowen & Co, Thomas Weisel, R.W.Baird, and Advanced Equities. There has not been much talk on how this will price or how well the demand from institutions has been, but this was one of the hot IPO's to watch back before our mini technology meltdown.

Here is the most important thing to note: Whoever "wins" in the RFID market will be huge. Most likely it will be one of the public companies that are already making in-roads in RFID. But there is an issue. We have not yet had a single pure-play IPO successfully (or even unsuccessfully) make it to a formal IPO pricing. If this prices and does remotely well you can bet what you are sitting on that more RFID companies will follow.

This particular company touts its military and homeland defense supply chain, and the applications extend far beyond. This has been on the IPO docket since April of this year and proceeds of up to $120M were the initial filing, with all shares from the company. The company has been planning an IPO for well over 1 year. In 2004 Alien lost $53 million on revenues of $20 million. It has raised over $200 million in venture capital.

This company is involved in a lawsuit with Intermec (IN) on patent(s) and intellectual property and it should just be expected right now that almost every company that even tries to raise its head in this sector is going to potentially have dozens of lawsuits on their hands. That will be the cost of doing business, and it should be known that NO ONE has yet to solve this on a wide scale application basis that will account for the $100 Billion market potential.

Right now it is bar-coding that still runs most things on a retail basis and even in a warehousing basis. Zebra Tech (ZBRA) is the pure-play behemoth in Bar Coding and its stock looks horrible after a long slow steady decline where it has been cut in half over the last two-years. Zebra has most of the bar coding printer business and claims to have RFID printing as well, but they have a long way to go.

For RFID tags to dominate and be the holy grail of supply chain monitoring, the cost has to approach $0.01 to $0.02 per tag for this to become a true blue replacement for barcodes on a retail basis. The tags available on the market is NO WHERE NEAR that right now. They also have to essentially be able to be scanned on a burst or monitoring basis in a fixed area that can account for hundreds of thousands of these or more, and the available market is NO WHERE NEAR that either.

There are many other behemoths in the industry including the likes of Symbol Tech (SBL), IBM (IBM), Checkpoint Systems (CKP), and many others.

Jon C. Ogg
July 25, 2006

Out on a Limb

By William Trent, CFA of Stock Market Beat

We have pointed out several analyst estimates for handset growth. We point this one out only for its blandness.Annual Global Mobile Handset Shipments to Reach 1.5 Billion in 2011, Says Analysys

Annual shipments of mobile handsets will reach 1.5 billion worldwide in 2011 as handset categories evolve into three broad types, comprising voice-centric, converged-function and specialist handsets, according to a new report, Evolution of Mobile Handsets to 2011 and Beyond: market analysis and forecasts, published by Analysys, the global advisers on telecoms, IT and media (http://research.analysys.com).
1.5 billion units by 2011 represents an annual growth rate of approximately 8.5%, almost a no-brainer with the penetration of China and India still on the upswing.

We might consider reading a report that predicted 2 billion units, or half-a-billion. The authors might be crazy but we’d be interested to learn why. For this one, we might as well get last year’s figure and add a random growth rate.

http://stockmarketbeat.com/blog1/

The Encysive Gamble

Shares of Encysive Pharmaceuticals (ENCY) had been down by essentially half in pre-market trading this morning on after the FDA withheld its approval of its THELIN™ for the treatment for chronic high blood pressure in the blood vessel that carries oxygen-poor blood to the lungs until a question is cleared up. The shares have recovered a bit, and are trading down 39% at $3.73 for now.

This was still shown and represented as an “Approvable” letter, which is essentially its second delay for more information to be cleared up. The company said that the FDA again offered the alternative of conducting additional clinical work and the FDA provided recommendations on the company's risk management plan, which the Company views as constructive.

The first “approvable” delay came on March 24, when the agency requested more clinical work on the drug. On that date the shares fell from $9.00+ down to under $5.00, and since then shares had tried and tried to get back up to $7.00. This does mark a clear blow to the stock, but for now it is acting as though the old $3.29 intra-day lows will hold.

In a press release after Monday's close, Encysive said only one of the issues raised in the earlier letter remains unresolved. Unfortunately, it was anticipated that they would get an approval. The company does chew through its cash at a rate of $18 million to $30 million per quarter, and it had $100.5 million cash as of last quarter. Unfortunately, the company has $130 million in long-term debt it is carrying.

The company does get payments for Argatroban, a drug developed to treat heparin-induced thrombocytopenia (HIT), a serious immune reaction to heparin that causes abnormal clotting and often leads to limb amputation and even death. This is FDA Approved since 2000 and marketed by GlaxoSmithkline, but unfortunately it is not enough to offset their R&D and drug trial costs.

So here is your risk: investors tip-toeing in right now are making the gamble that the company will get this approved and will therefore begin a rapid recovery of cash. If so, it has an opportunity to capture a giant market. It may not be deemed a blockbuster drug, but it would be huge. If not, then the downside is worse than other biotech stocks with implosions that trade close to cash value, because it looks like the company will essentially be trading at or close to negative liquidity with this debt. If that is true, then you know how low it can go. If the company can get this resolved and then approved in a timely manner, then traders deciding to enter here today will be highly rewarded. Since there was the suggestion of additional clinical work you can just assume that this puts it at a critical juncture.

There was a substantial amount of options trading going into this FDA review yesterday, and it looks like there was a large hedge placed against this FDA action. Even if the street was hoping for an approval the volume, someone either cleaned up on this or at least kept a large stock position from getting worse.

Now the company has some decisions to make, and it is racing the clock. This was something we wanted to cover last night with some conviction, but until that conference call was past that showed some body language and some hint at where the company stands it was just not worth trying to be brave. This is a situation that definitely needs to be monitored.

Jon C. Ogg
July 25, 2006

The Goods on Capital Goods

By William Trent, CFA of Stock Market Beat

Summary: The Homebuilder’s confidence index has fallen to levels not seen since the early 1990’s. Mortgage applications to purchase a new home are falling at a high-teens percentage rate, California homes look like a classic bubble, and homebuilder shares are rallying.

PPI data was mixed for capital goods makers. Aircraft engines are getting more expensive.

As are industrial valves.

But construction equipment may be turning down.

Watch List news:
Homebuilder and mortgage banker NVR Inc. (NVR) acknowledged the slowing housing market. Second-quarter profit rose 14 percent year-over-year but gross margins weakened, land values were written down and cancellations increased. For the quarter ended March 31, net income climbed to $190.4 million, or $28.08 per share, from $167.6 million, or $21.42 per share, last year. Consolidated revenue rose to $1.75 billion from $1.28 billion in the year-earlier period. NVR shares rose $31.15, or 7.2 percent, to $466.15 on the news, because, well, it doesn’t take much to get a 4x P/E stock moving.< Other news:
Eaton Corp. (ETN) posted a higher quarterly profit on strong demand in its fluid power and electrical businesses. Sales rose 12 percent to $3.19 billion, compared to a consensus estimate of $3.16 billion. Sales growth was composed of 5 percent from existing businesses, 6 percent from acquisitions and 1 percent from favorable exchange rates. Eaton said its end markets grew about 4 percent and should grow at 4-5 percent for the full year.

D.R. Horton Inc., the nation’s top residential builder by units, said Thursday its third-quarter profit dropped 21 percent due to a tighter housing market that Chief Executive Don Tomnitz says won’t improve anytime soon.

Centex reported a 31% drop in fiscal first-quarter net income and cut its full-year earnings forecast as the homebuilder adjusts to what it called a “supply-driven correction” in the real estate market.

e author may hold a position in the securities discussed. A current list of the author's holdings is available here.

http://stockmarketbeat.com/blog1/

What We Like About Landstar

By William Trent of Stock Market Beat

What We Like About Landstar
Last week we pointed out the odd stock reaction to Landstar’s (LSTR) terrific earnings release. We won’t claim credit for the rally in the stock the day of our post, but were gratified that others recognized the opportunity as well.

One reason we like Landstar for the long haul (har!) is their business model. Rather than own their own trucks, they outsource the loads to owner operators who provide their own rigs. The business capacity owners (BCOs in Landstar terminology) get the lion’s share of the revenue for the load, which encourages them to haul as many as they can. This is a virtuous cycle that benefits both Landstar and their BCOs. More than 30,000 rigs are in the Landstar network, though some are much more active than others.

Compare their situation to this story about how difficult it is to recruit truck drivers, and that pay may need to be raised by 30 percent industry-wide.

Phoenix-based truckload company Swift Transportation Co. (SWFT) Inc. highlighted the impact of the driver shortage when it reported second-quarter results last week, saying it had nearly 500 trucks unassigned at the end of June.

For Swift, each unassigned truck is a drag on profitability. The truck certainly represents a depreciation expense and could also represent an economic expense if it is leased or purchased on credit. Every truck without a driver hurts the company.

At Landstar, an empty truck hurts the driver. And he gets off his butt and hauls some merchandise to earn some money and make the truck payment. And since he keeps most of the money from the load he is happy. And since he is hauling more traffic, Landstar is happy.

http://stockmarketbeat.com/blog1/

Previewing Amazon.com Earnings; Does UPS Signal Anything?

Stock Tickers: AMZN, UPS, YHOO, EBAY

Amazon.com (AMZN) is down 1.3% ahead of its earnings report today after the close. AMZN has had to endure a weak Yahoo! (YHOO) and a weak eBay (EBAY). Now this morning we have UPS (UPS) signaling weak international numbers and a fewer number of operating days, which is killing UPS and the other transport shares.

Well, guess who is a large shipper via UPS? You guessed it….Amazon.com is.

Does this signal that Amazon will also lower expectations? Who knows for sure, but it would make you suspicious. Amazon.com does have a unique model in that they do not physically warehouse most of their goods outside of books, CD’s, and DVD’s. They act as the clearing agent for merchants nationwide (and outside US) and these merchants use a myriad of shippers that essentially encompasses all major global shippers. If you order just a batch of new books, CD’s, or DVD’s it is likely to come from Amazon itself, and that is likely to come via UPS if you want any timeliness assurances.

The street is looking for $0.07 EPS and $2.1 billion in revenues for this quarter, and they are expecting $0.10 EPS and $2.22 billion revenues next quarter. It is unknown if Amazon.com will stick its neck out and offer annual guidance, but if they do the street is looking for $0.54 to $0.55 EPS and revenues just north of $10 billion. Options traders are bracing for a stock move in the vicinity of up to a range of $1.55 to $1.75 either way based on current prices, although it looks like the stock could move even more than that without them getting hurt too bad. The stock is also at the lower-end of the $33 to $37 trading band that has been in place for most of the four or five months, although it hasn’t really shown any real directional indicators.

We’ll have to see if UPS bleeds over to Amazon.com earnings or not. If Amazon.com doesn’t show the weakness, then you can likely blame eBay (EBAY) and retail for UPS. We’ll know in about five hours. We may also get to hear about Amazon search results and potentially will hear about its various download initiatives it wants to pursue, but you could have said the same thing in any of the last few quarters.

Jon C. Ogg
July 25, 2006

UPS Grounding the Transports

Stock Tickers: UPS, FDX, BNI, JBHT, FWRD, IYT, JDAS, PKG

UPS (UPS) looks like the epitome of a technician’s story. The company said EPS was $0.97, up from $0.88 the year before but under the $1.00 consensus estimate; and revenues were $11.74 Billion, versus $11.6 billion estimates. The shares are taking more than a 10% haircut (or scalping) after the company said international operations and 1 few operating days in this quarter would hurt operations by $0.04 to $0.05 off of EPS.

Merrill Lynch has cut the stock to a Sell, while Lehman is lightly defending the reaction to the stock. UPS is trading down 13.1% at $69.45, which now puts it close to the bottom of a very long-term trading band of $67 to $82 for most of the last two and a half years.

This is impacting all aspects of transportation shipping.

UPS’s arch-rival Fedex (FDX) is down almost 5% at $105.14.

The railroad play from this morning, Burlington Northern (BNI), actually beat estimates on the surface, but shares are down 6.3% at $65.40.

Trucking giant J.B.Hunt (JBHT) is down 2.2% at $21.33.

Forward Air (FWRD), which also reported earnings yesterday, is down 9.5% at $34.93.

Even the iShares Dow Jones Transportation Average (IYT) are down 3.1% at $79.37.

Also logistics and supply chain software vendor JDA Software (JDAS) shares are trading down 1% at $13.52 after the company beat lowered expectations and lowered forward expectations.

One of the other overall economic plays that is often a go-to name in the sector is Packaging Corp of America (PKG). It isn’t in transportation at all, but they are looked at as the proxy for all of the packaging materials in the US as they manufacture containerboard and corrugated packaging products. PKG already has its earnings behind it, and shares are actually Up 0.4% at $22.81.

There are numerous media reports noting that this signals a weaker economy and a broader slowdown. While this may be true, isn’t that what just about all of the economic numbers have been telling us?

Jon C. Ogg
July 25, 2006

AT&T Up 1.6%; With Higher Short Interest

AT&T (T) reported better earnings than expected, and sahers are up just over 1.5% at $28.24 in pre-market trading. BellSouth (BLS), its merger partner, is not trading up. There may be some indication that a more sinister thought prevailing in the markets is getting trumped on its operating business and on its cost projections.

There has been talk of "some" merger approval problems in this AT&T acquisition of BellSouth for some time now. A judge has been granted more authority in the review of this, and even the FCC has been piping down into projected marketshare and implications of what would in reality be AT&T-SBC-BellSouth. While this merger is really not a good thing at all for shareholders the FCC, the DOJ, and the current administration have not blocked a single merger. They may place some limitations and may keep it under extended reviews, but the current projection would be for this merger to still go through.

We now have the July Short Interest on these stocks and it looks like the June short interest on AT&T of 84.7 million shares climbed to just over 106 million in July. The short interest for BellSouth in the same period went from 13.9 million shares to 13.35 million shares. So why are the shorts lining up more on AT&T when BellSouth is actually the target?

What may be at issue is AT&T earnings and its trimming of cost projections. It looks like there were some added bets that AT&T would have trouble meeting expectations because of the SBC merger integration, but AT&T said it would actually have HIGHER "synergies" and it is lowering its expenses going forward on pension/retiree costs, and even lowered its expense projections against earnings from Project lightspeed.

There may be some decent news for capital expenditure stocks (telecom equipment) after AT&T said it would be at the high-end or above its $8.0 billion to $8.5 billion in cap-ex it had made in prior projections. While this implies higher net costs in cap-ex, telecoms are actually getting rewarded if they are building infrastructure right now. All of this news is probably going to result in some added short coverings as investors look at the results more than the merger.

Jon C. Ogg
July 25, 2006

Pre-Market Stock Notes (July 25, 2006)

Pr(AGR) Agere $0.22 EPS vs $0.17e; authorized share buyback as well.
(AL) Alcon $1.18 EPS vs $1.15e.
(ALB) Albermarle $0.89 EPS vs $0.71e; unsure if comparable.
(ALK) Alaska Air $1.50 EPS vs $1.28e.
(AMLN) Amylin -$0.38 EPS vs -$0.45e; stock up 1% pre-market.
(ANIK) Anika $0.12 EPS vs $0.10e.
(ASN) Archstone Smith $0.59 EPS vs $0.51e.
(AUO) AU Optronics reported lower than expected earnings after warning earlier (overseas).
(AV) Avaya $0.10 EPS vs $0.12e; unsure if items in report.
(AXE) Anixter $1.15 EPS vs $0.81e.
(BJS) BJ Services $0.67 EPS vs $0.58e.
(BNI) Burlington Northern $1.23 EPS vs $1.22e.
(BP) BP reported higher than expected earnings overseas.
(CD) Cendant (newco Cendant) will be part of S&P Mid Cap 400 index.
(CL) Colgate $0.72 EPS vs $0.72e.
(CME) Chicago Mercantile Exchange $3.12 EPS vs $3.09e.
(CNET) CNET said it wil have restate earnings for prior periods after concluding its option review period.
(CNMD) Conmed $0.23 EPS vs $0.21e.
(CPO) Corn Products $0.40 EPS vs $0.36e.
(CPST) Capstone Turbine announced resignation of CEO effective July 31.
(CR) Crane $0.71 EPS vs $0.67e.
(CTX) Centex $1.39 EPS vs $1.37e.
(CVTI) Covenant transportation $0.02 EPS vs $0.07e; unsure if comparable.
(CYMI) Cymer entered development pact with Intel.
(DD) Dupont $1.01 EPS vs $0.95e.
(ENCY) Encysive Pharm received an FDA approvable letter for Thelin for PAH; stock down 49% on not being approved.
(ENZN) Enzon recieved FDA approval for expanded use of Oncaspar.
(EPD) Enterprise Pdts $0.26 EPS vs $0.23e.
(EXP) Eagle Materials $1.16 EPS vs $1.18e.
(FSH) Fisher Scientific $0.92 EPS vs $0.96e.
(FWRD) Forward Air $0.41 EDPS vs $0.41e.
(GOOG) Google has another click-fraud article in NYPost saying it is still an issue.
(HMA) Health Management $0.32 eps vs $0.32e.
(JDAS) JDA Software $0.09 EPS vs $0.08e.
(JEC) Jacobs Engineering $0.88 EPS vs $0.75e.
(KIM) KIMCO Realty $0.54 FFO vs $0.53e.
(KFT) Kraft Foods $0.51 EPS vs $0.48e.
(LCAV) LCA Vision $0.51 EPS vs $0.47e.
(LM) Legg Mason $1.08 EPS vs $1.13e.
(LVLT) Level 3 -$0.23/R$1.53B vs -$0.22/$1.37B(e).
(LXK) $1.07 EPS vs $0.87e; lowered guidance.
(MHP) McGraw Hill $0.60 EPS vs $0.53e.
(MO) Altria $1.41 EPS vs $1.37e.
(NASI) North American Scientific gets FDA marketing approval for its nomosSTAT.
(NBR) Nabors $0.77 EPS vs $0.72e.
(NFLX) Netflix $0.24 EPS vs $0.21e; lowered revenue guidance; stock DOWN 19%.
(NTRI) Nutri-Systems down 12% after earnings; COO leaving for family reasons.
(NWRE) Neoware extended its relationship with IBM.
(OMC) Omnicom $1.42 EPS vs $1.38e.
(ONXS) Onyx Software's $5.00 buyout offer from CHINA was withdrawn.
(PNR) Pentair $0.67 EPS vs $0.63e.
(PNSN) Penson $0.25 EPS vs $0.24e.
(PRE) Partner Re $2.01 EPS vs $2.01e.
(PRX) Par Pharma said the SEC is investigating their restatement.
(PSB) PS Business Parks added to S&P Small Cap 600 Index.
(RCII) Rent-a-Center $0.56 EPS vs $0.53e.
(RGA) Reinsurance Group $1.10 EPS vs $1.08e.
(RE) Everest Re $3.38 EPS vs $3.07e.
(SNDK) SanDisk trading up $7 from yesterday's close after beating earnings expectations.
(STAR) Lone Star Steakhouse $0.18 EPS vs $0.21e.
(STN) Station Casinos $0.61 EPS vs $0.64e; lowered next quarter guidance slightly.
(TUES) Tuesday Morning $0.08 EPS sv $0.07e; had already lowered guidance though
(TUP) Tupperware $0.49 EPS vs $0.51e.
(TXN) Texas Instruments $0.47 EPS vs $0.47e.
(UAG) United Auto $0.39 EPS vs $0.38e.
(UPS) UPS trading down almost 10% after missing numbers.
(UCTT) Ultra Clean $0.21 EPS vs $0.16e.
(WAT) Waters $0.53 EPS vs $0.48e.
(WDR) Waddell & Reed $0.32 EPS vs $0.32e.
(WHR) Whirlpool $1.26 EPS vs $1.19e.
(ZGEN) Zonagen reported positive results in lupus studies.

Key Analyst Calls (July 25, 2006)

Analyst Calls:
AAPL reitr Outperform at Piper Jaffray.
ADM started as Buy at ThinkEquity.
AMP started as Outperform at KBW.
BEAS started as Buy at Citigroup.
CAMP started as Buy at Oppenheimer.
CC reitr Buy at Goldman Sachs.
CETV raised to Hold at Deutsche Bank.
CHR raised to Overweight at JPMorgan.
DGX cut to Hold at Jefferies.
DHT cut to Neutral at UBS.
DKS cut to Neutral at Goldman Sachs.
EBAY raised to Outperform at Bear Stearns.
GGXY started as Underweight at JPMorgan.
GOLF started as Overweight at JPMorgan.
ITW raised to Buy at Goldman Sachs.
KFT raised to Overweight at JPMorgan.
MLM raised to Buy at Goldman Sachs.
MOT reitr Outperform at Piper Jaffray.
MRK raised to Buy at Merrill Lynch.
NFLX started as Underweight at JPMorgan.
PAAS started as Buy at UBS.
SGP cut to Neutral at Merrill Lynch.
SIRI started as Outperform at CSFB.
SLW started as Buy at UBS.
SNCR started as Buy at Goldman Sachs.
SSRI started as Buy at UBS.
SYMC cut to Neutral at Merrill Lynch.
TIBX started as Buy at Citigroup.
USG started as Buy at Jefferies.
WEBM started as Hold at Citigroup.
WIND started as Sell at Citigroup.
XMSR started as Outperform at CSFB.
YRCW raised to Outperform at CSFB.

T.Boone Pickens said he thinks oil will still reach $80/barrel by year end and that oil would hit $100 in the next year to CNBC.

MAD MONEY Recap (July 24, 2006)

Stock Tickers: SGP, MRK, AVP, DPZ

Jim Cramer's MAD MONEY Recap: Cramer opened saying Avon Products (AVP) is an interesting turnaround play as over half of Avon's revenue comes from emerging markets.

Cramer then evaluated a mistake he made by recommending Domino's Pizza (DPZ) as a Buy; he noted that while he was wrong on timing now is the time to Buy more.

Cramer then recommended pharmaceutical stocks, including his favorite, Schering-Plough (SGP) as a beneficiary of the misunderstood Medicare Part D. Note, he was positive on Merck (MRK) yesterday at 3:30 PM EST on CNBC as well over the same issues, saying he thinks multi-quarter outperformances are likely.

ExxonMobil Basks In BP's Numbers

Stock: (XOM)(BP)

Nothing could do more for the investors and managment at Exxon that BP's big numbers. Net income at the British oil behemoth rose to $7.27 billion and revenue was up 24% to $72.46 billion.

The Associated Press has estimated that the five largest oil companies in the world will earn a combined $30 billion in the second quarter. And, $75 per barrel oil and $3 gasoline sure help.

Exxon's stock is now at $65.36 just shy of its 52-week high and up 20% over the period. BP's stock trades at $70, between its high/low of $76.85/$63.26.

BP's results can't guarantee that Exxon will do as well. But, it's a pretty safe bet.

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

Investor Shift Bets From Lowe's To Home Depot

Stocks: (LOW)(HD)

Wall Steet is shifting its bet from Lowe's to Home Depot in the big war between the home improvement stores. July short interest in Home Depot dropped 12 million shares to 65.8 million. Lowe's short interest rose to 40.7 million, an increase of 6.9 million shares. Home Depot trades an average of 13.2 million shares a day, and the average at Lowe's is 8.2 million.

There may be good reason for the shift. Lowe's trades at a price to sales ratio of one times. Home Depot's is .85. The issues that might hurt each stock are common to both. Fuel prices. A slowing home building market. Competition from Wal-Mart.

For the quarter ending May 5, Lowe's had revenue of $11.9 billion which was up 10% over the immediately previous quarter. For the same two periods, operating income rose 20% to $1.4 billion. At Home Depot, the quarter ending revenue for the quarter ending April 30 was up to $21.5 billion, and increase of 10% over the immediately previous quarter. Operating income rose 18% to $2.4 billion. Not much difference in growth rate.

Seeing a shift in short positions between two companies that compete directly with one another is often a telling sign. And, if Home Depot's price to sales ratio was the same as Lowe's, it would trade close to $40 instead of $34.60. Sort of makes you think.

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

Handy Handset Market Share Estimate

Stocks: (MOT) (NOK) (QCOM)

By William Trent, CFA of Stock Market Beat

Strategy Analytics estimates strong growth in mobile handset sales occurred in the second quarter, and they say the big got bigger. Cellular-News.com has the full story, along with a handy chart you should check out.

Global Handset Shipments Jump a Quarter

Global mobile phone shipments grew a healthy 26 percent year-over-year, to reach 235 million units in Q2 2006, according to the latest research from Strategy Analytics. Nokia and Motorola dominated sales and accounted for a record 55 percent combined share during the quarter, as described in the newly published Q2 2006 Global Handset Market Share Update report.

Widely Held Stocks: Kraft Finally Delivers For Altria

(MO)(KFT)

Several years back, when tobacco lawsuits were coming hot and heavy, Philip Morris got the idea that it could get into another business to save the company if its cigarette business got burned in the courts. With a huge pile of cash on hand, it bought itself Kraft Foods. The new company, which calls itself Altria for some unknown reason, still owns 86% of Kraft.

The problem with the theory behind combining the companies is that tobacco litigations has turned out well for cigarette companies, and Kraft has gone to the dogs.

In the first quarter of the year, according to the Altria 10-Q, operating income from tobacco was $3.083 billion. The food busines brought in $1.060 billion in operating income. The problem is that tobacco income was three times food income, but tobacco revenue is only 25% bigger than food revenue. Opps.

Well, Kraft has finally started to deliver the groceries for Altria. For the quarter ending June 30, net income rose 44.5% to $682 million. The company even raised EPS guidance for the year form a range of $1.55 to $1.60 to a higher range of $1.78 to $1.83.

Kraft still has a lot of work to do. It has weaknesses, especially in its cheese and foodservice business.

But, Altria shareholders have reason to be happy with Kraft for the first time in a long time. And, Altria, which has had a run from $66 to a 52-week high of $80, where it trades now, could go even higher.

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

Is Ciena For Sale? It Should Be

Stocks: (CIEN)(AMD)(CSCO)(JDSU)(ALA)(NT)

With private equity firms paying $55 billion for HCA and AMD buying ATI Technologies for $5.4 billion, investors have to ask what the next traunch of buy-out candidates may be.

Ciena is in a tough position. Most of its competitors are more than ten times its size.

The company has a good business, making broadband networks and fiber optics deployments more efficient. The market for this set of products should be very good as telcos roll out their new systems to bring more services like TV to the home.

The stock has fans on Wall Street. Morgan Keegan just upgraded it from "underperform" to "market perform". Not really much of an endorsement.

Ciena is a survivor. And, that may be all its is. First quarter revenue was $120.4 million, up only 2% from the immediately previous quarter. Margins improved, but the company cannot cut costs forever.

Upgrading telco fiber systems with Ethernet switches may be a key component of the new world of a super-fast internet, but comanies like JDS Uniphase, Alcatel, Nortel, and Cisco play in the same sandbox. Ciena's revenue is less than $500 million. Even Nortel brings in $10 billion

According to Morningstar, Ciena's price to book value is 2.8 in and industry were the average is 4.3. It technology and customer list would be very, very valuable to one of its larger rivals. And, the company's market cap is only $2 billion, about four times sales.

Ciena will have trouble competing long-term, but it could make a valuable prize for one of the industries big wheels. Some investment banker is probably pitching the idea right now.

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

Widely Held Stocks: The Shorts Chase Disney (DIS)

Short seller and stock analysts are after Disney. Short interest in the company rose 8.9 million shares in July to 48.7 million shares. Then Cowen & Co. downgraded that stock from "outperform" to "neutral".

What is wrong in Disney Land? It seems that once Eisner was chased out the door that new management has things rolling forward.

Maybe not. Disney trades near its 52-week high in a very weak market. Shares are changing hands at $29.50 against an annual high of just over $31. The logic for Disney's downgrades may be a bit perverse. Since its "Pirates of the Caribbean" film is doing so well in 2006, the results may be hard to match in 2007. Of course, the third installment of the pirate movie comes out next year, which takes the wind out of the sales for that argument.

The new CEO seems to be doing the right thing at the studio. Many jobs have been cut and the production budget of $450 million per year will be spread over few movies.

Disney has also been a leader in digital distribution of its content both on the iPod and the internet. The chances are that this will supplement old-line distribution revenue from sources like DVDs, TV networks and movie theaters.

Disney is at a five year high, and that is what bothers Wall Street. But, the company's forward P/E of 18 is not much higher than the P/E for the S&P 500.

The bet against management is a bet against the company being able to improve on $8 billion quarters and bettering $1.2 billion in operating income.

Its a bad bet, and the shorts may get themselves squeezed.

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

Stock Upgrades & Downgrades to consider- AMD, GOOG, DELL, PFE, ACI, CAT & C

By Yaser Anwar, CSC of Equity Investment Ideas

Advanced Micro Devices "neutral" target price reduced- Analyst Sumit Dhanda of Banc of America Securities maintains his "neutral" rating on Advanced Micro Devices (AMD). The target price has been reduced from $20 to $19.

In a research note published on July 21, the analyst mentions that the company’s F3Q sales are expected to be adversely affected by difficult comps, margin pressure due to price cuts in late 2Q and early 3Q and a likely loss of market share to Intel during 2H06. Advanced Micro Devices’ costs are likely to increase in the forthcoming months due to the company's potential capacity expansion plans, the analyst adds.

Google "overweight" target price raised- Analyst Mark J Rowen of Prudential Financial reiterates his "overweight" rating on Google Inc (GOOG), while raising his estimates for the company. The target price has been raised from $500 to $520.

In a research note published on July 21, the analyst mentions that the company has reported robust 2Q net revenues and pro forma EPS ahead of expectations. Google’s US gross revenues and International revenues rose 69% and 91% y/y, respectively, the analyst says. The company is likely to continue to post hypergrowth rates in the near term, Prudential Financial adds. The EPS estimates for 2006 and 2007 have been raised from $8.28 to $9.12 and from $12.40 to $12.94, respectively.

Dell downgraded to "hold"- Analyst David M Wong of AG Edwards downgrades Dell Inc (DELL) from "buy" to "hold," while reducing his estimates for the company.

In a research note published on July 21, the analyst mentions that the company has reduced its guidance for the July quarter due to aggressive pricing and global weakness in the commercial market. It may be several quarters before Dell can substantially improve its margins and generate market share momentum, the analyst believes. The EPS estimate for FY08 has been reduced from $1.82 to $1.12.

Pfizer "overweight" target price raised- Analyst Tim Anderson of Prudential Financial maintains his "overweight" rating on Pfizer Inc (PFE), while raising his estimates for the company. The target price has been raised from $26 to $27.

In a research note published on July 21, the analyst mentions that the company has reported its 2Q EPS ahead of the estimates and the consensus primarily due to marginally higher-than-expected revenues and lower-than-anticipated expenses. Pfizer has reiterated its EPS guidance for 2006, despite the sale of the OTC business, due to favourable currency valuations, low spending, and increased share buybacks. The company continues to expect to generate high single-digit EPS growth in 2007 and 2008. The EPS estimates for 2006 and 2007 have been raised from $1.91 to $2.00 and from $2.03 to $2.10, respectively.

Arch Coal "sector perform" target price reduced - Analysts at RBC Capital Markets maintain their "sector perform" rating on Arch Coal Inc (ACI), while reducing their estimates for the company. The target price has been reduced from $66 to $62.

In a research note published this morning, the analysts mention that the company has reported its 2Q06 EPS and EBITDA ahead of the estimates. Coal prices have been weak during the quarter and are expected to improve in 2H06, the analysts say. Arch Coal has projected that its 3Q earnings would be the weakest during the year due to rail maintenance and longwall moves. The EPS estimates for 2006, 2007 and 2008 have been reduced from $2.07 to $2.01, from $3.80 to $3.75 and from $5.09 to $5.01, respectively.

Caterpillar "neutral" target price reduced- Analysts at Robert W Baird maintain their "neutral" rating on Caterpillar Inc (CAT), while raising their estimates for the company. The target price has been reduced from $81 to $77.

In a research note published this morning, the analysts mention that the company has posted robust 2Q06 results, with EPS ahead of the estimates and the consensus. According to the analysts, Caterpillar's sales in North America rose 13% y/y, with the company attributing the robust demand to rising highway and non-residential construction activity. The challenges being faced by the residential construction and the on-highway engines markets in the US is expected to exert pressure on the company's share price going forward, Robert W Baird adds. The EPS estimates for 2006 and 2007 have been raised from $5.25 to $5.55 and from $5.80 to $5.90, respectively.

Citigroup "buy"- Analyst Richard X Bove of Punk Ziegel & Co maintains his "buy" rating on Citigroup Inc (C). The target price is set to $59.

In a research note published this morning, the analyst mentions that the company’s share price has declined following the declaration of the 2Q earnings. Citigroup’s stock performance since April 18 has not been healthy due to wrong decisions made by the company’s current Board of Directors, the analyst says. Punk Ziegel & Co believes that the company’s Board of Directors should give in their resignations.

http://equityinvestmentideas.blogspot.com/

Catalysts that make Timber a buy & why Timber outperforms Stocks, Bonds & even Commodities

By Yaser Anwar, CSC of Equity Investment Ideas

The investment proposition of timber today are just as powerful as they were in the 1940's.

Catalysts that make Timber a buy:

1) Excellent returns

Between 1972-2006, an investor in timber saw average annual returns of over 14.5%. In other words, if you had invested $10,000 in timber in 1972, you'd be sitting on close to a million dollars today.

Here’s a rough breakdown of timberland’s average annual return over the last century:

1% Land values increase
6% Biologic growth of the trees
3% Increase in market price of lumber
3% Rise in inflation

2) Beats every other asset

Most people don't know that timber beat all major asset classes over the last 30 years.
Timber has performed better than stocks, bonds and commodities. The total compounded gain for timber during the period 1987-2002 was about 15%.

3) Less volatility than stocks

Not only does timber beat other assets, it does it with lower volatility. Timber has had three down years in the last 45 years. That makes it much less risky than stocks, which have had 12 down years over the same period.

4) Timber goes up when stocks go down

Timber does best when stocks do badly, so it’s a great asset to own when stocks are in a secular bear market, like today:

The last great bear market in stocks began in the late 1960s and lasted until about 1980. An investor in stocks during that time literally lost money due to inflation.

However, an investor in timber never had a losing year. And more often than not, the returns were in the double-digits… with a 55% return in 1973 and a 47% return in 1977

In layman's terms, the trees don't care about the War on Terror, or the Nasdaq Bubble. They just mind their own business, growing exponentially in value every year!

Steve Sjuggerud (of Investment U & Daily Wealth), has discovered the cheapest and easiest way to buy timberland assets at a huge discounts is to buy stock in paper businesses that happen to own millions of acres of valuable timberland. The timber REIT Rayonier (RYN).

It seems money does grow on trees.

http://equityinvestmentideas.blogspot.com/

NYSE Short Interest For July 2006

NYSE short interest rose 2.3% as of mid-July. Some key statistics:

Largest short positions:

Lucent 177.030 million
Ford 108.901 million
AT&T 106.026 million
GM 76.959 million
Home Dp 65.779 million
TimeWar 57.279 million
Sprint 55.736 million
Qwest 55.504 million
Pfizer 54.495 million
HP 50.215 million
Disney 48.711 million

Largest Increases

LSI Logic 29.7 million, up 22.5 million
AT&T 106.0 million, up 21.2 million
Bristol My 47.8 million, up 20.2 million
Verizon 34.1 million, up 14.4 million
Compter Sc 17.1 million, up 14.1 million
Disney 48.7 million, up 8.8 million
Merck 31.3 million, up 7.4 million

Largest Decreases

News Corp 20.8 million, down 19.3 million
Xerox 14.9 million, down 18.2 million
Lucent 117.0 million, down 16.5 million
Mosaic 13.1 million, down 13.6 million
Home Depot 65.8 million, down 11.9 million
Bank of NY 5.1 million, down 9.0 million
Micron 29.4 million, down 8.1 million
DuPont 19.2 million, down 7.0 million

Largest Cover Ratios

Pre-Paid Legal 80 days
Highland Crd Str 74 days
Krispy Kreme 41 days
Superior Ind 37 days
Nautilus 29 days
MortgageIT 28 days
Fresh Del Monte 27 days
Jo-Ann Store 27days
Hawaiian Elec 26 days
Amer Italian Past 26 days
Novastar Fin 26 days
Primedia 26 days

Europe Market Report 7/25/2006

Stocks: (BP)(BCS)(BT)(PUK)(RTRSY)(BAB)(DCX)(AZ)(FTE)(DB)(DT)(TMX)
(VOD)(V)(AXA)

Share in Europe were up slightly at 5.25 AM New York time.

The FTSE was up .4% to 5,855. Barclays was down .6% to 610. BP was down .3% to 631.5. British Airways was up 3.9% to 387.5. BT was down .3% to 238.75. GlaxoSmithKline was up 2.1% to 1544. Prudential was down .1% to 577.5. Reuters was up ,7% to 375.75. Unilever was up .4% to 1270. Vodafone was up 1.1% to 116.5.

The DAXX was up .3% to 5,593. Allianz was down .3% to 121.45. BASF was up .1% to 62.42. Bayer was up .8% to 38.72. BMW was up 1.4% to 39.1. DaimlerChrysler was up 1.5% to 39.12. DeutscheBank was down .4% to 88.12. Deutsche Telekom was down .7% to 12.22.. SAP was up 1.8% to 144.49. Siemens was up .1% to 64.17.

The CAC 40 was up .5% to 4,939. Alcatel was up .2% to 8.68. Axa was up .2% to 26.01. France Telecom was up .1% to 16.77. ST Micro was up 1.8% to 12.26. Vivendi was up .3% to 26.46. Thomson was down .9% to 12.59.

Douglas A. McIntyre

Media Digest 7/25/2006

Stocks: (DIS)(YHOO)(SYMC)(TXN)(BP)(MRK)((UAUA)(AXP)(BLS)(GOOG)
(MSFT)(NFLX)(AMD)(ATYT)(KFT)


According to the Wall Street Journal, Disney will buy Indian cable TV channel Hungama to increase its footprint in the country.

Reuters writes that Symantec and Yahoo! will team up to offer a new consumer online security service to compete with products from rivals Google and Microsoft.

Reuters also writes that Texas Instruments announced that its quarterly earnings rose 27% on the strength of its cell phone chip sales. The company indicated that the upward trend would continue.

BP posted a 20% rise in profits driven by high oil and natural gas prices and better refining margins.

The Wall Street Journal also writes that Merck’s profits almost doubled on sales of its cholesterol drugs.

The Wall Street Journal also writes that airline holding company UAL expect to post a profit of $119 million. The company has not had a profit since 200.

The Wall Street Journal reports that American Express’s profit fell 7%.

The WSJ also writes that BellSouth’s profits rose on strong results from its wireless and web operations.

The Wall Street Journal reports that NetFlix earnings rose sharply, but its forecast was week and the stock fell as much as 20% in after-hours trading.

The Wall Street Journal also reports that Google’s settlement on click fraud has been challenged on the basis that the company is not doing enough to keep down illegitimate clicking on its add to falsely drive up ad results.

The New York Times reports that Wall Street did not react well to Advanced Micro Devices purchase of ATI Technologies, sending AMD’s stock down as much as 5%.

The NY Times reports that profits at Kraft Food rose 45%as the company’s restructuring, which cut a number of jobs, began to pay off.

The NYT writes that profits at Japanese game maker Nintendo rose 10%.

Douglas A. McIntyre

Asian Markets 7/25/2006

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

Asian markets rallied strongly on the tails of the move up in US stocks.

The Nikkei was up 1.4% to 15,005. Canon was up 1.7% to 5380. Daiwa Securities was down .3% to 1222. Fuji Photo was flat at 3780. Honda was up 3.6% to 3750. Japan Airlines was down 4.2% to 206. NEC was up 2.3% to 579. NTT was up .2% to 589000. Docomo was up 1.8% to 169000. Nissan was up 2.3% to 1180. Sharp was up 3.1% to 1892. Softbank was up 3.2% to 2050. Sony was up 2.7% to 4940. Toshiba was up 3.9% to 725. Toyota was 3.3% to 5970.

The Hang Seng was up 1% to 16,645. Cathay Pacific was up .7% to 13.78. China Mobile was up 1.7% to 47.17. China Netcom was down 1% to 13.96. HSBC was up 1.2% to 139. Lenovo was up.4% to 2.59. PCCW was flat at 4.96.

The KOPSI was up 1.3% to 1,280.

The Straits Times Index was up 1.3% to 2,405.

The Shanghai Composite was up 1.2% to 1,685.

Douglas A. McIntyre

SanDisk Going Strong

SanDisk (SNDK) is up drastically after-hours. SNDK posted EPS of $0.47 GAAP and pro-forma of $0.58 on revenues of $719 million. Expectations were only for the company to post EPS at $0.45 on revenues of about $692 million. The company amintained an optimistic outlook on the CEO interview on CNBC. Shares of SNDK closed up 7% at $40.20, and are now trading up another $5.60 at $45.80.

Oddly enough, the recent IPO Spansion (SPSN) closed up 1.5% at $13.82 but hasn't traded up in conjunction with SNDK yet. Anyone betting their money against this company for this quarter is probably feeling the wrath of a short squeeze after hours.

Jon C. Ogg
July 24, 2006

Rogers: $100 Oil This Year

By Yaser Anwar, CSC of Equity Investment Ideas

Will oil soar to $100 a barrel by the end of the year?

The answer is yes, according to acclaimed commodities investor Jim Rogers, co-founder of George Soros' Quantum hedge fund. And he is not alone.

"Commodity investors looking for $100 oil will see it,'' Philip K. Verleger, an economist who founded PK Verleger LLC, a Newport Beach, California-based energy consulting firm, told Bloomberg. He is also a visiting fellow at the Institute for International Economics in Washington.

Verleger also told the news service that only a U.S. recession will halt the advance to $100 a barrel before the end of 2007.

``Unless somebody discovers something very quickly and very accessibly, we're all going to be dumbfounded at how high the price of oil will go, including me,'' Rogers said in an interview in Singapore. He attributes much of the potential rise to surging oil demand from China, the world's fastest-growing economy.

While oil did fall $0.58 on Monday, in the wake of fighting between Israel and Lebanon, crude for August delivery previously soared to a record $78.40 on fears that the violence could spread through the rest of the Middle East, the source of more than 30% of the world's crude.

Meanwhile, Bloomberg cites Francisco Blanch, head of commodities research at Merrill Lynch, the largest brokerage in the world. He says there is little chance that oil prices will rally again - especially to $100.

``It's unlikely we will see another price rally from here, unless the current conflict expands beyond its current borders,'' Blanch said in a July 17 interview in London, according to Bloomberg. ``You'd need physical disruptions, and large ones, to bring the price to $100. You'd probably need to lose Iran.''

But Bloomberg reports that this current jump in prices is particularly disconcerting for a variety of reasons.

"U.S. growth is slowing and inflation is rising; Europe is only starting to show signs of revival; China and other Asian nations have begun passing earlier price increases on to consumers and businesses. The world economy is also more at risk because the recent oil run-up is driven more by supply concerns than strength in demand."

According to top analysts, the situation comes at a dangerous time, with an extremely vulnerable U.S. economy and a Federal Reserve that is left with few options. Of course, there is a real danger that the Fed will be forced to keep raising interest rates to combat energy-driven inflation - thereby crushing global economic development.

According to the former chief economist at the International Monetary Fund, the chances of a U.S. recession in 2007 have doubled and are now at 25% to 30%.

http://equityinvestmentideas.blogspot.com/

Market Wrap for July 24, 2006

Stock Tickers: AXP, MRK, SGP, IOTN, DELL, HAS, HCA, AMD, ATYT, FLSH, SNDK, SLAB, BIDU, LVS, MOT, TASR, UAUA

DJIA 11,051.05; Up 182.67 (+1.68%)
NASDAQ 2,061.84; Up 41.45 (+2.05%)
S&P500 1,260.91; Up 20.62 (+1.66%)
10YR-Bond 5.04%

American Express (AXP) initially rose after earnings, but closed only up 0.14% at $50.69 after the details in the numbers showed less enthusiastic results than the "$0.78 EPS vs $0.75e" based on declining earnings.

Merck (MRK) rose 4.2% to close at $38.94 after it beat earnings. Despite indicating that it now has over 14,000 lawsuits filed against it, it has now recovered to post-Vioxx withdrawal highs. Schering Plough (SGP) also rose 5.8% to close at $20.58 after beating its earnings.

Ionatron (IOTN) rose over 5% to close at $7.05 after securing another Army pact for laser studies.

Dell (DELL) rose over 4% to close at $20.77 after Citigroup raised their rating from a Hold to a Buy.

Google (GOOG) managed to close up 0.2% at $391.00 after insiders' share sale windowns opened, which allows them to cash in on certain percentages of their beloved and valued stock options.

Hasbro (HAS) rose 9% off its 52-week lows to close at $19.16 after beating its expectations.

HCA (HCA) closed up 3.2% at $49.42 after confirmation of the largest private equity deal to date, with a $51 cash buyout price.

AMD (AMD) fell 4% to close at $17.40 and ATI Tech (ATYT) rose 18% to close at $19.56 after AMD confirmed it would acquire ATYT.

M-Systems (FLSH) rose over 6% to close at $29.97 on word that SanDisk (SNDK) would either make an acqisition or take a stake in the company.

Silicon labs (SLAB) rose over 20% to close at $35.70 after it beat earnings expectations.

Shares of Chinese-Internet search portal Baidu.com (BIDU) rose 0.9% to close at $89.30 after disclosing the H-P would bundle direct access into its products in China.

Las Vegas Sands (LVS) rose about 5% to close at $68.28 after reports that it would double its initial investments into China and Macau.

Motorola (MOT) rose over 3.5% to close at $21.13 after announcing a $1.2 Billion accelerated share buyback plan.

UAL Corp (UAUA), the parent of United Airlines, rose a sharp 5% to close at $28.25 after posting substantially higher earnings above expectations.

The analyst call of the day was Marriman Curhan's call to arms for buyers to be aggressive in shares of Taser (TASR) ahead of earnings; TASR closed up 8.6% at $8.04.

Jon C. Ogg
July 24, 2006

Anyone Notice Globalstar Filed to Come Public Again?

Do you recall an old satellite phone company called Globalstar? It's Back. Actually it never went away as far as some of the satellites and infrastructure, but it blew some investor portfolios apart so bad they sure thought it went away. Globalstar is coming public AGAIN in an IPO under ticker "GLOB." The phone technology doesn't look like has changed either, although that may be arguable.

The company has filed to sell $100 Million in securities. In 2005 it earned $21.8 million on revenues of $81.47 million,and this last March 2006 quarter it earned $3.7 million on revenues of $20.7 million. Wachovia is listed as the lead underwriter with backers Qualcomm (QCOM) and Thermo Capital Partners. In a world in turmoil this company is actually profitable.

Globalstar intends to use the net proceeds of the offering, together with the proceeds under its credit facility, the issuance of its common stock under its irrevocable standby stock purchase agreement with its controlling stockholder and cash generated by its business, to fund the procurement and launch of its second-generation satellite constellation, upgrades to its gateways and other ground facilities, and the launch of eight spare satellites to augment its current constellation, as well as for general corporate purposes.

Here is the general pricing structure, but understand this changes depending on your needs:

Plan Name	Access Fee	Annual Pre-Pay	$/Minute	Voice Mail	Email, Data, Web
Emergency Annual	$450/yr	$0	$1.39 to $4.99	$95.40	$119.40
Emergency Monthly	$39.00/mo	$0	$1.39 to $4.99	$95.40	$119.40
Traveler	$0	$750	$0.99 to $1.99	Free	Free

Globalstar used to be public, but in the 1990's it had a defunct business model under the old "GSTRF" stock ticker. We had no war. We had no need for every single person to be reachable by email. We weren't used to every single person having a cell phone, so when a hurricane knocked out the cell taowers we didn't topple local governments for not protecting against natural disasters (we had no Katrina). Even oil prices were low as could be, so oil workers weren't having to be shuffled around on a moments notice to all over the globe. We also didn't have small "private soldier contractors" deployed all over the world. Now we do, so as long as the world keeps acting like it wants to got to hell in a handbasket it looks like they are ins business.

The one major issue you can see if you start looking through the coverage areas is that Globalstar is not truly GLOBAL yet. They are close, but they are not there. The IPO will help close some of that gap, but this is pretty important for the business model. Maybe this is just some hot air and hype, but this is a real issue for a satellite cell phone company.


These Globalstar phones can be purchased new for $500 to $699 depending on where you purchase from, or you can even (you guessed it....eBay it!) buy used ones online for $200 to $450 depending on accessories and condition.

It competes against Iridium, now essentially a for-profit government agency that sells global coverage. Even their phones look alike. This Globalstar phone looks the same as it did in 1999. The Iridium service includes Dial-Up Data with a throughput rate of up to 2.4 Kbps (Yse that is "K") and Direct Internet Data with a throughput rate of up to 10 Kbps. Iridium Satellite LLC also plans to offer specialty equipment for aviation and maritime applications. Iridium Satellite has contracted with the Boeing Company to operate and maintain the satellite constellation, and Celestica has agreed to provide subscriber equipment. Only Iridium’s global service allows maritime users to send and receive voice, messaging and data regardless of location.

Globalstar also competes against Inmarsat and a couple of other niche players, which may even include Ford, BSky, the old Hughes under DirecTV, and others.

The pricing actually isn't all that bad if you are running a critical data environment, or if you are trying to get out of danger areas. The old fear was that if you ran an Iridium phone it was being eavesdropped by the government, and the perception was that this might not be. With all the media reports of wire taps, you probably just better presume that if you make a call there are probably 3 of you on the call.

Either way, these are great for mission critical businesses and international jet setters.....and the prices aren't so high that it breaks tha bank. The market is likely to take a "Show Me!" attitude since many will say "Been there, done that!" on the deal. We'll have to wait until next month or September to find out.

Jon C. Ogg
July 24, 2006

www.globalstar.com
www.iridium.com

Despite Headwinds, Consumer Discretionary Sector is a Solid Contrarian Bet

By Chad Brand of The Peridot Capitalist

Over the last few months retailers have had a tough go of it. Even companies that continue to hit their numbers have seen their stocks fall by 30% or more. We all know the bearish arguments for the consumer discretionary sector. Higher interest rates, flat real wage growth, high gas prices, ARM's adjusting for many home owners, etc.

While I agree these are all issues facing the U.S. consumer, I don't think we should slash every consumer discretionary company's stock price by a third. One must be selective, but there are companies out there that aren't doing as poorly as their stock prices indicate, and shouldn't later this year or next year either.

Take for instance the upper class high end consumer. Are these issues going to adversely affect them to a large degree? I'd argue that $3 gasoline and variable rate loans will squeeze the low income earners a lot more. They are the people who took out the interest-only or 3/1 ARM mortgages because it was the only way they could afford the house they wanted to buy. A tank of gas going from $30 to $50 is not going to crimp the richest 5% of America.

Moving to a company specific situation, consider the luxury goods maker Coach (COH). I started buying the stock recently at $25 and change and it's the first time I've ever even considered buying shares. The stock traded at 25 or 30 times forward earnings whenever I looked at it. Even a 20% growth rate couldn't convince me that it was a bargain at those levels.

The company has continued to hit its numbers and I expect more of the same when they report in early August. However, the stock took a dive along with the other retailers. Down from a high of $37, the stock traded at about 18 times 2006 estimates of $1.39 per share. Twenty percent growth in 2007, which I think is very doable despite the economic climate, puts the forward P/E at 15. While still a market multiple, a high end luxury goods leader like Coach looks attractive at such a price and even has $2 in net cash on the balance sheet.

I also want to mention a long time favorite, Sears Holdings (SHLD). Along similar lines, SHLD shares are down $30 from the highs set after they blew out first quarter estimates. Since the company is benefiting more from a turnaround in operational efficiencies, as opposed to shoppers banging down the doors at their stores, I expect another solid quarter when they report next month. We could very well get a post-report pop in the stock if such a scenario plays out, making the $30 correction look quite silly in hindsight.

http://www.peridotcapitalist.com/

Barrick Establishing Gold Bunker

By William Trent, CFA of Stock Market Beat

This is considered heresy by most fans of investing in gold, but we consider the folks at Barrick gold to be fairly smart cookies. In 1987 they began to hedge their production, agreeing in advance to sell gold at then-prevailing prices. Over the next 14 years as the gold price steadily fell, the forward sales strategy increased their revenues by $2 billion over what would have been achieved at spot prices.

In June, 2001 the company announced plans to buy Homestake Mining, gaining 2.2 million ounces of annual production and 20 million ounces of reserves when gold prices were near their trough. Then, on Valentine’s Day in 2002 they renewed their affair with the metal, announcing that they would reduce their hedging activity to 50 percent of the newly-expanded production. At the time, Gold was trading just north of $300 per ounce.

By November 2003 the company had sworn off hedging, pledging not to hedge another ounce for 10 years. Since then the existing forward sales contracts have largely been fulfilled. Gold bugs believe Barrick was wrong to hedge in the first place, and are unwilling to forgive what they see as a late recognition of the changing environment. We see things a bit differently: a 14-year success story of hedging at the right time, followed by a two-to-five year transition away from the program that began more or less at the right time. Barrick has outperformed the Gold Bugs Index while the hedge was on, but has trailed since while the hedges unwound.Which is a prelude for our commentary on today’s announcement that Barrick will buy NovaGold Resources to consolidate its interest in projects in Alaska and British Columbia. We think it is a signal that the rise in gold prices is far from over.

http://stockmarketbeat.com/blog1/

American Express Up, But No Help to the DJIA

American Express (AXP) just reported earnings slightly ahead of expectations. It posted $0.78 EPS and Revenues of $6.9 Billion versus $0.75 & $6.66 Billion estimates. Here is a breakdown:

Diluted earnings per share from continuing operations were $0.78, up 13 percent from $0.69 a year ago. Including results for businesses that the Company has spun off or sold during the past year, net income for the second quarter totaled $945 million, down 7 percent from $1.0 billion a year ago. Net income per share on a diluted basis was $0.76, down 6 percent from $0.81.

So while diluted earnings from continued operations were up, the net net number was lower. Shares have reszponded positively so far, and American Express is a DJIA component. AXP shares are up 1.7% to $51.52, but they were already up about 0.9% prior to the earnings report. Before AXP earnings shares of Mastercard (MA) were about flat on the day, and that looks roughly the same.

Virtually none of the other credit card companies are independent now, so it is hard to make any industry comparisons based on AXP numbers. This news came mid-day as well, so it has not really contributed anything to todays 125 point gain in the DJIA.

Jon C. Ogg
July 24, 2006

Arkansas Best? It Sure Ain’t Bad

By William Trent, CFA of Stock Market Beat

Watch List company Arkansas Best Corporation (ABFS) announced second quarter 2006 net income of $32.3 million, or $1.26 per diluted common share. Income from continuing operations was $29.0 million, or $1.13 per diluted common share, compared to $22.6 million, or $0.88 per diluted common share in second quarter 2005. Arkansas Best’s second quarter 2006 revenue was $479.3 million, an increase of 12.0% over second quarter 2005 revenue of $427.9 million.

The revenue growth was attributable in roughly equal portions to carrying more freight and charging more to carry it:

ABF’s second quarter 2006 total weight per day increased by 6.4% compared to last year. “ABF experienced solid tonnage increases throughout the quarter as the year-over-year increase in total tonnage grew during each successive month of the second quarter,” said Mr. Davidson. “Second quarter tonnage comparisons were dampened slightly by the timing of the Easter holiday, just as they were helped in this year’s first quarter. When adjusted for the Easter effect, ABF’s second quarter total tonnage per day increased about 7%.”

“Our year-over-year tonnage trends in July are running at or slightly behind those of the second quarter, although comparisons for this short period are complicated by calendar differences,” said Mr. Davidson.

Total billed revenue per hundredweight was $25.22, an increase of 5.5% over last year’s second quarter figure of $23.91. Total billed revenue per hundredweight, excluding fuel surcharge, increased by 1.9%. “The industry pricing environment is competitive but firm, consistent with recent quarters. The retention of the April 3rd general rate increase is in line with our expectations, and price increases on contract renewals are acceptable,” said Mr. Davidson.

The higher tonnage suggests that the economy remains strong, but the 5.5% price increase is clearly more than the Federal Reserve will find acceptable. So while things are looking good right now, slowing consumer spending, and additional interest rate hikes are areas to watch out for.

http://stockmarketbeat.com/blog1/

Most Actives: XM vs. Sirius

XM Satellite radio (XMSR) is up today after creating the role of President and CCief Operations Officer. It was filled by telecom industry executive Nate Davis.

If you can summarize a man's life into a few words, here goes: Nate Davis is a seasoned telecommunications executive, having served in senior management roles at XO Communications, Nextel and MCI. He was President and COO of XO Communications from late 1999 through early 2003. During his tenure, XO became a $1.38 billion integrated communications provider offering voice, data, internet access, and web hosting services to all segments of the business market. He holds an MBA from the Wharton School at the University of Pennsylvania, his Masters in Engineering Computer Science at the Moore School at Penn, and a Bachelors of Engineering from Stevens Institute of Technology in New Jersey.

XMSR is up over 1.5% at $11.38, but Sirius (SIRI) is down 0.7% at $3.87. 24/7 Wall St. has been highly critical of both XMSR and of SIRI in their performance and their ability to do more for shareholders. Both companies have to do another "wow-factor" event, or at least they need to do much more than what they have done this year. We'll see if this guy can work magic, but for now the verdict is out. It is pretty hard to bring in satellite media moguls whose operational background is driving subscribers and fixing the supply problems around satellite radios since there are only two companies that have experience in this. The street is welcoming him today, and only time will determine if this was a good fit or a bad one.

Jon C. Ogg
July 24, 2006

Widely Held 48 Hour Clock: Motorola's Silly Buyback

Stocks: (ALA)(LU)(NT)(SI)(NOK)(MOT)

Turn in great results. Watch your stock go up. Buyback your shares.

Funny order to this.

At $21.45, Motorola is moving back toward its 52-week high of $24.99. The company shipped 51 million phones in the last quarter, and investors applauded the quarterly report moving the stock from just above $19 to almost $22. Now, the company wants to increase its share repurchase increasing its previous commitment to the current plan by $4.5 billion.

Motorola has cash, short term investments, and Sigma funds on the balance sheet total $14.2 billion. Long term debt is $3.7 billion.

Motorola is being outflanked by mergers like the Siemens/Nokia tie-up. The telecom equipment market is going to be driven by giant alliance like this. Analysts estimate that Siemens can also save $1.5 billion in the process of linking up with Nokia. The Alcatel purchase of Lucent was driven by the same metrics. Scale and cost savings. And, Nortel is very cheap now.

Motorola need to look for a partner in its enterprise equipment business unless it wants to be beaten by rivals. Having a strong handset business with a hot product like Razr is not enough. Not if the company wants to stay near its 52-week high.

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

Merck on Post-Vioxx Highs

Stock Tickers: MRK, SGP, PFE, NVS

After reviewing earnings on most actives on various stocks it was hard not to notice that Merck (MRK) wasn't just on 52-week highs, it was on its highest level since the post-Vioxx scandal and share fiasco. MRK is up 3.3% at $38.53.

Merck still has well over 10,000 Vioxx cases outstanding, but this is becoming a more quantifiable event. Based on the case rulings, it does not appear as though juries across the US are going to award damages to everyone who had a heart attack while taking Vioxx. Predicting jury outcomes can be a tricky operation and it is obvious that the company will not get off the hook without having to fork out vast sums of money.

The company's $0.73 EPS before restructuring costs trumped the $0.65 consensus estimate and the company's guidance puts it at the higher-end of estimates for the year. It appears that the company's efforts of pricing its name brand drugs coming off patent under or close to generics is panning out well.

Schering Plough (SGP) is also up over 4% after they beat earnings estimates as well, and this is having a positive impact on the drug sector. Pfizer (PFE) is up over 2% at $24.36. Even ADR's of Novartis (NVS) are trading up after reports in medical journals show an increased chance of cardiac events.

Jon C. Ogg
July 24, 2006

Widely Held 48 Hour Clock: Sun Won't Get It Done

Stocks: (SUNW)(IBM)(HPQ)(DELL)

Sun Microsystems will report earning shortly and Wall St. is not showing much hope about the results. The company's stock trades at $3.85 and has been dropping for the last few days. The 52-week low for the shares is $3.57.

Sun can cut all the people it wants to, which it has done. It can also add new server lines which are upgrades to its older products, which it has done. But, the company has simply fallen behind larger companies in the race and the distance is too great to make up.

The company has offered open source versions of its Solaris and Java programs, but this does not mean the they will be adopted over much more widely used server software like Linux and Microsoft. Linux is already open source and cheap.

Sun is also competing against entrenched products from IBM, Dell, and Hewlett-Packard. Sun's string of loses and shrinking staff may actually be a reason that large companies would shy away from its products. Why take the risk?

According to Morningstar,Sun's net loss in the last quarter was $217 million. In the quarter before, it was $223 million. And, revenue was down from the December 05 quarter to the Marh 06 quarter.

Cost cuts may help the margins at Sun. The top line is the issue, and not may investors see that improving.

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

Widely Held 48 Hour Clock: AMD's Next Mistake

Stocks: (AMD)(INTC)(ATYT)(NVDA)

One of the things that companies sometimes do is follow bad number with announcements of even worse decisions. Advanced Micro Devices is a prime example. Its purchase of ATI Technologies, the graphics chip market is unlikely to give it any major leg up on Intel.

ATI's net income for the nine months ending May 31 fell from $149.3 million in the year ago period to $114 million this year. The company offered tepid guidance for the current quarter and missed its numbers for the quarter ending in May.

Several analysts have also pointed out that the ATI purchase could harm AMD's relationship with ATI competitor Nvidia. As Credit Suisse pointed out: "We believe the Nvidia partnership is critical to establish AMD's beachhead at the high-end, which doesn't drive material volumes, but helps with marketing (brand and performance). Acquiring ATI Technologies would put that relationship at serious risk".

In all probability, the ATI deal will drive Nvidia closer to Intel, so that it has a strategic relationship with one of the two giant chip makers.

With AMD's stock down 5% to $17.40 on the news, it will likely go lower if the merger execution is not perfect. Not likely.

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

ATI Shareholders Saying Thanks

Stock Tickers: ATYT, AMD, NVDA, INTC

Shareholders of ATI Technologies Inc. (ATYT) have much to be thankful for today. There have been rumors that AMD (AMD) was going to acquire them on and "on and off" basis for months now. The question always seemed to revolve around AMD share weakness, or at least those were the discussions we have had.

ATYT shareholder have to be thankful because regardless of whether ATYT or NVIDIA (NVDA) were chosen for one hot game console or the other, the shares have just never been able to get over $20 and STAY over $20 for any period. This is a cash and stock deal. AMD will acquire all of the outstanding common shares of ATI for a combination of $4.2 billion in cash and 57 million shares of AMD common stock, based on the number of shares of ATI common stock outstanding on July 21, 2006. All outstanding options and RSUs of ATI will be assumed. Based upon the closing price of AMD common stock on July 21, 2006 of $18.26 a share, the consideration for each outstanding share of ATI common stock would be $20.47, comprised of $16.40 of cash and 0.2229 shares of AMD common stock.

AMD shares are lower and this does in fact value the buyout under $20.00 right now, but this is still a good deal for ATYT holders. If ATYT had ever managed to get way up like its NVDA rival, it might be a different story. But then again, IF, IF, IF.....

AMD is sort of punishing their shareholders by doing this while their own shares are at 52-week LOWS, but maybe ATYT holders are getting the small stock portion of the deal on the cheap. It may be hard to call AMD cheap while it is on the lows and in the midst of what may be yet another losing battle with Intel (INTC), but that is for the market to decide. there had also been talk that Intel (INTC) would surface, but ATYT said they had not been contacted by Intel.

This probably isn't all that great for AMD holders who have already been suffering, but ATYT holders can now all walk away with a profit and determine how they want to put their cash to work. This is subject to approvals, but there should not be any issues on the regulatory front.

NDVA is trading up just over 5% on hopes that either they get more Intel and other business and/or that since ATYT fell by the wayside they could be next. Who knows for sure, but for now Merger Mania continues.

Jon C. Ogg
July 24, 2006

Intel and AMD - The Aftermath

By William Trent, CFA of Stock Market Beat

Anybody who believes in efficient markets should take a look at the slow-motion reaction in Intel and AMD over the past few months to a fairly obvious chain of events. We started talking about the price war in April, and we were hardly the first to broach the subject.

So now that the latest earnings reports are in and the world knows how bad things are (though possibly not how much worse they can get) we thought we would run through a few of the recent news items.

So Intel cut prices and ate into AMD’s gains. Then introduced a new chip that everyone agrees whips AMD’s butt. None of that contributed to AMD’s shortfall, management assures us. No, it was because Intel befuddled the channel. We’d laugh if so many investors weren’t in such pain. If anyone knows the drivers of market share are performance and price it is AMD. To point the finger at confused distributors is a disturbing sign that AMD management does not grasp the severity of the price war they are in.

Now Intel claims they will be first to market with quad-core processors. They may or may not be, but the real point is that after being asleep at the wheel for a couple of years Intel is back with a vengeance and coming out with products as good or better that are priced competitively. Without a real competitive advantage, it is simply easier for buyers to go with the market leader in most cases.

Don’t, however, read this as a recommendation to buy Intel. We remain bearish on semiconductors for reasons we have discussed many times. It is hard to like the largest company in an industry while disliking the industry.

http://stockmarketbeat.com/blog1/

Consumer Cycling

By William Trent, CFA of Stock Market Beat
Summary: The housing market is slowing for sure, and the low-end retail woes are spreading to high-end retailers like Best Buy (Plasma TV spending fears.) Some of the high-end toys like boats and snowmobiles are having a tough go, but it seems we’re still willing to pay up for a good night’s sleep.
Watch List Companies

Heineken (HINKY) raised its profit guidance for this year, to slightly above 10%, vs. previous expectations mid-single digits. The successful U.S. launch of Heineken Premium Light was a strong growth driver. The interest in Premium Light is also benefiting Heineken’s entire U.S. beer line. First-half volumes in the Americas grew 13.4% on a comparable basis. The company said the premium beer market is growing more quickly than the overall beer market, which is dominated by Anheuser-Busch (BUD) and Molson Coors (TAP). Anheuser-Busch is also a Watch List company.
Tempur-Pedic earned $26.1 million, or 30 cents per share, compared with $24.9 million, or 24 cents per share, for the same quarter in 2005. Revenue grew to $219 million from $192.6 million in the year-ago period. The results came in slightly ahead of Wall Street predictions of 29 cents per share on $217.2 million in sales. The company now expects full-year 2006 earnings per share between $1.26 and $1.31, versus its previous estimate of $1.24 to $1.29. Full-year 2006 net revenue is expected to total between $940 million and $970 million. Analysts, on average, expect 2006 earnings of $1.16 per share on $930.1 million in revenue.
Other News

Mattel (MAT) posted an upside surprise due to stronger than expected Barbie sales (take that, Bratz!) as well as promotional tie-ins with Cars and Superman. The company reported second-quarter net income of $37.4 million, or 10 cents per share, compared with a year-earlier loss of $94 million, or 23 cents per share. Excluding items, earnings rose to 8 cents per share from 5 cents. Analysts on average had been expecting 4 cents, according to Reuters Estimates. Revenue rose 8 percent to $957.7 million, surpassing analysts’ expectations of $922.95 million.

Harley Davidson’s (HDI) quarterly earnings rose 2.5 percent and it was on track to meet its 2006 shipments. Harley said its second-quarter net profit rose 2.5 percent to $243.4 million, or 91 cents a share, from $237.4 million, or 84 cents a share during the period last year, meeting the average estimate. Revenue rose 3.3 percent to $1.38 billion., sending shares higher in premarket trading. The 2006 outlook bucked a trend of disappointing results and scaled-back expectations from U.S. recreational vehicle makers, which have been laboring under rising interest rates and energy prices, and a slowing housing market.

Previously, several U.S. companies selling pricey toys for adults — including boatmaker Brunswick Corp. (BC), snowmobile manufacturer Polaris Industries Inc. (PII), and RV maker Fleetwood Enterprises (FLE), — reported lower quarterly earnings, saying economic headwinds were keeping consumers out of showrooms.

Coca-Cola Co. (KO) posted better-than-expected earnings boosted by its PowerAde sports drink and Dasani bottled water brands. Second-quarter profits were $1.84 billion, or 78 cents a share, up from $1.72 billion, or 72 cents a share, a year earlier. Excluding a gain from the sale of shares in the initial public offering of its Turkish bottler, Coke reported earnings of 74 cents, 2 cents ahead of Wall Street expectations, according to Reuters Estimates. In the past year, Coke launched a flurry of brands such as coffee-infused soda Coke Blak and energy drink Vault and extended flavors of existing brands like Dasani flavored water, to cash in on the growth in the energy drinks (led by Watch List member Hansens Natural [HANS]) and water segments.

http://stockmarketbeat.com/blog1/

Why is HCA Selling For $51.00?

Stock Tickers: HCA, HMA, CYH, TRI, THC, UHS, LPNT, MGLN, AMSG

These headlines and summary stories this morning on this HCA buyout are alarming on more than one front.

"HCA in Largest Private Equity Deal Ever"

"HCA Stockholders to Receive $51 per Share; Transaction Valued at $33 Billion"

Bain Capital, Kohlberg Kravis Roberts & Co., and Merrill Lynch Global Private Equity announced today the execution of a definitive merger agreement under which affiliates of the private equity sponsors and HCA Founder Dr. Thomas F. Frist, Jr. will acquire HCA in a transaction valued at approximately $33 billion, including the assumption or repayment of approximately $11.7 billion of debt. HCA stockholders will receive $51 in cash for each share of HCA common stock they hold, representing a premium of approximately 18% to HCA's closing share price on July 18, 2006, the last trading day prior to press reports of rumors regarding a potential acquisition of HCA.

It is true that this is a premium of that size compared to the $44 level before this was announced. BUT...................

Why on earth would management be so eager to be acquired for LESS THAN THE STOCK WAS VALUED 2-YEARS AGO??????????????????? HCA traded at over $55 just over 12 months ago, and this values it much less. There is the debt assumption that will "go away" but that does not highly reward shareholders. This could EASILY be met with shareholder scrutiny as not enough of a premium, although they will probably just crumble and not even bother voting as they normally do.

This is very puzzling and it seems odd. There are a myriad of reasons that a public company would go private, but for the industry leader it is very out of character. It is unknown if the company wants to avoid stock option probes, or if this is tied to old billing issues, or what reason on earth they would agree to such a cheap buyout. Maybe there are massive golden parachutes. It isn't yet known. All you can do is speculate on why they would accept a 6% to 7% final premium, despite the fact that it was higher than when talk of this first emerged.

HCA is the Holy Grail for hospital systems. It closed out with a $19.5 billion market cap Friday and traded with a 15.15 P/E. It was a tad on the cheap side of other hospital systems. With $11 Billion in debt, this is truly leveraged.

How does this shore up with other hospital systems? For starters this chews up much more of the total funds, and implies that private equity funds have raised so much cash that they have to do Super-sized deals to get rid of the capital. This is feeling as though the private equity group is getting to the point where they need to commit size to put their funds to work.

Company	Mkt Cap	P/E	ROE %	Debt/Eqty	Px/Book
HCA Inc.	19.53B	15.154	28.1	2.483	4.289
Health Mgmt.	5.02B	neg	neg	0.512	2.132
Community Health Sys.	3.64B	18.989	12.943	0.871	2.066
Triad Hospitals	3.54B	14.19	8.449	0.563	1.164
Tenet Healthcare	2.87B	neg	-44.366	4.371	2.607
Universal Health Services	2.81B