Market Wrap August 31, 2006

The Dow was down .02% to 11,381.15. Nasdaq was off .09% to 2,183.75. The S&P was off .04% to 1,303.81.

The big action was in the telecom equipment sector and in M&A.

JDS Uniphase was pounded on poor guidance. The stock traded a breathtaking 130.2 million shares and was down 13.7% to $2.27.

JDSU competitor Ciena also gave disappointing guidance and announced a 1-for-7 reverse split. The stock dropped 8.4% to $3.95 on 70.6 million share.

Most big techs were off in a range from just under 1% to 2% including Intel, Sun, and Dell.

On the M&A front, GoldCorp's plan purchase of Glamis Gold sent the stocks in opposite directions. GoldCorp was off 9.2% to $27.66, and Glamis rose 18.7% to $46.12.

Few of the most actives on the NYSE were up. Pfizer, GE, Corning, Motorola and Qwest were all off modestly.

Douglas A. McIntyre

Regional Jet Orders Likely to Continue (ERJ)

By William Trent, CFA of Stock Market Beat

Watch List member Embraer (ERJ) rallied yesterday on news of a large order from China for its regional jets.

Embraer Shares Climb on Sale of 100 Jets: Financial News - Yahoo! Finance

Shares of Brazil’s Embraer soared Wednesday after the world’s fourth-largest aircraft maker said it would sell 100 regional jets to China’s Hainan Airlines Co. for $2.7 billion.

Embraer said it will start delivering the 50 E145 and 50 larger E190 jets in 2007, and analysts described the order as a significant entry into the important Asian market for a company whose commercial jet sales have been largely stagnant in recent years.”This deal substantially raises the company’s firm order backlog, which had been stuck at around $10 billion for some time,” said Pedro Galdi, aviation analyst at ABN Amro in Sao Paulo.

The purchase from the state-owned HNA Group that owns Hainan raises Embraer’s firm orders by about 25 percent to $13.6 billion, analysts estimated. It also means Embraer will deliver more planes than the 150 that had been predicted for 2007 and increase deliveries in 2008.

Any given order is a positive sign, but by the time the news is out it is difficult for investors to take advantage of it. Rather, investors should buy if they expect other similar announcements in the future. We think there are several reasons to expect this may happen:

The only most successful US airline, Southwest (LUV) earned its success by offering non-stop flights from smaller airports. Rejional jets could open point-to-point non-stop service to an even larger number of even smaller airports - paving the way for the next Southwest.
Smaller jets can be loaded and unloaded quickly, saving precious time for passengers and precious money for the operator - who can keep the jets flying (earning money) rather than sitting on the ground (costing money).
Smaller airports allow passengers to pass more quickly through security, further saving time. Plus, greater point-to-point service to more markets means they also save time by not having to connect through hubs.
Lacking the dramatic potential of larger jets, regional jets are likely to be avoided by terrorists.
Embraer has sufficient financial qualifications (ROE, growth, valuation) to pass our screening criteria for the Watch List. The list above provides further qualitative comfort with the stock.

http://stockmarketbeat.com

Morningstar Takes on HR Outsourcing

By William Trent, CFA of Stock Market Beat

We recently profiled the travails of Human Resources outsourcing firm Hewitt (HEW). Although the stock price had triggered a buy alert we previously set, the uncertainty regarding past revenue (which now is being restated) caused us to remain on the sidelines.

Then yesterday we read an interesting article from Morningstar called Four Top HR Outsourcing Stocks. In many ways, Morningstar appears to share our views.

One caveat though–the one-stop-shop HR outsourcing model has struggled. Often termed human resource business process outsourcing, this new offering focuses on large corporations–usually with more than 10,000 employees–and handles nearly every HR function. Although it has great potential to cut costs for clients, the benefits are much less evident for the service provider.

That sounds quite a bit like our own comment, “One of the things we like about the HR Outsourcing business is that the complexity of the HR function makes many companies prefer not to do it themselves. For the same reason, we wonder why there are so many companies willing to do it for others.” The high competition drove Hewitt to price contracts too aggressively, and was the source of their latest slip.

Still, Morningstar lists Hewitt as one of their fab four, saying:

Hewitt’s position as both a consulting and outsourcing firm creates valuable synergies. With the information accumulated from its benefits outsourcing experience, Hewitt consults for firms that need help with benefit programs but aren’t willing to take the outsourcing leap. Through its 60-year history, Hewitt has gained expertise that keeps more than 90% of its clients coming back every year.

Recently, Hewitt’s stock has been hurt by troubles in its HR business process outsourcing service. Unfortunately, Hewitt swam too deep before the waters in this complicated business had been tested. Still, Hewitt’s non-HR business process outsourcing business (80% of revenue) continues to perform and generates more than enough value to support our opinion that Hewitt’s stock is cheap.

On this we disagree. Our previous conclusion still holds:

Furthermore, the lack of profitability shows that Hewitt was too aggressive in pursuing contracts. As a result, investors should not expect the company to grow as fast as the historic results would suggest. This is already showing, with consulting revenues down 3% year-to-date.

So what we’ve got here are shares that are pricing in no growth on an EV/FCF basis, an assumption that seems appropriate given the circumstances. We’ve also got a company with what we estimate as sustainable earnings power of $1.00 per share - on which a share price of $20+ appears on the high side in the current market.

http://stockmarketbeat.com

Rockwell Automation Downgrade Too Late for Investors

By William Trent, CFA of Stock Market Beat

We recently discussed the selloff in Rockwell Automation (ROK) asking “will investors ever learn?” The answer appears to be no.

Rockwell Automation Downgraded: Financial News - Yahoo! Finance

A Credit Suisse analyst downgraded shares of Rockwell Automation Inc. Wednesday, saying the factory automation equipment maker’s stock has few reasons to grow.Credit Suisse analyst Nicole Parent reduced her rating to “Underperform” from “Neutral” and lowered her target price to $58 from $64.

Shares have increased about 60 percent due to good news over the past couple years, as the company refocused on efficiency, end market diversity, global expansion, and spinoffs of segments, wrote Parent.

But while the stock is down about 28 percent from its 52-week high of $79.47 on April 24, shares are unlikely to rise, Parent said, because she believes investors have already priced the good news into the stock, and that margins are likely to come under pressure down the road.

A 28% decline means investors are pricing in good news? I’d hate to see what happens when they price in bad news - or perhaps in the Sell Side’s alternate universe it would take a 50% rally for the bad news to be priced in. Here is what we had to say in our previous post, which we continue to believe:

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.
We can understand the analyst’s embarassment as the shares have fallen this year. It has happened to everyone. We would also be willing to listen to reasonable arguments as to what has changed in the fundamental story for Rockwell. But the reasons listed by Credit Suisse were much more valid at $79 than they are today at $56.

http://www.stockmarketbeat.com/

Keeping Up With The Dow Jones

Stocks: (DJ)(NYT)(RTRSY)

Dow Jones does not seem to be able to do anything to get its stock price up. The company replaced the CEO with an aggressive manager who succeeded an executive that Wall St did not much admire. The company got itself a new CFO. And, Dow Jones is talking about selling its community newspapers, which bear little or no relationship to the company's core business of providing financial news.

Goldman Sachs still has a sell rating on the pubisher of the Wall Street Journal and owner of MarketWatch.

The Dow Jones stock has barked like a dog since 2000, the peak of the internet bubble. The stock is now down from nearly $80 then to $36. One of the things investors hate about the company is that it has been controlled for generations by the family of the company's founder. The chance that a raider could take control of the company and break it into pieces is unlikely. Jim Cramer tried when he was still managing money, and the Dow Jones management was able to fend him off.

Dow Jones' management has been considered bumbling up until recently. The old CEO, Peter Kann, was savaged in a cover story in Forbes a decade ago. The company sold its trading terminal business to Bridge Information Systems, which promptly went bankrupt. Dow Jones was left with payments to Cantor Fitzgerald which had a guaranteed payout under the deal.

Dow Jones was also fairly late to moving its products to the internet. The Wall Street Journal online is considered a success, both financially, and in terms of audience (ranking 381 for all websites in Alexa). The purchase of MarketWatch (396 in Alexa) appears to be a success, and is used to promote other Dow Jones products. But sites like the New York Times online (Alexa rank 75),Reuters (ranked 231 in Alexa), and BBC News (Alexa rank 23) still run far ahead of the Dow Jone properties in audience.

Wall St continues to be concerned with the company's exposure to the print newspaper business. The price of delivering papers is rising due to oil costs. The same is true for printing and ink. Investors remain skeptical that advertising and subscription rates can rise fast enough to cover these costs.

At $36, Dow Jones trades near the bottom of its 52-week range of $42.23/$32.55. New management will have to do more than replace a few executives and offer to sell some of its smaller newspapers to get the stock moving up again.

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

Citi's Investment Bank Looks Good, Goldman Doesn't

Stocks: (C)(LEH)(GS)

According to Reuters, Goldman Sachs and Lehman Brothers lost ground in Q3 M&A and equity underwriting. The data came from Dealogic. Goldman's numbers were down two-thirds from the previous quarter in the equity underwriting category. Its M&A activity was down 58% from the immediately previous quarter.

Citigroup appeared to be one of the few exceptions to the downturn, which was probably driven by higher interest rates and a choppy stock market. Citi turned out to be the top underwriter for the period. A number of observers, including Barron's, have expressed concern that the current market is more hostile to investment banking activity. Citi appears to have dodged that bullet for now.

Citi and Goldman have taken opposite paths in the stock market, and Citi has been under pressure from institutional investors to consider breaking the big financial institution into pieces. Goldman's stock is at the high end of its 52-week range at $147, up from a low of $109.84. Citi had been at the lower end of its range around $47, but has recently moved up to $49.

If the investment banking numbers are any indication of revenue and earnings for the third quarter of the year, then Goldman could be in for a fall, and Citi may regain some of its luster.

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

Do Mutual Funds Perform When it Matters Most?

From Value Discipline


However, having read a fascinating article, I could not wait to bring it to your attention.

The combined assets of U.S. mutual funds totals some $9.4 trillion of which about $5.2 trillion is stock funds. Year to date cash flows have been about $110 billion of inflows into stock mutual funds.

Mutual fund underperformance has been widely documented by both the popular press and academic research. Though historically much of the underperformance has been attributed to poor stock-picking by professional money managers, more recent research has attributed the phenomenon to poor portfolio composition and excessive portfolio turnover. The high portfolio churn leads to after-tax performance that further reduces returns.

Noted thinkers such as Charlie Ellis argue that it is exceedingly difficult for institutionalal investors to outperform the market when, in aggregate, they actually are the market. John Bogle, of Vanguard fame, has similar thoughts, essentially that all investors, in aggregate earn precisely the market return before the costs of investment are subtracted. And management fees, transaction costs, distriubtion costs are substantial, particularly given current relatively low rates of return.

But this paper counters some of the negatave arguments that have long been attributed to the industry. The study, written by Robert Kosowski of INSEAD covers the U.S. domestic equity
industry for the period 1962-2005.

The paper demonstrates that indeed, during periods of expansion, the mutual fund industry, in general, fails to generate alpha...the risk-adjusted return is less than the benchmark index return. However, in periods of recession, the industry on balance achieves positive alpha, a risk-adjusted return greater than the benchmark.

During recessions, investors' marginal utility of wealth is high...in other words, there is much greater sensitivity about loss of wealth. At such a time, the mutual fund industry is more likely to show positive alpha and enhanced returns.

The difference in alpha between expansionary and recessionary years is very significant amounting to 3 to 5% a year. The sudy also addressed the performance differences between aggressive growthm growth, growth and income, and balance or income fund classifications.

The numbers are quite astounding:

Alpha generation:

Type of Fund...........Overall Period.......Expansionary Period.........Recessionary Period

All................................(-0.43).......................(-1.33)..............................+4.08

Aggressive Growth...(-0.98).......................(-1.63)..............................+0.82

Growth.......................(-0.41)........................(-1.22).............................+3.21

Growth & Income....(-0.40).........................(-1.21).............................+3.27

Balanced & Income..(-0.71).........................(-1.69).............................+5.48

Once again, the evidence is strong...most mutual funds subtract rather than add value over the long run. Clearly, there are exceptions to this, generally from low-turnover, disciplined funds. The real surprise is that most of the industry adds value when you need it most! Hence, it is possible to exploit business cycle predictability to achieve positive risk-adjusted returns from mutual funds.

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

Pre-Market Stock Notes (Aug. 31, 2006)

(AD) A D V O stock down 37% after Valassis sued A D V O to terminate its merger agreement saying that AD materially misrepresented their financial situation.
(BF/B) Brown Forman $0.76 EPS vs $0.71e.
(CIEN) Ciena $0.02 EPS vs $0.01e (before items); Revenues $152.2M vs $143+M(e); sees up to 5% sequential revenue growth; announced 1 for 7 reverse stock split.
(CUB) Cubic won a $32.8 million Air Force contract.
(DRYS) DryShips $0.53 EPS vs $0.54e.
(EGLE) Eagle Bulk Shipping filed to sell 5M share or $220 million in mixed securities.
(GLG) Glamis Gold being acquired by GoldCorp (GG) for $51.49 per share.
(GNVC) GenVec said phase I HIV trials support ongoing testing as safety was well tolerated and showed clinical response consistent with preliminary expectations.
(HEI) Heico $0.31 EPS vs $0.28e.
(HNZ) Heinz $0.58 EPS vs $0.53e.
(IMGN) ImmunoGen extends its anti-cancer research pact with Sanofi-Aventis.
(INTC) Intel took a 10% stake in InComm a flash card designer.
(JDSU) JDS Uniphase stock traded down 14% after having slight loss (rounded to $0.00, but revenues were $318.2M vs $315M(e); guided next quarter $$312-328M vs $332.5M(e).
(JOYG) Joy Global $0.63 EPS vs $0.58e.
(LTXX) LTX Corp $0.23 EPS vs $0.22e.
(NCS) NCI Building Systems $1.00 EPS vs $1.01e.
(NMTI) NMT Medical received FDA approval to modify their MIST II migraine study.
(PMID) Pyramid Brewing chief accounting officer resigned.
(RELL) Richardson Electronics posted a net loss instead of having expected positive earnings.
(SEAC) SeaChange rose 17% after posting a profit instead of a loss expected and higher revenues.
(THOR) Thoratec Labs CFO will leave by the end of the year.
(TIF) Tiffany's $0.29 EOPS vs $0.31e; sees next quarter $0.16 vs $0.19e; increased share buyback plan by $700 million.
(TiVo) TiVo -$0.07/R$59.2M vs -$0.13.$51.8M(e); sees next quarter R$54-56M vs $$53.8M(e); stock barely up after hours.
(VCI) Valassis sued ADVO(AD) to terminate a merger pact over AD misrepresenting their financial health; VCI up 5%
(ZILG) Zilog CEO resigned.
(ZLC) Zales $0.02 EPS vs $0.02e; sees fiscal 2007 EPS $1.98 to $2.08 vs $2.08e.

Select Analyst Calls (Aug. 31, 2006)

AET cut to Neutral at Prudential.
AHD started as Buy at AGEdwards.
ALD started as Hold at Citigroup.
CHKP raised to Buy at Jefferies.
CVH cut to Neutral at Prudential.
GHDX started as Sector Perform at RBC.
HCA cut to Underweight at Prudential.
HNT cut to Neutral at Prudential.
IMH cut to Reduce at UBS.
KBAY started as Overweight at JPMorgan.
KCP started as Neutral at Prudential.
MFE raised to Hold at Jefferies.
MGLN started as Hold at Deutsche Bank.
NEW cut to Reduce at UBS.
SHOO started as Overweight at Prudential.
SKX started as Neutral at Prudential.
SLAB started as Buy at First Albany.
STM cut to Sell at Citigroup.
UHS cut to Underweight at Prudential.
VCI raised to Neutral at Prudential.

Ciena's Tough Call

Ciena announced earnings today. Its forecast, like that of JDS Uniphase and ADC Telecom, two competitors, was not rose. After Ciena's revenues rose 16% over the immediately previous quarter to $153 million, the company forecast an increase of only 5% for the next quarter-over-previous quarter figure. The company's operating loss improved marketly for the quarter ending July 31, from $53.5 million last year to $12.8 million in the most recent quarter.

In early trading before the market opened, the stock was flat at $4.33.

The more troubling news from Ciena is that it will set a 1-for-7 reverse split to get the price of its stock up, in the hopes of appealing to more institutions which often will not buy shares that trade below $5. Unfortunately, stocks have a history of dropping after reverse splits. As MSNBC said yesterday: "Reverse stock splits also have a spotty history." Or, as Small Cap Sentinel pointed out: "Often times a reverse split leads to the company's market cap rescinding as the stock price seeks its previous value."

Ciena's results may not move the stock down much. Guidance may have been weak, but that may be offset by an improving bottom line.

But, when the reverse merger takes effect, the stock may fall.

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

Google's Schmidt On Apple Board Means Options Problems Are Modest

Stocks: (AAPL)(GOOG)

There is a great deal of speculation about what the CEO of Google would join the board of Apple. Perhaps Google video, the company's program for selling commercial programming online and allowing user-created video to sit on Google's servers and be watched by the whole world, will begin to interoperate with the iPod. Or, maybe iTunes will be put on the Google ToolBar which gets millions of downloads onto PCs across the world.

All speculation.

But, one this is very likely. Apple's options dating problems are not as severe as investors may far. Apple has already received a delisting notice from NASDAQ for filing its 10-Q late, and the company is attempting to release financial statments to the SEC while the NASDAQ review of the listing issue goes on.

It is unimaginable that Schmidt would joint the Apple board without satisfying himself that the options problem, the financial restatement problem, and the Nasdaq listing issue can and will be resolved shortly. Schmidt would not expose himself to the ridicule that would come from joining the corporate board of a company that was about to release even worse news about its options backdating problems and the financial filing issues that go with it.

Whether Apple and Google form any business alliances or not, Schmidt moving to the Apple board means that investors have less to fear from Apple's options problems.

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

Chrysler: Zero Percent Financing Forever

Stocks: (GM)(F)(DCX)(TM)

According to the Wall Street Journal, Chysler will begin offering zero percent financing for 72 months. That's a very long time. It is also probably an indication that the car sales figures for August that will come out next week will be poor for yet another month. Toyota is also offering incentive. Odd, given that their North American sales have been strong this year, but the company's models have had more than their share of defects and recalls.

GM is beginning to offer cash-back incentives probably sensing a new round of marketing techniques to get buyers into dealerships. Almost all involve some form of discount. Ford is offering incentives on 2006 models.

The incentives are an indication that Detroit still has not been able to arrest its drop in unit sales and loss of market share, especially to Toyota. Sales of large SUVs and pick-ups have been badly hurt by high gas prices, and these models are usually the most profitable that the car companies sell.

If August unit sales are poor for Ford, Chrysler, and GM, and they have to continue incentives to clear out 2006 model inventories or jump start 2007 model sales, look for poor earnings numbers in the third and fourth quarters of 2006.

That is not what Detroit needs.

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

WiMax Nation: SprintNextel Is Just The First

Stocks: (MOT)(INTC)(AMD)(S)

Samsung is saying that four more global wireless operator will announce the use of WiMax for their next generation systems and that another six are conducting trials of the technology, according to a report by Reuters. Samsung, Intel, and Motorola have been the big backers of the new technology, and huge roll-outs of WiMax in the US and abroad should bring them billions of dollars in new revenue.

Samsung says that it will provide network gear and handsets for these deployments, while Intel will supply chips. This new business may help offset the lackluster sales of chips for PCs that have damaged the stocks of both Intel and AMD. However, AMD does not have a way out of the slowing PC market while Intel's investment in WiMax may boost its revenues over the next several years. Intel's stock trades at $19.84, just above its 52-week low of $16.75. The company has lost over $80 billion in market cap over the last year.

The annoucement also make the decision by Sprint/Nextel to use WiMax for its next generation high-speed wireless phone system look smart, even though it will cost the company $3 billion. Sprint has been pilloried for its poor intergration of the Nextel customer base, and the company's president recently departed. A correct call on WiMax may help the company recover some of its share price and reputation.

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

Cellphone Nation: Samsung's News, Motorola's Benefit

According to Reuters, Samsung is forecasting sales of 950 million handsets worldwide this year. The figure revises upward their previous number of 910 million, issued in July.

Motorola's RAZR phone is part of the reason handset sales are rising so fast. And, the news of increasing handset sales probably indicates that the company will have solid numbers the last two quarters of 2006. The company is already trading near its 52-week high of $24.99 up from the low of $18.66.

Motorola's numbers in its last reported quarter were spectacular. Revenue hit $10.5 billion and operating income jumped to $1.5 billion.

Wall St. should look for even better numbers ahead.

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

eBay 1, Google 0

Stock: (EBAY)(GOOG)

According to a report at MarketWatch, consumers are having trouble using the new Google Checkout online payment system, the program that was going to devastate eBay's market leading PayPal. Apparently, the Google software has technical problems. MarketWatch added that a survey of 40 online retailers by Piper Jaffray found that 81% of them would not use the new Google product.

Google announced an alliance with eBay just days ago. The search giant will offer advertising on eBay auctions sites outside the US. The arrangement shows how large internet companies have created complex relationships with one another, operating both in cooperation and as competitors.

PayPay is eBay's fastest growing unit according to its 10-Q. Any severe market share lose to the Google product would damage eBay's growth.

eBay's stock has been hurt badly by perceptions that its domestic growth has slowed, by concerns that it paid too much for VoIP giant Skype, and that Google Checkout could take share from PayPal. As a consequence, eBay's stock has dropped from its 52-week high of $47.86 to $28.45.

Perhaps there is evidence emerging that concerns about eBay are overblown.

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 8/31/2006 Deutsche Telekom, Diageo, Vodafone Down

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

European market was down modestly at 5.45 AM New York time.

The FTSE was down .1% to 5,923. Barclays was up .4% to 664. BP was flat at 592. British Air was up .7% to 410.75. BT was down .5% to 247. Diageo was down 2.9% to 931. GlaxoSmithKline was up .4% to 1497. Prudential was down .3% to 592. Reuters was up .3% to 402.5. Vodafone was down .9% to 114.

The DAXX was down .1% to 5,862. Allianz was up .3% to 132.37. Bayer was down .5% to 38.71. DaimlerChrysler was up .3% to 41.05. Deutsche Bank was up .1% to 89.12. Deutsche Telekom was down 1.4% to 11.31. Siemens was down .3% to 66.4

The CAC 40 was down .2% to 5,172. Alcatel was down 1% to 9.89. AXA was up .5% to 28.93. France Telecom was down .8% to 16.5. ST Micro was down 1.7% to 12.92. Vivendi was up .2% to 26.92.

Douglas A. McIntyre

Media Digest 8/31//2006

Stocks: (GC)(GLG)(DEO)(MRK)(ERTS)(ALA)(DCX)(LU)

According to Reuters, Goldcorp has agreed to buy Glamis Gold for $8.6 billion in stock, creating one of the world's largest gold companies.

Reuters writes that Samsung forecast higher global handset sales. The company thinks that the figure will hit 950 million. Samsung believes its handset sales will reach 115 million.

Reuters writes that Diageo, the world's largest alcoholic beverage company, reported a 10% rise in "underlying earnings."

The Wall Street Jounal reports that a federal judge ruled that a $51 million awared against Merck in a suit against it over Vioxx was "grossly excessive."

The WSJ writes that Electronic Arts will begins to distribute advertising over the internet with its games.

The WSJ reports that Chrysler has begun offering zero percent financing for up to 72 months while its rivals also offer incentives to boost sales.

The New York Times writes that Alcatel is racing criticism over it purchase of Lucent.

The New York Times also reports that loses at Tivo rose due to legal costs.

Douglas A. McIntyre

Asia Markets 8/31//2006 Lenovo,KDDI, NEC, Toshiba Up Sharply

Asian markets were up sharply.

The Nikkei was up 1.7% to 16,141. Fuji Photo was up 1.9% to 4300. Fujitsu was up 1.1% to 941. Hitachi was up 1.2% to 745. Honda was up 1.5% to 3990. Japan Airlines was up 2.3% to 223. KDDI was up 3.3% to 775000. Mazda was up 1.3% to 752. NEC was up 4.3% to 683. Nissan was up 2.4% to 1334. NTT was up .7% to 593000. Docomo was up 1.1% to 182000. Sharp was up 1.9% to 2100. Softbank was up .5% to 2040. Sony was up 1.8% to 5080. Toshiba was up 3.2% to 836. Toyota wa up 1.3% to 3090.

The Hang Seng was up .6% to 17,393. Cathay Pacific up .4% to 14.52. China Mobile was up .7% to 52.3. China Netcom was down .6% to 13.66. China Unicom was down .4% to 6.97. HSBC was up .4% to 141.2. Lenovo was up 6.2% to 3.25. PCCW was up 1.8% to 4.87.

The Straits Times was up .5% to 4% to 5940.

The KOSPI was up .9% to 1,353.

The Shanghai Composite was up .2% to 1,659.

Does the Jobs/Schmidt Pairing Signal a Future Alliance?

By Chad Brand of Peridot Capitalist

Who are the two leading innovators in the technology industry today? Google (GOOG) and Apple (AAPL) would likely garner a lot of votes should we take an official survey. News that Google CEO Eric Schmidt will join Steve Jobs on Apple's Board of Directors is very interesting. Warren Buffett and Bill Gates expanded their relationship in part via sharing seats on a board. That relationship has grown over the years and eventually resulted in Buffett's gigantic donation to the Gates Foundation.

Does this mean that some sort of Apple-Google alliance or partnership is only a matter of time now that Jobs and Schmidt are on the same board? Not necessarily. Closer relationships can certainly lead to business ventures, but this is by no means assured. Does the potential for two technology leaders mean investors should consider buying shares of Apple or Google based on this news? Hardly.

Nonetheless, it is clear that Steve Jobs feels strongly that input from Google's CEO could help it continue to grow. Five years ago Apple and Google would have had no place on a list of leading innovators in Silicon Valley. Things certainly do change rapidly in the industry, and that won't be changing anytime soon.

http://www.peridotcapital.blogspot.com/

Analyzing The India Fund (IFN)

By Yaser Anwar, CSC of Equity Investment Ideas

The following are my thoughts on IFN after analyzing: Sentiment, Technicals & Fundamentals:

Fundamentals: India has good long-term prospects. IFN seems to have halved from it's May tops, thus the 6% premium is attractive. The underlying holdings of IFN are well diversified over construction, technology, financials & oils.


Sentiment: The 6% premium can be interpreted as a measure of US retail investor enthusiasm for the Indian market. Based on that I think holding a big chunk of this fund is quite risky. Even if the Indian market continues to perform relatively well, if it just stays more or less stagnant and investor enthusiasm wanes you could possibly see a 10-15% drop that has very little to do with the earnings or performance of the underlying companies in the fund.


Technicals: Based on technical analysis, IFN looks bad. IFN's volume according to the OBV has continuously been dropping, IFN is below its 50 and 200-day MAs. What worries me is the structure of the fund. Since its a closed-end index fund, it has very low trading volume. IFN recently witnessed distribution due to its rights offering, which was oversubscribed (a positive, check image below) IFN needs to cross the 50-day MA on good volume, otherwise this fund could fall lower. I wouldn't be surprised to find it trading sideways for the coming few months.


What i would recommend to you is, if you want to take a position (if you don't already have one) in it now (just incase it resumes its rally) but wait for a pull back. IFN had a double bottom & witnessed support at 37.5, where i would be more willing to add to the current position.


We're entering a historically bad time for the markets. September & October are two of the worst months for the markets, so you might be able to get IFN at a discount later. That being said the 6% premium at the moment is not too bad for a good fund.

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

The Bullish Case for Oil & It's Implications for Energy, Natural Gas & Utility Companies

By Yaser Anwar, CSC of Equity Investment Ideas

Oil has come down quite a bit from its summer highs due to the ease in hurricane fears & partly due to rise in inventories. However, these short-term trends should not sway investors from the bigger picture.


The world now consumes 28.6 billion barrels of oil in a year and that number continues to grow. According to estimates, there are just over 1 trillion barrels of oil left in the world. That's only enough to last another 35 years, as long as we keep burning it at today's rate.


With improvements in standards of living in emerging market and third world countries, we will witness increase in oil consumption at homes, for our vehicles etc.


The International Energy Agency predicts that global energy needs will surge 30-40% by 2020 & prices will skyrocket if capacity is not significantly increased. We need to build more refineries, find more oil & invest in alternate energy sources.


At the same time, we're witnessing an increase in rolling blackouts, surging heating and air conditioning bills and continuous unrest in Middle East, especially Iran & continuous attacks on oil workers in Nigeria. Don't count hurricanes out even though we've had quite a mild season. So you see, an increase in oil prices is inevitable.


Today is deadline United Nations deadline for Iran, the number four oil producer, to halt enrichment of uranium, which can be used in the production of nuclear weapons. If they don't comply, the UN could impose economic and diplomatic sanctions.
Investors remain concerned that Iran could block oil exports if sanctions are imposed. U.N. and European officials said Wednesday that Iran has persisted in enrichment until at least Tuesday.


As global competition for energy intensifies and tightening supplies leave no room in the system for unforeseen disruptions (such as the recent BP catastrophies), well run oil companies (such as Exxon, COP, Valero & Haliburton to name a few) will continue to do well.


Utility companies such as Dynergy will surge from helping America expand and modernize its aging electric grid, Devon for its exploration expertise, Valero will benefit due to lack of refinery building, not to mention the natural gas companies such as Nabors & EOG who are set to benefit from higher natural gas prices. Jacobs Engineering will see a boost due to its infrastructure & engineering expertise.
UPDATE 01:13 AM

``Discovery is in long-term decline, and spending more money won't increase it,'' says Chris Skrebowski, editor of the London- based Petroleum Review, an industry journal.


In its 2005 Energy Outlook, Exxon Mobil says the combined production of non-OPEC countries will peak sometime from 2010 to 2020. OPEC will be able to fill the gap, the report says. OPEC produced about 30 million barrels a day in 2005; by 2030, OPEC would have to churn out 47 million barrels a day. That's almost 57% more than it did last year to satisfy the world's needs


Today, we consume 85 million barrels of oil a day, according to the U.S. Energy Information Administration (EIA). By 2030, the world will devour 118 million barrels a day, as China and India emerge as economic superpowers.


Even with high prices, it will be very difficult for world production of oil to exceed 90 million barrels per day within the next 10 years. That's millions of barrels a day short of what the EIA says the world will need in 2015.


IMO it doesn't matter what UN does with Iran today because long term oil is going a lot higher.


Disclosure: I don't have positions in any of the stocks mentioned above.

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

JDSU Can't Get Away From Themselves

JDS Uniphase (JDSU) looks like a tale of two miseries. Its shares are down
almost 15% at $2.24 after what can obviously be called nothing less than
crummy.

The company still has a handful of miserable shareholders who are long and
wrong from many multiples higher, but it has an army of newer shareholders
at lower prices that do not care about them. Going into the earnings report
it would have been difficult to find many that were willing to go on record
saying they think the company is now turning a new leaf. How sad.

The company is stuck in a quagmyre that can only be compared to Iraq. There
is actually still a need for the products, but it just seems like no one
wants theirs. They have a good product, but there are just too many
disinterested participants. The intentions are good, but the ability to
deliver is fleeting.

The company posted revenues of $318.2 million compared to estimates of about
$314.5 million. The company posted net EPS of $0.00 but that was rounded up
from less than a penny net loss per share.

The real issue here is the guidance. While no one was expecting gangbuster
performance for next quarter, they weren't really pricing in a flattish
revenue. The company gave guidance of $312 million to $328 million in
revenues versus an expected $332.5 million estimate, which is still under
most street estimates even on the lower-end of the range.

This would normally be swept under the rug just like a case of spilled milk
from the golden child, but the problem is that since Cisco raised the bar
for telecom and networking equipment providers the stock has somehow managed
to crawl up from $2.13 to a Wednesday pre-earnings close of $2.63. That
means that even though no one was really expecting a gangbuster report, they
were not prepared for yet another weak guidance. The company's problems and
the tragic story are just getting old. The 52-week trading range is $1.54
to $4.30, and $4.00 now seems as long ago as $90.00.

What more can be said. The markets are cruel, and when this happens the
markets just want to pounce and pounce hard on the suspects. JDSU may have
tried to sugar coat this as best as they could, but now they have just
established a lower resistance level that will encourage new sellers to take
profits when they can.

Jon C. Ogg
August 31, 2006

Market Wrap (August 30, 2006)

DJIA 11,382.91; Up 12.97 (0.11%)
NASDAQ 2,185.73; Up 13.43 (0.62%)
S&P500 1,304.27; Down 0.01 (0.00%)
10YR-Bond 4.763%

You wouldn't have known we had a GDP revised number by the market trading today as most of the "A-Team" traders and investors are out in the Hamptons and in other places. Oil prices also fell another $0.36 per barrel to $69.35 as a rise in oil inventories gave hopes that prices could come down. M

BCE (BCE) rose 0.5% to $25.10 after the Globe & Mail reported it will do an IPO for its satellite unit instead of an outright sale.

Altria (MO) rose 1.1% to $84.48 after the company hiked its dividend, and Kraft (KFT) rose 0.75% to $33.69 after MO did not outline plans to divest the remaining 87% of the stock.

Merck (MRK) rose 0.1% to $40.83 after a federal judge threw out a $50 million award in New Orleans.

CostCo Wholesale (COST) fell 4% to $47.17 after the company lowered guidance because of higher-end items and electronics margins.

eBay (EBAY) rose another 4.5% to $1.23.

Apple (AAPL) rose 0.7% to $66.93 after Google's CEO Eric Schmidt joined the Apple Board of Directors.

Priceline.com (PCLN) fell 3% to $32.66 as Stifel Nicolaus cut the rating from a Buy to a Hold; and Travelzoo (TZOO) fell 11.8% to $31.16 as the same analyst cut the rating of Hold down to a sell.

ADC Telecom (ADCT) fell 7% to $13.67 after missing lowered EPS and lowering guidance again.

Micros Systems (MCRS) rose a sharp 20.5% to $46.35 after beating earnings expectations.

AnorMED (AOM) rose a massive 95% to $9.84 after Genzyme offered to acquire the the company in a rebuffed attempt declined by AnorMED; GENZ closed down 0.6% at $66.28.

Embraer (ERJ) ADR's rose 7% to $38.70 after winning a 100 jet order out of China.

Jon C. Ogg
August 30, 2006

Is There an Underlying Value to 3Com? Maybe a Backdoor Play

Stock Tickers: COMS, CSCO, JNPR, ALA, LU, NOK, SI, CY, SIVB, RNWK, MOT, NT, "Huawei,"
"H3C"

3Com (COMS) is a name easy to hate, and it is a crying shame what they allowed to happen to their company. They used to be neck and neck once upon a time with Cisco (CSCO) and other key networking companies, and they even spun off their Palm (PALM) operating system and PDA unit in a separate IPO that was never given out to COMS holders. You will have to hear some additional ranting and some personal attacks, but there may still be some hope for the company.

I personally have come out swinging against this company publicly, privately, under the table, and over the table. I even have used the analogy that management needed to be marched out the back door and gunned down in the alley, but that has such a harsh and mean tone that I won't use that analogy any longer (even to them). Until Mr. Benhamou is 100% gone and completely out of the company to the point that no one inside the company will take his calls there is risk. It isn't fun attacking people personally, but from everything we have been able to deduce he is still active in some of the key decisions since he is still a non-executive Chairman. He is also the chairman of Cypress Semiconductor (CY) and sits on the boards of RealNetworks (RNWK) and Silicon Valley Bankcshares (SIVB), which may make those shareholders worry.

Even with him still wedged in there, COMS has a hidden weapon and may have a hidden value. It is the majority owner of the Huawei joint venture now called H3C that designs and markets enterprise-networking products, including switches and routers, and owns its marketing and intellectual resources. This is the one that has been noted by many industry insiders that was dubbed the "Cisco knock-off" because of so many similarities from the look and feel of the interface all the way down to the basic source code. Those legal issues with Cisco were also settled some time ago. COMS even gets to now count the revenues as its own now since it bought the extra 2% from Huawei to get to the 51% controlling interest. That may be a sketchy practice to count 100% of it as their own and there are have been many complicated and intertwined structures inside the deal, but this is still the remaining hidden value in COMS. I even questioned them in my last article why on earth in their last restructuring why they don't just close all other operations to focus on this H3C.

I have seen several articles (including 2 from contributors here at 24/7 Wall St.) stating that it is too bad that Huawei is not a public company, but very few of them ever refer to the Huawei-3COM 'H3C' venture. This may even be a legitimate "Backdoor Play" into Huawei as I have dubbed it in many other articles discussing IPO spin-offs and other special investing situations. This is the only area growing and industry insiders have said that this is sufficient so long as a company doesn't need massive tech support from their networking equipment makers.

Oddly enough, Juniper Networks (JNPR) was reportedly in talks to buy this venture earlier this year. Unfortunately Juniper has been riddled and plagued with departures and other ongoing problems. Both NorTel (NT) and Motorola (MOT) have agreements with Huawei. Now that Cisco (CSCO) is just about set up to literally offer every single solution (except for laying the actual fiber) for data literally leaving web servers all the way right up to your ethernet port or web device (same analogy for phones and VoIP devices now), you have to wonder if someone else will give any value to COMS. The mergers combining Alcatel (ALA) and Lucent (LU) and combining the Siemens (SI) and Nokia (NOK) networking operations are really forcing the "global one-stop shop" business model, and this hidden value in COMS "could" be one of the ways a company would roll the solution into their portfolio.

Juniper (JNPR) was recently thought of in the same light, but they may have so many issues that need to be fixed outside of their next generation routers and switches that it may just not be in the cards. It is quite obvious that there are still many spots and holes in many networking and communications equipment/solutions companies out there that this argument can still be made.

Regardless of what happens, if anything, this H3C may be the last saving grace at COMS. I criticized COMS back on June 21 and on June 29 and have criticized them on many other occasions before then. On June 21 the closing price was $4.61 and when I questioned the post-earnings rally on June 29 the closing price was $5.10. COMS has traded up to a high of $5.31 shortly thereafter, but the shares now sit at back down at $4.39 after a 3% rally today. The 52-week trading range is $3.29 to $5.70.

COMS now has a mere market cap of $1.73 Billion, which means if you gave the ex-H3C value of $0 from COMS that the entire value of H3C would be approximately $3.45 Billion. It is very difficult to trust analyst estimates, but they have COMS generating a $0.02 EPS for fiscal May 2007 and $0.19 EPS for fiscal May 2008. They will have some substantial charges for their ongoing restructuring, but their balance sheet is actually ok as of the last available report. The company holds $864+ million cash and short-term securities, and it has $178 million in receivables. Its inventories and "other" assets are $206.6 million, but we'll value those as close to Nil for break-up comparison. That leaves their current assets valued at $1.035 Billion. We will allow them to count plant & equipment at 50 cents on the dollar, so $44.5 million, will give them $0.00 for their Goodwill ($354 million on the books), will also give their intangibles and "other" assets a Zero value (combined as $168+ million on the balance sheet). $1.079 Billion is what we are counting the underlying raw assets. We know there is some value in the other assets, but this is how to really break out raw values. The company's total Liabilities and minority interests come to just under $659 million, but $173.9 million of that is a minority interest that also "may" have some negotiated play left. This still leaves a raw $620 million net net left over after all liabilities as far as a raw value, and any company worth their weight in salt would know how to squeeze out some value out of the garbage assets I assigned a Zero value to.

Even after Juniper's (JNPR) massive sell-off they still have a market cap of $7.99 Billion, so you would have to pay way up for what the street feels is a company with a black eye if you wanted to use the same theory for that company. Personally I cannot officially endorse COMS yet because of the management and its SNAFU of an operating history that graduating business students would love to have as their exit case study. But it would just be foolish to not acknowledge that there are many big sharks out there needing to increase offerings that could look at an acquisition. COMS "may" be deemed as a cheap way to play in this group, but we would encourage anyone who was going to acquire the company to unload all non-H3C management without any questions.

In summary we can argue that there is some value here, but it isn't without risk and it certainly isn't without some painful memories.

Jon C. Ogg
August 30, 2006

Jon Ogg can be reached at jonogg@gmail.com and he does not own positions in any of the companies he covers.

A Backdoor Play For Telesat Canada IPO?

BCE Inc. (BCE) is going to pursue a $1 billion IPO for its Telesat Canada commercial satellite unit, according to an article in Canada's The Globe & Mail. BCE had been in discussions to sell its Telesat unit to a private equity group in a "club deal" that included Ontario Teachers’ Pension Plan and one that previously included SES Global SA and Eutelsat SA. Buyout talks had reportedly been called off but it wasn't just on price. There were some issues over who would run this, but one major hurdle was the foreign ownership and management limitations that keep infrastructure domestic.

Telesat owns five satellites and has a growth story (according to the article) that would support an IPO. Last year, revenue rose 31 per cent to $478-million, with the company generating $203-million in cash from carrying North and South American television and telephone traffic.

This IPO filing does not prohibit BCE from going back to the table for discussions, but even though a federal review panel recommended easing foreign ownership and investment rules Ottowa has been holding firm because of "fears of job losses and national security."

We'll have to see what the real terms end up looking like before making a firm pat judgement this far out. Usually deals that cannot go private and ending up having to become a quasi-IPO means that the overall valuation isn't there as a private company and the company needs the public investor premium. So while this is in the beginnings of a bad formula, we will give it the benefit of the doubt for now by at least remaining neutral for the time being.

While we would normally call BCE a backdoor play, that usual tie is not really true here. That is why we left a Question Mark in the Title of this article. BCE in the US equivalent has a $20 Billion market cap, so a 20:1 ratio is probably not worth the homework. If we uncover anything broader we will re-address this situation.

Jon C. Ogg
August 30, 2006

Viisage and Identix Transform Into L-1 Identity

We have now seen the formal merger of Viisage (ex-VISG) and Indentix (IDNX) completed and the two companies have formed L-1 Identity Solutions, Inc. (ID-NYSE). This will be one of the leading homeland security and ID management pure-play stocks in the sector.

The portfolio of L-1 Identity Solutions companies - Viisage and Identix, together with Integrated Biometric Technology, SecuriMetrics, Inc., and Iridian Technologies, Inc. - offers the most comprehensive and technologically-advanced set of solutions for protecting and securing personal identities and assets. The companies have a combined 20-year history of trust and reliability in the private and public sector gained by solving the toughest problems associated with credentialing and managing human identity.

Based on Viisage's closing price on Monday, August 28, 2006, L-1 Identity Solutions has an aggregate market cap of approximately $1.1 billion. The Company offered guidance of fourth quarter revenue of approximately $60 million and Adjusted EBITDA of $15-$17 million.

ID shares are up 2.1% at $15.24 on about 145,000 shares late morning.

Jon C. Ogg
August 30, 2006

Investing in Space: The Final Frontier

Stock Tickers: NOC, BA, LMT, ATK, TXT, UTX, SPDV, SPAB

In about 24 hours, we should know the design and award contracts for NASA's multi-billion dollar new launch and capsule design wins to take manned-flights to the International Space Station and then to the moon again. The new capsule (leaked name is 'Orion') is going to carry crews of up to 6 persons to the International Space Station and will then take 4 to the moon. This design will end up being (as of today's claims anyway) the basis of designs that will ultimately take manned-flights to Mars. The first piloted mission is scheduled for September of 2014, which will be 4 years after the phase-out and retiring of our space shuttle fleet that is designed on 1970's and early 1980's technology.

A team led by Northrup Grumman (NOC) and Boeing (BA) is competing against Lockheed Martin (LMT) to build Orion that may be in the $18 billion in the initial design phase alone. In the NOC-BA team Northrup Grumman is involved in the earth orbital designs that will be for earth orbits and space station docking and Boeing will lead the design for the craft and systems needed for the next manned-flight to the moon. Lockheed Martin (LMT) already received over $1 Billion for its failed X-33 design, but it is still in the bidding process for this contract award.

This award is just under two weeks after NASA awarded private SpaceX and Rocketplane-Kistler a nearly $500 million split contract to demonstrate delivery and return of cargo to the International Space Station, known as the Commercial Orbital Transportation Services (called 'COTS'). Both SpaceDev (SPDV-OTC) and SPACEHAB (SPAB) were in the bidding for that lower-cost contract, but it went to the SpaceX and Rocketplane-Kistler teams.

The Government Accounting Office has already warned against awarding this contract without any formal plans. You can see their report HERE. While this will be a huge win for the winning team, there are other companies that will likely benefit from this as well.

Alliant Techsystems' (ATK) unit ATK Thiokol is also still involved in booster rockets, and particularly part of the Ares 1 launch booster for crews and the Ares 5 will consist of ATK's 5 segment solid rocket boosters. Before the company benefited from so many bullets and munitions orders recently it used to be heavily reliant on set space shuttle booster rocket launches, so any launch delays put the company's EPS and top-line at risk in any given quarter.

United Technologies' (UTX) Pratt & Whitney unit is involved on the engine design and Textron (TXT) is in the hunt for the replaceable heat shield design win. There are probably dozens of other sub-contractors that may benefit, but these are the ones known out of the immediate information we could find.

So far from the available data it feels as though the Northrup Grumman and Boeing team is set up to better win the business as a joint and diversified effort, particularly after the prior X-33 blunder from Lockheed Martin. We just have to remember that the government doesn't always do what makes sense, so it may not be fair to try to formally predict who will win the contract.

If they have an extra seat for me on the next flight, you might not get a steady flow of usual reports for a few days or weeks.

Please understand that this is based on numerous data points and there could easily be some errors or discrepancies. The information could have also changed with no notification.

Jon C. Ogg
August 30, 2006

Exxon, Conoco, Chevron, BP, And Shell: What If Oil Drops

Stocks: (XOM)(BP)(CVX)(RDS-A)(COP)

Three or four years ago, if you had told most Wall St analysts who cover the oil industry that crude would hit the mid-$70 dollar range, you would not get many believers. Now, pundits like Jim Rogers say it will go to over $100 and stay there for awhile.

Well, oil dropped again today on word that crude supplies rose 2.4 million barrels for the week ending August 25. Probably less than one in ten analysts will lay even money that prices will continue to decline. But the same might have been said about the increase if you look back far enough.

Profits at Big Oil, Inc. have been stupifying. One the strength of rising prices, Exxon's stock has gone from $54.50 this year to $69, a huge move for a company with a $410 billion market cap. Likewise, Chevron has gone from $53.76 to $65 over the last 12 months, a 21% increase. And, the stock has a 3.2% yield.

Of course, Conoco would not want to be left out. The stock has gone from about $57 to $64 this year. And, it has a 2.2% yield.

It is good to remember that it was not always thus. In late 2002, Conoco traded just above $20. Chevron traded just above $30 and so did Exxon.

The run in Big Oil profits is not likely to abate soon, but, when it does, these stocks could head back toward those 2002 levels. And, if oil supplies keep creeping up, the Big Five could certainly drop part of the way.

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

Acer Results Confirm PC Slowdown

Stocks: (DELL)(HPQ)(AMD)(GTW)(INTC)(AAPL)(MSFT)(SNDK)

Acer of Taiwan, the fourth largest PC company in the world, issued results that global computer sales are no longer accelerating at the rate that he industry has come to expect. The company's second quarter operating income fellfell 8.6% to $46.2 million. According to the Associated Press, this was the lowest operated income for any quarter since 2002.

The company blamed the poor results on "aggressive PC price war and a worldwide notebook market slowdown."

This can hardly be considered good news for Dell, HP's PC division, or Gateway, which is in the midst of a takeover struggle. Acer's main base is in Asia, an area that US PC companies have targeted for growth as the domestic market slows. The promise of those markets now seem less spectacular.

It would appear that the Acer results confirm that any uptick in the PC market is not just around the corner. This is not terribly good news for Intel or AMD, both of which supply the chips at the heart of almost every PC sold in the world. It also does not bode well for Apple's Mac line which may have to take up some of the slack from the recently beleaguered iPod which is faced stiff competition from both Microsoft and Sandisk.

It may take the launch of Microsoft's Vista operating system to drive a move up in PC sales. If so, it will be well into 2007 before the manufacturers and chip companies see relief.

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

New Frontier's Proposed Buyout of the Adult Entertainment Company

New Frontiers Media (NOOF), a company specializing in adult entertainment movie distribution to hotels that operates as 'The Erotic Network', may actually be acquired by a private investment group. In a SEC Filing yesterday the company disclosed that Warren Lichtenstein of Steel Partners II LP told its board of directors on August 15 that it was interested in leading a management buyout of the company. The terms are for an undosclosed premium and the company has yet to receive any additional information about the potential offer.

Steel Partners started acquiring shares last summer and now owns about 3.2 million shares as of July. Since the August 15 meeting, shares were only up about 1.2% as of yesterday's close.

An analyst at Merriman Curhan who rates the stock as a Buy updated notes to clients saying this stock could be aggressively purchased up to $10.00. The 52-week high is $9.38 and the low is $5.40. Overthe last 5-years this stock has only briefly traded above $10.00 before selling back off.

Steel Partners II LP has a history of doing buyouts. It has been involved with Icahn on KT&G (which failed), involved in the Fox & Hound buyout, involved in Stratos and the Angelica deals, Bairnco and others.

If New Frontiers is to be acquired the buyout would likely have to be on friendly terms because the company has means to thwart unwanted buyouts that are not deemed of value or not deemed as serious.

Jon C. Ogg
August 30, 2006

Pre-Market Stock Notes (Aug. 30, 2006)

(AACE) Ace Cash Express $0.50 EPS vs $0.44e.
(AAPL) Apple said Eric Schmidt, CEO of Google, will join its board of directors.
(ADCT) ADC Telecom down 5% after lower earnings and guidance.
(AOM) AnorMED rejected the Genzyme unsolicited bid of $8.55.
(COOL) Majesco names new interim-CEO.
(COST) Costco trading down 6% at $46.00 after lowering guidance.
(DSW) DSW $0.35 EPS vs $0.30e.
(DY) Dycom $0.25 EPS vs $0.21e.
(ELX) Emulex will pay $180M to acquire private Sierra Logic.
(HBI) Hanes Brands(when issued) will replace TECUA in S&P Mid Cap 400 Index on or about 9/5/06
(HNAB) Hana Biosciences says FDA accepts the review of NDA for Zensana filing.
(ID) L-1 Identity is the new formation of Identix and Viisage after the merger that begins trading today.
(LAYN) Layne Christiansen $0.47 EPS vs $0.40e.
(LNUX) VALinux $0.01/R$10.51M vs $0.01/$10.8M(e).
(MCRS) Micro Systems $0.58 EPS vs $0.53e.
(MEAD) Meade Instruments said it has found stock option errors.
(MET) MetLife may net $5B in NYC proprty sale.
(NOOF) New Frontiers may get a buyout offer from Steel Partners at an unspecified premium. Steel Partners owns 3.2M shares of NOOF.
(NOVL) Novell $0.03 EPS vs $0.03e; starting its own stock options probe and may delay its quarterly filing.
(RACK) Rackable Systems is acquiring private Terrascale for $38M.
(RAI) Reynolds said a suit in Massachussetts brought against it and other tobacco companies was dismissed.
(RMI) Rotonics Manufacturing is being acquired for $3.00per share.
(TASR) Chairman Philip Smith will retire and Tome Smith will become new chairman; Kathleen Hanrahan promoted to President.
(UNFI) United Natural Foods $0.30 EPS vs $0.30e.
(VGZ) Vista Gold filed to sell 4M shares.

MetLife Could Net $5 Billion in NYC Land Sale

MetLife (MET) has placed its Stuyvesant Town and Peter Cooper Village properties up for sale according to the New York Times. The sale would be for approximately 110 buildings that cover 80 acres in Mahattan. The area is around First Avenue between 14th Street and 23rd Street. The sum is expected to be an unbelievable $5 Billion, and this was reportedly signaled back in July. This will ultimately be putting another neighborhood for low and middle-income renters in Manhattan at risk of going-condo and driving up adjacent rents even further. This will no doubt come with some controversy, so you can imagine that the papers and local media in and around NYC will be covering this like hawks going forward.

Jon C. Ogg
August 30, 2006

Select Analyst Calls (Aug. 30, 2006)

AAP started as Neutral at Oppenheimer.
ADSK started as Neutral at Goldman Sachs.
AHD started as Equal Weight at Lehman.
ALA started as Buy at Merrill Lynch.
ALD started as Neutral at B of A.
APC started as Equal Weight at MSDW.
APL started as Equal Weight at Lehman.
ARDI started as Buy at First Albany.
AVR started as Buy at BB&T.
AYE started as Hold at Jefferies.
AZO started as Buy at Oppenheimer.
BIVN started as Buy at AGEdwards.
BMR started as Outperform at RWBaird.
BNS cut to Neutral at UBS.
CI raised to Buy at AGEdwards.
EOC started as Buy at Deutsche Bank.
ESRX raised to Overweight at Prudential.
FPL cut to Hold at BB&T.
GENZ started as Buy at AGEdwards.
GTXI started as Buy at First Albany.
HOV cut to Neutral at JPMorgan.
HRS cut to Underweight at Prudential.
JBLU cut to Neutral at Prudential.
LMT cut to Underweight at Prudential.
MAIR cut to Underweight at Prudential.
MMS cut to Hold at BB&T.
MOG/A raised to Buy at B of A.
MRO cut to Hold at AGEdwards.
NDAQ started as Outperform at Cowen.
NOC raised to Mkt Perform at FBR.
PAAS started as Buy at Merrill Lynch.
PCLN cut to Hold at Stifel Nicklaus.
PNCL cut to Underweight at Prudential.
RI started as Buy at Robinson Humphreys.
RIG reit Buy at AGEdwards.
ROK cut to Underperform at CSFB.
RYAAY started as Overweight at Prudential.
SAN raised to Buy at UBS.
SMSI started as Outperform at Piper Jaffray.
TZOO cut to Sell at Stifel Nicklaus.
VSE started as Buy at BB&T.

Costco's Mixed Message

Stocks: (COST)(WMT)(TGT)

Costco said that is next fiscal quarterly report (Sept 3) would show that earnings would be below expectations. But, not for the usual reason. Income tax charges would be high and gross margins low.

Costco said that August sales were up 11% to $4.55 billion and that same-store sales rose 7%. Those are impressive numbers by almost any measurement.

While its may not be good for investors that tax rates went up at the huge discount retailer, the core numbers give reason for optimism.

Investors in Wal-Mart and Target should also breath a sigh of relief. The Costco numbers would indicate the fuel prices and rising interest rates are not keeping customers away from the "big box" stores.

The betting has been against the large retail firms as worries about a slower economy has moved into their stock prices. At $44.50, Wal-Mart trades near its 52-week low. At $48.72, so does Target. Costco has been somewhat more fortunate. At just under $50, it trades in the middle of its 52-week range of $57.94/$40.51.

Discount retail is alive and well, at least for the time being. Shareholders who have seen their fortunes fall with the prices of Wal-Mart and Target should take heart.

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

ADC Telecom's High Fiber Diet

Stocks: (JDSU)(ADCT)(CIEN)(VZ)(T)

ADC announced disappointing earnings. Sales, at $344 million, were down slightly from the immediately previous quarter. At $11 million, net income was down from the same period a year ago.

The company lowered forecasts and, according to MarketWatch, blamed a fiber inventory glut at Verizon and slower-than-expected fiber roll-out at AT&T pending its merger with BellSouth.

ADC's stock has been hit hard this year. Shares are down by half from just below $28 for a 52-week high to $13.88 after hours yesterday.

As TheStreet.com pointed our, ADC is something of a canary in the coal mine for large rivals Ciena and JDS Uniphase. JDSU reports earnings today. Its stock has been knocked down from $4.30 to $2.65 this year. At $4.26, Ciena's stock has done the best, at about double its 52-week low of $2.09. The company's last quarter was slightly better than expected, as was guidance.

The issue with the three companies does not appear to be if they will do well, but when. Fiber-to-the-home deployments are likely to benefit all three, but the timing of these projects by Verizon, and, especially AT&T are a moving tarket.

Merriman Curhan Ford is predicting a 30% increase in the optical fiber networking market over the next year, according to the Associated Press. So, ADC Telecom's relatively weak numbers are probably not a real set-back for the sector. But, the choppy surf is not going away.

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

A Funny Thing Happened On The Way To The Merger: Lucent And Alcatel

Stocks: (ALA)(LU)(VZ)(BT)(DT)(NOK)(SI)

After being panned by Proxinvest, a French institutional investor advisory firm, and pilloried by analysts in both the US and France, it appears the markets have begun to warm to the Alcatel merger with Lucent. Lucent's stock has moved from $2.20 to $2.32 in the last three days. The stock traded close to $2 in early July. Alacatel's shares were up sharply in trading on the French exchange today. Their recent movement has mirrored Lucent's.

Two factors seem to be at work as both stocks rise just ahead of the merger. The first is that the investment world appreaciates that size and scale will matter a great deal in the telecom equipment business. Chinese companies like Huawei, currently only provided equipment to telecom companies within that country, will enter the world markets within a few years. Their products will probably be priced below most that are currently available. Huawei has already done deals with BT Group and Deutsche Telekom. The new Lucent/Alacatel will also compete with the Seimens-Nokia joint venture, Ericsson and Motorola. Size will matter.

The other reason the market may be having a positive reaction to the merger is that the customer base for telecom equipment is doing well. Companies like Verizon, AT&T, BT and Deutsche Telekom are revamping and upgrading vast portions of their networks to deliver everything from next-generation wireless to IPTV. The cash flow from their old fixed-line businesses may be dropping, but in most cases it still provides a huge pool for system-wide retooling of the largest telecom operators.

It would appear that the market believes that Alcatel and Lucent are better off together than separate.

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 8/30/2006 Alcatel,BT, Prudential Up Sharply

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

Markets in Europe were up slightly at 5.00 AM New York time.

The FTSE was up .4% to 5,911. Barclays was up .6% to 664.5. BP was down .1% to 592.5. BT was up 1.8% to 249.5. GlaxoSmithKline was up .7% to 1477. Prudential was up 2.3% to 592. Reuters was up .8% to 398.25. Unliver was up .5% to 1254. Vodafone was up .7% to 114.25.

The DAXX was up .4% to 5,869. BASF was up .9% to 64.52. Bayer was down .8% to 38.95. DeutscheBank was up .4% to 89.35. Deutsche Telekom was down .1% to 11.49. SAP was up 1.5% to 150.31. Siemens was up .6% to 66.43. DaimlerChrylser was up .5% to 41.14.

The CAC 40 was up .5% to 5,185. Alacatel was up 2.7% to 9.87. AXA was up .8% to 28.59. France Telecom was up .1% to 16.6. ST Micro was up 1.5% to 13.15. Vivendi was up 24.07.

Douglas A. McIntyre

Media Digest 8/30/2006 Reuters, WSJ, NYT

Stocks: (SBUX)(T)(GOOG)(AAPL)(SGP)(MO)(KFT)(NOVL)(BKS)

According to Reuters, Starbucks withdrew an offer for free iced coffee to some employess, their families and friends located in the southeastern US.

Reuters writes that AT&T announced that hackers had stolen credit card data on some of the company's customers. The telecom company said that fewer than 19,000 records were involved.

Reuters writes that the CEO of Google has joined Apple's board bringing the number of board members to eight.

The Wall Street Journal reports that Schering-Plough agreed to pay $435 million to settle allegations of fraudulent drug marketing and pricing.

The Wall St Journal writes that Barnes & Noble has received a subpoena from the U.S. Attorney for the Southern District of New York about options backdating.

The Wall St Journal also writes that Novell has started an internal investigation on options pricing and will delay filing its 10-Q.

The New York Times says that Kraft is getting closers to being spun off from Altria. With the Altrai board meeting soon and the last large suits against its cigarette unit behind it, the company can begin the process of a tax free transaction to spin out Kraft.

Universal Music and a new company, SpiralFrog, will begin an ad supported service for music downloads which will be free to customers. The program is a challenge to Apple iTunes. SpiralFrog said it was approaching other record companies with the same program.

Douglas A. McIntyre

Asia Markets 8/30/2006 China Netcom, Lenovo,Canon, Toshiba Up Sharply

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

Asian markets were mixed with the Nikkei down and Hang Send Index up.

The Nikkei was off .1% to 15,872. Canon was up 2.1% to 5710. Fuji Photo was up 1.9% to 4220. NEC was down .8% to 655. NTT was up .2% to 589000. Sharp was down 1% to 2060. Softbank was down 3.3% to 2030. Sony was down .2% to 4990. Toshiba was up 2.5% to 810. Toyota was flat at 6290.

The Hang Seng was up .7% to 17,194. China Mobile was up 1.9% to 51.94. China Netcom was up 2.7% to 13.6. HSBC was up .2% to 140.4. Lenovo was up 2% to 3.05. PCCW was up 1.3% to 4.76.

The KOSPI was was down .2% to 1,341.

The Straits Times Index was up .3% to 2,461.

The Shanghai Composite was up .3% to 1,655.

Douglas A. McIntyre

Is The Market Getting Over Options Backdating?

From Ticker Sense

During the latest reporting period for quarterly earnings, it seemed as though any mention of stock options in an earnings release or conference call, no matter how good the earnings report was, caused the stock to drop. Shoot first ask questions later, was the rule of the Summer.

Today, however, we saw an exception to that rule. Restoration Hardware (RSTO) beat EPS forecasts on stronger than expected revenues, and also raised guidance. In addition the company reported that it used "incorrect measurement dates with respect to the accounting for certain previously granted stock options." Instead of the stock going down 18% on the options news, the stock is currently up 18% on its strong earnings news. Now we realize this is only one data point, but it is something to watch for going forward. If more companies start to react in similar fashion, then maybe we can finally say that this issue is fully priced into the market

http://tickersense.typepad.com/

Investing in China for Growth with FXI, EWH & EWC

By Yaser Anwar, CSC of Equity Investment Ideas

Few other countries have been able to match the pace of China's sustained economic growth. With GDP increasing, on average, more than 8 percent annually since 1978, China has become a major player in the global economy.


To play Chinese growth investors should take a look at the FXI exchange-traded fund. The index consists of 25 of the largest and most liquid Chinese companies.


The FXI ETF in itself is well diversified. From holdings in Oil (PetroChina, Sinopec & CNOOC), Technology (China Mobile), Financial Institutions (China Life Insurance & CITI Pacific) & Construction (China Construction Bank). The top five companies represent 40% of the index.


The FXI is up 27% YTD and is trading just below its 52 week high of $83.90 hit in early May. FXI has recouped 19% in two months after falling to $66 during the early summer doldrums, hence this goes to show relative strength & momentum in FXI.


China's exports rely on what may be an unsustainably low fixed exchange rate, this could play to your advantage. Investors can utilize an indirect vehicle tha benefits from not only Chinese growth but also currency movements through Hong Kong iShares EWH is one of them. This ETF has sizable allocations to Hong Kong real estate (33%), utilities (17%) and banking (16%).


While perusing Forbes, i read an unorthodox method to play China. The article talked about investing in the Canada iShares EWC as an indirect China play. The Chinese are going on a buying spree investing in Canadian energy companies and recently plunked down $2 billion to build a thousand-mile pipeline from Alberta tar sands to a port on the west coast and onward to Beijing and Shanghai.


The Canada iShares ETF EWC has 40% exposure to Canada’s energy & materials sector.

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

SAC Capital Raises Stakes in Interlink (SORC), AC Moore Arts & Crafts (ACMR) and Greenbrier Companies (GBX)

By Yaser Anwar, CSC of Equity Investment Advisors

SAC Capital Raises Stake in Source Interlink (SORC) to 5.4%
08-29-2006 09:41:20 AM

In a 13G filing just released to the SEC, SAC Capital disclosed a 5.4% stake (2.8 million shares) in Source Interlink (SORC). This is up from the 2.5 million share stake the investment firm disclosed in a quarterly regulatory filing.

Source Interlink Companies is a leading marketing, merchandising and fulfillment company of entertainment products including DVDs, music CDs, magazines, books and related items.

Shares of Source Interlink were up 2.23% to $10.99 in early action Tuesday.

SAC Capital Raises Stake in AC Moore Arts & Crafts (ACMR) to 5.3%
08-28-2006 10:20:30 AM

In a 13G filing just released to the SEC, SAC Capital disclosed a 5.3% stake (1.05 million shares) in AC Moore Arts & Crafts Inc. (ACMR). This is up from the 52K share stake the investment firm disclosed in a quarterly regulatory filing.

A.C. Moore operates arts and crafts stores that offer a vast assortment of traditional and contemporary arts and crafts merchandise for a wide range of customers. The Company operates 114 stores in the Eastern United States.

SAC Capital Raises Stake in Greenbrier Companies (GBX)
08-17-2006 03:57:31 PM

In a 13G filing released to the SEC, SAC Capital disclosed a 5.1% stake (805K shares) in The Greenbrier Companies (GBX). This is up from the 650K share stake the firm disclosed in a quarterly 13F filing.

The Greenbrier Companies. headquartered in Lake Oswego, OR, is a leading supplier of transportation equipment and services to the railroad industry.

Run by Steven A. Cohen, SAC Capital is one of the world's largest hedge funds.

Sources: SEC Filings & 13G Filings at Street Insider

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

US Investments for Oil

By Yaser Anwar, CSC of Equity Investment Ideas

The WSJ talks about, Driven by a growing desire to lower dependence on foreign oil, the U.S. is set to help two of the world's biggest energy companies seeking to extract oil from stone in the Rocky Mountains - a venture that previously has been polluting and prohibitively expensive.

More than 70% of the U.S.'s oil shale is found on federal land, mostly in Colorado, Utah and Wyoming in what's known as the Green River Formation. The research and development plots are in Northwest Colorado in the Piceance Basin.

A Department of Energy study last year estimated that crude prices would have to stay at $70 to $95 a barrel for a first-of-kind shale-oil operation to be profitable, though costs would come down as technology improved. This isn't a view shared by Shell, which, with 20 years of research under its belt, believes it will be able to make money at crude prices of $30.

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

Retail Details

By William Trent, CFA of Stock Market Beat

Value Line’s latest investment survey noted the slowdown in consumer spending, but suggests that there could still be some opportunities in retail.

Companies in the department store sector of the Retail Store Industry are generally faring well, but there are some clouds on the horizon in the form of the high consumer debt burden and a relatively low level of year-to-year spending growth in recent months. A sound economy was a prime factor behind the healthy same-store sales increases in 2005 for the department store companies in this group. That said, consumer spending, which accounts for about two-thirds of total economic activity, has been sluggish in recent months. The portion of disposable income devoted to paying off debt is at a record level, and a rising interest-rate environment has put a squeeze on many households in the U.S. In this environment, management effectiveness is particularly important in the Retail Store Industry and is an important differentiation point that investors should focus on when reading the company reports in this industry.

The Retail (Special Lines) Industry is comprised of a diverse group of companies and subsections with distinct business operations. These merchants cater to individuals with various levels of wealth. Therefore, as the economy has slowed in recent periods, those retailers that primarily focus on individuals with low-to-moderate incomes have experienced the greatest decreases in sales, while those that carry high-end merchandise have fared slightly better. Even so, this has forced many companies to work even harder to increase value for shoppers, which includes offering price discounts. It might also be worthwhile to seek out stocks of companies that have a loyal customer base. Based on this industry’s diversity, however, we think investors will find some appealing opportunities here. Long-term investors should pay particular attention to those companies that have growth initiatives under way, which should provide a boost to earnings over the next 3 to 5 years.


Gauging the consumer’s health is getting tricky. Watch List member TJ Maxx (TJX) topped Wall Street expectations with a 25% surge in profits and Zale (ZLC) posted a modest gain, but same store sales for YUM Brands (YUM) fell 3%.

On the BJ’s Wholesale (BJ) conference call, management said:

The main factors affecting financial results for the second quarter 2006 were lower than planned sales, and significantly lower gasoline profitability attributable to rising gasoline prices throughout the quarter. These factors were partially offset by significantly lower accruals for incentive-based compensation.

Looking at our traffic trends, as in the first quarter, our members shopped us less frequently but spent much more money on each trip. Interesting to note, more than 50% of the decline in trips was attributable to trips with basket sizes of $30 or less, which indicates a significant decrease in convenience or fill-in trips compared to last year’s second quarter. And three quarters of this decline was attributable to members who lived more than four miles from their nearest BJ’s. This is a trend that began in last year’s third quarter after the fuel spikes. As a result, we believe the traffic will turn positive midway through the third quarter when we cycle.

That is, unless oil prices continue to rise. What we don’t understand, given the relative convenience of other shopping outlets and the minimal potential cost savings for such a small order, is why anyone ever drove more than four miles to a BJ’s for a purchase of less than $30.

At any rate, higher fuel prices and a slowing housing market are beginning to pinch consumers. Just how much of a pinch it will be is the question.

http://stockmarketbeat.com/blog1/

US Market Wrap (Aug. 29, 2006)

DJIA 11,369.94; Up 17.93 (0.16%)
NASDAQ 2,172.30; Up 11.60 (0.54%)
S&P500 1,304.28; Up 2.50 (0.19%)
10YR-Bond 4.783%

The markets started out weaker after a slow negative reaction to August Consumer Confidence coming in under the 100 parity mark, signalling more of a thud than a soft landing for the economy ahead. The minutes from the last FOMC meeting showed that the Fed was cognizant that continued rate hikes could harm the economy, but they also tried to telegraph that a pause in rate hikes did not translate to a definite end.


Microsoft (MSFT) fell 0.5% to $25.81 after "leaked" pricing came out on Windows Vista.

eBay (EBAY) rose another 5.5% to $27.21 on strong volume a day after its non-US advertising pact with Google.

SGX Pharma (SGXP) lost a stunning 41% to close at $2.71 after halting its key Phase II/III trials for AML.

Despite announcing a $3 Billion share buyback, Boeing (BA) gave up 1.2% to close at $73.81 as the street felt this was either wasteful or was not going to really occur.

Apple (AAPL) closed down another 0.75% to $66.48 after a free music download business from Universal may be coming.

ViroPharma (VPHM) rose 12.8% to close at $12.60 after announcing quite positive data on its Hepatitis C trials.

Rite Aid (RAD) rose another 0.9% to $4.30 after offering in-line guidance.

Armor Holdings (AH) rose 1.3% to $52.52 after getting an additional $73 million armored Humvee order.

CBRL Group (CBRL) rose 4.5% to $37.26 after posting stronger August sales at its core stores.

NVIDIA (NVDA) rose 4.6% to $28.66 after Pacific Growth started it as a Buy.

Brinker International (EAT) rose 4.7% to $38.56 after it announced a $450 million share buyback plan.

Time Warner (TWX) rose 0.6% to $16.54 on word that it has received bids for its AOL unit in Germany.

InfoSpace (INSP) fell 0.4% to close at $21.91 after an analyst at WRHambrecht initiated the company with a "Sell" rating, although the company was lucky because they had been down as low as $20.82 after the negative call.

Jon C. ogg
August 29, 2006

What Are eBay Investors Pricing In?

eBay (EBAY) is doing even better today than it did yesterday and it looks like it will be on even stronger volume. Oddly enough, the Google (GOOG) advertising pact was announced yesterday?

EBAY closed up $40.49 at $25.79 yesterday on just over 17.8 million shares. It trades 18.55 million shares on an average day, yet as of 3:10PM EST today it traded 18.18 million shares and was up another $0.91 to $26.70. Volume is supposed to decrease each day this week in the overall markets ahead of the holiday and this is up more than on the day of the good news. The market is trying to price in an event now, and it isn't pricing in a sudden loving touchy feely we love you letter to customers.

Maybe today's buying interest in EBAY is just the market strength since the FOMC Minutes were released, but this seems to specific to the buy interest in the stock. The stock is getting back over its 50-day moving average, but it has failed to stay above that level in recent trading days.

After reviewing an email from Bambi Francisco, I decided to back and look over HER SITE to review. She works for Down Jones' MarketWatch and is not a traditional blogger.

I have been looking at the myriad of reports in recent days where the company is just making a point over and over of royally agitating and alienating its key customers who run eBay storefronts. This new initiative with Google is good for eBay, but it "can" have the propensity to lead shoppers not just away from the eBay merchant storefront. It may encourage the shopper to go to Amazon.com or other competing online stores. So the ones who have loaded up massive inventory on eBay stores are going to essentially have eBay's new partner leading shoppers away. It doesn't work exactly this way, but it is pretty close. It is damn close if you are an eBay merchant. This is the case for the Yahoo! search pact here in the US, and true for the non-US listings and searches with Google.

Unfortunately, the merchants are going to have to deal with the search features....PERIOD. Search can lead browsers and shoppers and customers away from a site directly to a competitor, and that won't change. The path of the Internet has already been informally drawn out if it isn't set in stone. Even net neutrality won't change that on a drastic basis, although that is a different topic. What the merchants won't have to deal with is constant shanking from the parent partner. Merchants can't get a betterdeal elsewhere with the same base and the same traction, because if they could they would have already migrated en-masse. eBay needs to stop forcing these guys out though, and they need to roll back "some" of their hikes. Even if they say they will have slightly lower margins they need to roll back some of the hikes. It will be bad business for them to not give in a little.

There is also probably going to be a management change soon. Meg Whitman didn't take the Disney job, but EBAY investors probably wish she had. There is no way to know if she will be gone soon or not, but if I had to place a bet I would put the Win bet on the next earnings date or sooner. I would put the Place bet by the end of the year, and my third bet for Show would be no later than next summer. It is possible she won't be the one to go. Maybe she will surface in a month and announce a replacement of several key executives and she will claim they were the dark side of the force behind the merchant treatment. Something is probably brewing as far as future "leadership" though.

Sorry for such a long dissertation, but this trading action for such a dead week on a day when there was no huge upgrade and there was no organic news out of the company seems too telling to just leave alone.

Jon C. Ogg
August 29, 2006

Transports Slowing?

By William Trent CFA of Stock Market Beat

Add a slowdown in transportation to the housing slowdown and rising gas prices as indications the economy is slowing dramatically. FedEx (FDX) is down nearly 20% from recent highs, and the sector as a whole has posted mediocre performance. Yesterday, Watch List member Landstar (LSTR) hosted its mid-quarter conference call, where instead of raising guidance as is their custom they merely reaffirmed existing guidance.

The third quarter appears generally to be shaping up as we thought. However, we have seen some softening in certain accounts as previously mentioned. Based upon the continuation of current business levels, and the anticipated increase in seasonal demand in the September period, I’m reaffirming our prior revenue guidance for the 2006 third quarter for revenue in a range of 645 million to $665 million.

Landstar is likely to make up any shortfalls through their FEMA contract, under which they provide transportation for disaster relief, clean-up and rebuilding. Although it looks to be a relatively minor storm, Landstar has already been activated to prepare for Ernesto.

Other transportation names have more to be concerned about, and bulls should be concerned by the growing number of signals that the economic slowdown may be more than a soft landing.

http://stockmarketbeat.com/blog1/

Despite Housing Weakness, Cashouts to Jump in 2006

By Chad Brand, Peridot Capitalist

Given that we know the housing martket is slowing dramatically and interest rates have been on the rise for a while now, it may be surprising to many that Americans are expected to draw $257 billion out of their homes in 2006, up $13 billion versus 2005 levels, according to Freddie Mac. This likely helps to partly explain why the consumer has yet to fall of a cliff despite housing market woes.


The bearish argument for consumers has been the fact that billions in adjustible rate mortgages are set to begin resetting this year, which will shock the monthly budgets of many people who could only move into the house they wanted with very low teaser mortgage rates. However, it appears that refinance activity is picking up as ARMs are about to readjust. With 30-year fixed rates around 6.5%, hardly an unaffordable rate for most, refinancing adjustible rate mortgages into fixed mortgages are helping to cushion the blow.


Now it's certainly true that even a move from 3% to 6% might prove too much of an increase for some lower end home buyers and speculators, but it is hardly something that seems likely to send the U.S. economy into recession all by itself. I do expect housing to remain weak for a while, given that inventories are hitting multi-year highs. However, unless mortgage rates take a dramatic turn upwards, say to 8 or 9 percent, consumers might be able to hold up a little better than some expect.

http://www.peridotcapital.blogspot.com/

"Leaked" Windows Vista Pricing

Reposted from 10:38 AM EST

Yesterday we had the pricing of Windows Vista get "leaked out," and it is all over the web today. We found a table here, and you can determine if it is valid. It was found on CNET and ZDNet was sourced.

Unfortunately the two sources here each have different prices and we have not seen a formal press release from Microsoft with the exact numbers yet, so it is hard to know which is right. Knowing corporate America you also have to wonder if EITHER pricing list is accurate.

Dailytech.com has an article showing the following:

Ed Bott's Microsoft Report initially discovered that Microsoft's Canadian site had revealed pricing for the numerous Vista versions. US pricing was found on Amazon's website (full/upgrade):

-Windows Vista Home Basic, $199/$99.95
-Windows Vista Home Premium, $239/$159
-Windows Vista Business, $299/$199
-Windows Vista Ultimate, $399/$259

Amazon also listed the shipping date as January 30 2007. The telegraphed date that Microsoft has been maintaining is "January retail launch for Vista."

You can start getting out your calculators for this and start inputting some hypothetical estimates per version of 18 million units here, 12 million there, 16 million between these, and the like and you will start seeing some very rough and wide-ranged calculations about what this may add to calendar 2007 revenues and 2008 revenues.

Here is a copy/paste of what was on the Amazon website:

1. Microsoft Windows Vista Ultimate DVD-Rom (Windows XP) Buy new: $399.00 Available for Pre-order

2. Microsoft Windows Vista Home Premium DVD-Rom (Windows XP) Buy new: $239.00 Available for Pre-order

3. Microsoft Windows Vista Ultimate Upgrade DVD-Rom (Windows XP) Buy new: $259.00 Available for Pre-order

4. Microsoft Windows Vista Home Premium Upgrade DVD-Rom (Windows XP) Buy new: $159.00 Available for Pre-order

5. Microsoft Windows Vista Home Premium Microsoft License Pack Additional License (Windows XP) Buy new: $215.00 Available for Pre-order

6. Microsoft Windows Vista Home Basic Upgrade DVD-Rom (Windows XP) Used & new from $99.95

7. Microsoft Windows Vista Business Upgrade Microsoft License Pack Additional License (Windows XP) Used & new from $179.00

8. Microsoft Windows Vista Home Basic Upgrade Microsoft License Pack Additional License (Windows XP) Buy new: $89.95 Available for Pre-order

9. Microsoft Windows Vista Business Upgrade DVD-Rom (Windows XP) Buy new: $199.00 Available for Pre-order

10. Microsoft Windows Vista Home Basic Microsoft License Pack Additional License (Windows XP) Buy new: $179.00 Available for Pre-order

11. Microsoft Windows Vista Ultimate Microsoft License Pack Additional License (Windows XP) Buy new: $359.00 Available for Pre-order

12. Microsoft Windows Vista Home Premium Upgrade Microsoft License Pack Additional License (Windows XP) Buy new: $143.00 Available for Pre-order

We have to unfortunately wait to see which pricing is accurate before making any calculations, and you need to always keep it in your mind that companies often "leak" out misinformation as a test basis to see how the public and how the street reacts to a pricing set on a new expected product. It is unknown if that is the case here, but remember we are referring to the Big Brother equivalent of the software world.

After giving this some more thought from earlier this morning it is (opinion here) fairly obvious that Microsoft is dipping its toes into the water to find an equilibrium in pricing where they maximize their potential sales without making it too cost prohibitive for the consumer.ad

Jon C. Ogg
August 29, 2006 posted by Jon C. Ogg at 10:38 AM

Is Apple Still A "Buy"?

Bear Stearns confirmed it "outperform" rating on Apple today. Hard to believe.There is a rumor, probably true, that Universal will launch a free music service to compete with iTunes.

Sandisk is in the process of introducing a new multimedia player. They are second in the market behind iPod, and the new product will have more storage space for less money.

Toshiba showed the new blueprints for the Microsoft Zune player. It would appear to have at least one edge on the iPod. It supports WiFi that can hook up to at least four devices at a time.

On the computer front, Apple has now had to recall batteries for over one million Macs. The fault in the units lies with Sony, who built them, but that action hardly drives consumer confidence in Mac computers, or those built by Dell, which had a similar recall. Will sales of Mac be affected. Perhaps.

Then there is the options pricing issue at Apple and the delisting notice sent by the Nasdaq. Will Apple file on time? Will it make it through the appeals process at Nasdaq? Probably, but no one knows for sure.

At $67, Apples stock is still double what it was in late 2004. It does not need much of a push to move down. It probably needs a big one to move up alot.

A "buy". It's a hard case to make.

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

Boeing: Not All Stock Buybacks Are Equal

So last night Boeing (BA) went out on the tape and said they would buy back up to $3 Billion worth of common stock in the open market or in negotiated transactions. That is up to 40 million shares at current prices.

Since resuming repurchases in 2004, Boeing has spent about $5 billion buying back its stock.

Boeing this morning opened up about 1% to just under $76.00 and its shares have slid down to a reading of -1.2% at $73.78 mid-day. Buybacks are supposed to be good for shareholders, but sometimes they aren't. So what gives?

In 2004 when the company started repurchasing shares the stock had just started recovering from more than 50% selloff as the US and global airline industry was decimated from 2001 to 2003. This was a great support mechanism to the stock and it was before the massive-sized Dreamliner went into the order phase. The problem we face today is that the company has doubled before the recent pullback and there is a concern about the forward economy. For airlines and aerospace companies, they get extreme readings up and extreme readings down in various parts of the economic cycle. The concern here may be that the company will be extinguishing cash when it could really be using it for a rainy day down the road, so they may not be thought of as keeping their gun powder dry. The stock has been weak and it may need to fall much further before they actually start buying shares with any magnitude that can really buoy the stock.

This is sort of the same action that has occurred when oil companies have announced share buybacks when the shares are close to all-time highs. That is when the street would probably rather see a company make selective acquisitions instead of spending money to keep inflated share prices higher.

This is not without controversy. Some investors love share buybacks more than anything, and some see it merely as a trick to grow EPS and a waste of cash to manage short-term share prices. It doesn't take rocket science to read today's tape and see clearly that the street either thinks the company won't repurchase shares or that they are wasting "rainy day" money if they do. Boeing has already assured itself long steady operations for years into the future with the new Dreamliner orders it has received, but with an impending economic slowdown the street is saying that the company should keep their hands in their pockets.

Jon C. Ogg
August 29, 2006

Discrepancies on "Leaked" Windows Vista Pricing

Yesterday we had the pricing of Windows Vista get "leaked out," and it is all over the web today. We found a table here, and you can determine if it is valid. It was found on CNET and ZDNet was sourced.

Unfortunately the two sources here each have different prices and we have not seen a formal press release from Microsoft with the exact numbers yet, so it is hard to know which is right. Knowing corporate America you also have to wonder if EITHER pricing list is accurate.

Dailytech.com has an article showing the following:

Ed Bott's Microsoft Report initially discovered that Microsoft's Canadian site had revealed pricing for the numerous Vista versions. US pricing was found on Amazon's website (full/upgrade):

-Windows Vista Home Basic, $199/$99.95
-Windows Vista Home Premium, $239/$159
-Windows Vista Business, $299/$199
-Windows Vista Ultimate, $399/$259

Amazon also listed the shipping date as January 30 2007. The telegraphed date that Microsoft has been maintaining is "January retail launch for Vista."

You can start getting out your calculators for this and start inputting some hypothetical estimates per version of 18 million units here, 12 million there, 16 million between these, and the like and you will start seeing some very rough and wide-ranged calculations about what this may add to calendar 2007 revenues and 2008 revenues.

Here is a copy/paste of what was on the Amazon website:

1. Microsoft Windows Vista Ultimate DVD-Rom (Windows XP) Buy new: $399.00 Available for Pre-order

2. Microsoft Windows Vista Home Premium DVD-Rom (Windows XP) Buy new: $239.00 Available for Pre-order

3. Microsoft Windows Vista Ultimate Upgrade DVD-Rom (Windows XP) Buy new: $259.00 Available for Pre-order

4. Microsoft Windows Vista Home Premium Upgrade DVD-Rom (Windows XP) Buy new: $159.00 Available for Pre-order

5. Microsoft Windows Vista Home Premium Microsoft License Pack Additional License (Windows XP) Buy new: $215.00 Available for Pre-order

6. Microsoft Windows Vista Home Basic Upgrade DVD-Rom (Windows XP) Used & new from $99.95

7. Microsoft Windows Vista Business Upgrade Microsoft License Pack Additional License (Windows XP) Used & new from $179.00

8. Microsoft Windows Vista Home Basic Upgrade Microsoft License Pack Additional License (Windows XP) Buy new: $89.95 Available for Pre-order

9. Microsoft Windows Vista Business Upgrade DVD-Rom (Windows XP) Buy new: $199.00 Available for Pre-order

10. Microsoft Windows Vista Home Basic Microsoft License Pack Additional License (Windows XP) Buy new: $179.00 Available for Pre-order

11. Microsoft Windows Vista Ultimate Microsoft License Pack Additional License (Windows XP) Buy new: $359.00 Available for Pre-order

12. Microsoft Windows Vista Home Premium Upgrade Microsoft License Pack Additional License (Windows XP) Buy new: $143.00 Available for Pre-order

We have to unfortunately wait to see which pricing is accurate before making any calculations, and you need to always keep it in your mind that companies often "leak" out misinformation as a test basis to see how the public and how the street reacts to a pricing set on a new expected product. It is unknown if that is the case here, but remember we are referring to the Big Brother equivalent of the software world.

Jon C. Ogg
August 29, 2006

Consumer Confidence: Soft Landing Into a Light Thud

Consumer Confidence fell to 99.6 in August from 107.0 in July and that is under the 102.0 estimate. This is the worst reading in about a year, and more importantly it is under the growth parity reading of 100.0 which is status quo. This number is more indicative of attitude rather than actual spending, but it is more indicative that Joe Q. Consumer is looking for a tad less of a soft landing. It isn't signalling that the public is looking for a hard landing, but maybe a thud is being expected.

This index is pegged to a reading of what was equivalent to 1985, and that level equals 100. This has had a very muted impact so far, and it doesn't even feel like the street is around or paying attention.

Jon C. Ogg
August 29, 2006

Is Apple Still A "Buy"?

Bear Stearns confirmed it "outperform" rating on Apple today. Hard to believe.

There is a rumor, probably true, that Universal will launch a free music service to compete with iTunes.

Sandisk is in the process of introducing a new multimedia player. They are second in the market behind iPod, and the new product will have more storage space for less money.

Toshiba showed the new blueprints for the Microsoft Zune player. It would appear to have at least one edge on the iPod. It supports WiFi that can hook up to at least four devices at a time.

On the computer front, Apple has now had to recall batteries for over one million Macs. The fault in the units lies with Sony, who built them, but that action hardly drives consumer confidence in Mac computers, or those built by Dell, which had a similar recall. Will sales of Mac be affected. Perhaps.

Then there is the options pricing issue at Apple and the delisting notice sent by the Nasdaq. Will Apple file on time? Will it make it through the appeals process at Nasdaq? Probably, but no one knows for sure.

At $67, Apples stock is still double what it was in late 2004. It does not need much of a push to move down. It probably needs a big one to move up alot.

A "buy". It's a hard case to make.

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

Pre-Market Stock Notes (Aug. 29, 2006)

S&P FAIR VALUE +$0.38.

(AAPL) Apple's iTunes may have a free competitor backed by Universal.
(AH) Armor Holdings won a $73+ million contract modification from the US Army.
(ALTH) Allos Therapeutics started its Phase II lymphoma treatment studies.
(BA) Boeing announced a $3 Billion share buyback plan.
(BAY) Bayer looks down 0.5% afterreporting earnings overseas; job cuts announced.
(BKS) Barnes & Noble gets options subpoena.
(BP) BP said yesterday that its Prudhoe Bay was back to 200,000 BPD.
(BWS) Brown Shoe CFO will retire next year.
(CEO) CNOOC profits were up almost 38% overseas on higher oil prices.
(DXCM) Dexcom gets software approved by FDA.
(EK) Eastman Kodak controller is stepping down on September 5.
(FIC) Fair & Isaacannounced a $250M share buyback.
(HPQ/CSCO) H-P & Cisco are working together to offer indoor wireless solutions for enterprise customers.
(INTC) Intel is launching a new chip called Tulsa to compete against AMD on power usage.
(IRSN) Irvine Sensors gets a $3.4M optioned by the government as part of a contract.
(KCI) Kinetic Concepts announced a $200M share buyback.
(MSFT) Microsoft is also being targeted for banning by the communist party that was elected in India according to the Financial Times.
(NDSN) Nordson CFO will retire in Feb. 2007.
(OFBS) Old Florida Bankshares gets a $38.50 cash buyout from Bancshares of Florida (BOFL).
(QLTI) QLT is up 11% as shareholder offered to acquire the company in an effort that was declined.
(RAD) Rite Aid gave guidance that wasmostly in-line, but the range for EPS was fairly wide and could be interpreted as a win or a loss by the same set of eyes.
(RADN) Radyne CEO is retiring.
(RIG) Transocean received a $100M tax bill from Brazil for one of its units.
(RRD) RRDonnelly acquisition talks have reportedly broken down and are being called off.
(SAFM) Sanderson Farms $0.06 EPS vs -$0.13e.
(SGXP) SGX Pharma discontinued its AML phase II/III trials, faced downgrades; stock down about 35%.
(SRX) SRA International COO is retiring.
(STEM) StemCells inc. entered into license pact with Stem Cell Therapeutics.
(TWX) Time Warner is launching a re-vamped music and video download service today.
(UNH) UnitedHealth received default notice on indenture covenants.
(VOXX/XMSR) Audiovox said it has started manufacturing the XM Satellite radios, which was basically known last week.
(VPHM) Viropharma announced its preliminary phase I hepatitis Ctreatment was positive; stock up 9%.
(YSI) U-Store-It's COO is resigning.

WiFi Nation: Starbucks and Caribou

Stocks: (CBOU)(SBUX)

Caribou is a tiny company, especially compared to Starbucks. The company did only $56 million in sales in the quarter ending July 2, and lost $2.4 million. But, this week Caribou did something that may have a broad reaching affect on Starbucks. It started offering free WiFi service in its stores. Starbucks offers T-Mobile WiFi, but the service costs about $10 a month.

Starbucks does not disclose what T-Mobile makes from offering the service or if Starbucks get a cut.

A casual walk through most Starbucks will undoubtedly find several people with laptops surfing the internet. The WiFi service is and important draw, but, if it is free elsewhere a few Starbucks customers might be drawn away. With Starbucks same-store sales running below where Wall St. would like them, this is another, albeit modest, reason for people to get their coffee, sandwichs and fruit drinks somewhere else.

Starbucks said that one reason same-store sales dropped is that its takes longer to serve people now that it offers drinks that take longer to make. Maybe the people in line will get tired of using their paid WiFi service as well.

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

Select Analyst Calls (Aug. 29, 2006)

AAPL maintained Outperform at Bear Stearns.
ALTR started as Neutral at Pacific Growth.
ANX started as Sector Perform at CIBC.
APLX started as Buy at First Albany.
ASH cut to Hold at BB&T.
AVB raised to Outperform at Baird.
BRCM started as Neutral at Pacific Growth.
CKEC raised to Peer Perform at BearStearns.
ENDP cut to Hold at Jefferies.
ENN cut to Neutral at Merrill Lynch.
FCH cut to Neutral at Merrill Lynch.
GI cut to Neutral at B of A.
HOLX reitr Buy at Jefferies.
IPAS started as Buy at Soleil.
JTX cut to Neutral at CSFB.
KNDL raised to Buy at Jefferies.
KTC cut to Peer Perform at Bear Stearns.
LYV started as Outperform at FBR.
NVDA started as Buy at Pacific Growth.
NST cut to Hold at Jefferies.
OCN cut to Mkt Perform at Piper Jaffray.
ORA started as Neutral at Goldman Sachs.
OTIV started as Outperform at Morgan Keegan.
RS raised to Buy at Goldman Sachs.
RYL cut to Selll at B of A.
SAM cut to Hold at Deutsche Bank.
SAPE started as Underweight at Lehman.
SCHN cut to Neutral at Goldman Sachs.
SGXP downgraded at JMP, CIBC, Piper Jaffray.
SIX started as Outperform at FBR.
SUR cut to Hold at Deutsche bank.
TJX cut to Hold at Jefferies.
WNS started as Overweight at Lehman.
XLNX started as Buy at Pacific Growth.
ZGEN cut to Neutral at B of A.

Detroit Ostrich Farm: Gas Prices To Stay High

After months of $3 gas and predictions that crude oil coud climb above $80 by the end of the year, Detroit executives are admitting that they need to brace for another several years of high fuel prices. They appear to have been the last to know.

According to The New York Times, the head of the Chrysler Group said the the company expects gas prices to stay in the $3 to $4 range for the rest of the decade. Ford's chief sales analyst joined the small chorus.

Chrysler also said that it would "prepare a new business model" in light of its new viewpoint of the price of gas.

What was left unsaid is that the higher gas prices will cause a more lengthy depression in the domestic auto industry. Sales of SUVs and pick-ups are still the most profitable vehicles in the line-ups of the Big Three, although sales of these models were off 30% to 40% in July. The reality of the situation is that companies like Toyota and Honda already have product lines replete with cars that get better than 30 miles per gallon. They depend less on light trucks.

The consequences for Detroit are fairly dire. GM and Ford has been very public about their attempts to cut costs through lay-offs, worker buy-outs, and plant closings. Ford has even cut its dividend and board compensation.

The recognition that gas will stay high is also a signal that sales from domestic car makers will stay low, at least for the foreseeable future. Moving production from SUVs and pick-ups to smaller cars will be time consuming and expensive. The auto giants also have smaller margins on petite cars with tiny engines, which will put further pressure on margins.

Industry reports indicate that designing and changing models can take a car company from 18 months to two-and-a-half years. Toyota does it faster than average. GM's track record is fairly good, but Ford's time to market with new products has been poor. That means that as sales of older vehicles fall due to poor fuel economy it will be easier for Japanese competition to take market share, at least until Detroit redesigns and retools. By then, foreign cars could have a huge share of the North American car market.

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

Has Goldman Sachs Gone Too Far?

Stocks: (GS)(LEH)(BSC)

Small red flags are appearing in Wall St’s view of Goldman Sachs, the global gold standard for investment banks. Goldman’s stock traded below $100 in May 2005. It rose to $169 this May and now trades at about $150. The company’s earnings certainly justify the move. In the quarter ending May 26, revenue hit $18 billion. Net income was $2.3 billion. By way of contrast, Lehman Brothers did $11.5 billion in revenue in the last quarter and had operating income of $ billion. Bear Stearns did $4.3 billion and had operating income of $539 million in its last quarter.

Barron’s wrote last week that investment banking stocks may be driven down by a slower economy, poor stock market performance and the fact that private equity deals cannot keep their pace forever. A drop-off in M&A may also hurt Goldman’s financials. All of these things will happen at some point, it simply leaves investors to guess when Goldman may fall victim to its own fabulous growth.

The single largest concern about Goldman has to be its trading operations where a wrong bet or two and the market’s increasing volatility drive a high probability that something will go wrong in that large segment of Goldman’s business. As Morningstar pointed out this week: “Goldman's greatest risk is the potential for large losses on its trading portfolio.”

Goldman is likely to be the leading firm in its industry for decades to come. But, it is unlikely to sustain the kind of stock price growth it has had over the last 18 months. At some point “what can go wrong, will go wrong.”

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

European Stock Market Report 8/29/2006 ST Micro And British Air Up, Bayer Off

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

Europe markets were slightly higer at 5.30 AM New York time.

The FTSE was up .5% to 5,906. Barclays was up 1.2% to 657. BP was down .2% to 504. British Air was up 2.4% to 407.5. BT was up .6% to 244.75. GlaxoSmithKline was up 1.2% to 1458. Prudential was flat at 576.5. Reuters was up .4% to 391. Unilever was up .8% to 1252. Vodafone was up .9% to 113.5.

The DAXX was up .1% to 5,861. Allianz was up .7% to 132.33. Bayer was down .9% to 39.18. DaimlerChrysler was flat at 40.96. Deutsche Bank was up .1% to 89.17. Deutsche Telekom was off .3% to 11.55. SAP was up 1.3% to 149.83. Siemens was up .3% to 66.27.

The CAC 40 was up .4% to 8,154. Alcatel was up 1.2% to 9.61. AXA was up .6% to 28.46. France Telecom was up .2% to 16.61. ST Micro was up 2.4% to 13.01. Vivendi was up .2% to 26.98.

Douglas A. McIntyre

Media Digest 8/29/2006: WSJ, NYT, Reuters

Stocks: (BAY)(BP)(BF-B)(INTC)(AMC)(SNE)(AAPL)(DCX)

Reuters reports that Bayer is overhauling its agrochemicals business after strong healthcare performance helps the company increase earning 14% in the June quarter.

The Wall Street Journal reports that the federal government is probing whether BP manipulated the price of crude oil and unleaded gas. The CFTC has sent subpoenas to both BP and some energy traders.

Reuters also reports that Brown Forman will buy the premium tequila maker, Mexico's Casa Herradura for $876 million.

The Wall Street Journal reports that Intel is introducing a new high-end chip to compete with AMD. The new Xeon chip, named Tulsa, is aimed at high-end servers which run at least four chips.

The Wall St Journal also writes that Sony and Apple could have a major effect on the chop market in the second half. The two companies could be 40% of the global demand for NAND flash memory chips. Demand for the product has been weaker than expected causing prices to drop. Toshiba and Samsung are the largest manufacturers of the chips.

The New York Times writes that the Chrysler Group expects gas prices to remain in the $3 to $4 range for the balance of the decade. The company is preparing a business model based on the higher fuel prices.

Pfizer Hits A High Note

Stocks: (PFE)

Shares in Pfizer managed to hit their highest price since mid-2005. The shares hit $27.75 during trading after nearly touching $20 in November.

For the last four quarters, Pfizer’s financial results have been relatively strong, but somewhat mixed. In the quarter ending July 2, revenue was $10.8 billion. That number was stronger in each of the previous three quarters, but at $3.2 billion, operating income made for a better comparison with previous periods.

A jury also recently found that Pfizer did not infringe on a Synthon patent covering high blood pressure medication.

Pfizer is not without problems. Patent protection for its best-selling drug Lipitor will expire soon, and cholesterol generics are already in the market. According to the Associated Press, Pfizer’s soon-to-be released diabetes drug has just had a portion of its underlying intellectual property challenged. But, Pfizer has drugs that will be launched soon for people who want to stop smoking and a new inhaled insulin drug.

But, a lot of the rise in Pfizer’s stock is based on the intangible of having a new CEO whose predecessor was viewed as a failure. Hope springs eternal in the stock market, and Pfizer is not exception.

Investors can watch from the stadium seating and see how the new management does. Since Pfizer has a 3.5% yield, the presence of their coupons can warm them if Pfizer’s stock gets a little cool again.

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

The French Case Against Lucent

Stocks: (T)(NOK)(ALA)(SI)(ERIC)


According to Reuters, the French institution advisory firm Proxinvest thinks that Alacatel is paying too much for Lucent. Proxinvest also said the deal would harm corporate governance, although that part of the case seems a bit thin.

Lucent’s stock has traded almost in tandem with Alcatel’s since the deal was announced. Based on the current market caps of the two companies, Lucent will get about 40% of the combined company’s shares. Lucent’s price to sales is 1.1 according to Yahoo!Finance. Alacatel’s .9 times, so on that basis, the deal is a bit expensive.

Last year, Alcatel’s revenue was $15.5 billion. Lucent’s was $9.4 billion. Again, on that basis, the deal may be a bit rich for Alcatel.

The issue left our of the Proxinvest analysis seems to be that without a merger, both companies are likely to fall behind competitors like Motorola and the new Siemens joint venture with Nokia, and Ericsson. And, Ericsson has bought telecom equipment maker Maconi to strengthen its hand. For the same reason, Motorola has build a partnership with Chinese telecom equipment maker Huwai.

Right now, the only company that appears to have been left out in the cold is Nortel, and its finances and future prospects are a mess.

Scale will matter as the large telecommunications equipment companies vie for business with the likes of AT&T and Deutsche Telecom. So, will efficiency. The Nokia deal with Siemens will reduce the JV by thousand of jobs. They will also run joint R&D.

Proximvest fails to mention that Alactel and Lucent need the merger to stay in the first tier of suppliers. Without it, either one could fall back into a position closer to Nortel’s and investors can’t put a price on that.

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

The Divx IPO Starts To Look Better

When Divx started the process of filing papers for its IPO in April, the numbers were a bit thin, but the first half of 2006 has made the company a more attractive candidate for the public markets.

During the six months ending in June, revenue almost doubled from $14.1 million last year to $27.3 million in 2006. For the full-year 2005, revenue was $33 million, so the multimedia player company might be able to get an enterprise value of $200 million based on a comparable from RealNetworks, a competitor that trades at five times sales.

Divx had income from operations of $6.7 million in the first half.

The risks surrounded the Divx business model are still daunting. The company uses the MPEG-4 compression software for its video, and this technology comes from a patent pool. AT&T has challenged some of the technology, suggesting that its IP may have been violated, so the cost of doing business with MPEG could go up.

Another major issue is that Google represented 20% of Divx’s revenue in the first six months of 2006. Divx downloads some of Google’s software with its products and collects a fee. If the relationship were to be modified, the affect on the Divx revenue base could be considerable.

The last significant risk with Divx is that it is up against products like Apple Quicktime, RealNetworks RealPlayer, and, most important, the Microsoft Windows Media Player. With huge amounts of content already delivered in these formats to both PCs and portable devices, there is a real question as to whether Divx can turn itself into a big business. Microsoft’s stronghold in this business has been close to insurmountable for both Real and Quicktime.

In the Divx S-1, the company also talks about building a video community around its player distribution and content that has already been created using its format or will be in the future. With companies like You Tube enjoying a huge head start, this would seem like a difficult business to enter.

Unlike many other companies in the multimedia sector, Divx has proven that its can grow at a rapid pace and make money.

Balancing the company’s financial success with the risks that it points out in its won document, it would be fair to assume that in this market, the company may be able to support a market capitalization of $175 million to $200 million. Whether they can raise enough money from that valuation to sustain their momentum is another question.

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

Asia Markets 8/29//2006 Lenovo,China Mobile,Toyota and Canon Higher

Asian markets were sharply higher.

The Nikkei was up .8% to 15,891. Canon was up 1.5% to 5590. Fuji Photo was up .7% to 4140. Fujitsu was up .4% to 932. Hitachi was down .1% to 736. Honda was up 1.6% to 3930. Japan Air was up .9% to 219. NEC was up 1.5% to 660. NTT was up .5% to 588000. Docomo was up 1.7% to 180000. Sharp was up .7% to 2080. Softbank was up 4% to 2100. Sony was up .6% to 5000. Toshiba was .9% to 790. Toyota was up 1.2% to 6290.

The Hang Seng was up 1% to 17,088. Cathay Pacific was up .7% to 14.36. China Mobile was up 2.2% to 51. China Netcom was up 1.4% to 13.28. HSBC was up .6% to 140. Lenovo was up 2.1% to 2.98PCCW was flat at 4.69.

The KOSPI was up 1.3% to 1,345.

The Straits Times was up 1.1% to 2,453.

The Shanghai Composite was flat at 1,651.

Douglas A. McIntyre

Financial Pulse

By William Trent, CFA of Stock Market Beat

ValueLine profiled the Banking industry in their latest Investment Survey, saying:

Bank stocks have generally performed well in the last few months, reflecting better-than-expected June-quarter earnings and expectations that the Fed wouldn’t raise interest rates in August. Few stocks in the group are ranked favorably for Timeliness, but a number have decent dividend yields and moderate total return potential to 2009-2011. Underpinning this outlook is our belief that there are still opportunities for growth in the bank sector in areas such as providing bank services for newly arrived immigrants and investment products for baby boomers.


By the release of the August housing numbers, it should become clear that the housing market is beginning a significant decline. When this realization hits home, investors will finally have to confront the fact that they are gambling on people who took out no-money-down, interest-only, adjustable-rate mortgages at the top of the market and the financial institutions that made those loans. The stock market should then begin a 25%-30% decline. If the market ignores the warning signs until fall, the decline could occur in a single week.”


The saying goes that if you owe the bank a little you are in trouble, but if you owe the bank a lot the bank is in trouble. Although the banks work hard to spread the risk by securitizing loans and selling them to investors, frequently they turn around and buy them back anyway. Collectively, we owe the banks a lot of money, which goes a good way toward explaining why the Watch List is contains the minimum 50 percent weight in financials.

http://stockmarketbeat.com/blog1/

Consumer Confidence Index Level- What to Expect

By Yaser Anwar, CSC of Equity Investment Ideas

Consensus Notes: The Conference Board's consumer confidence index surprisingly rose to 106.5 in July from 105.4 in June. Overall, the index remains moderate despite consumer concerns
over high gasoline prices.

Confidence Index Consensus: 103.0 Consensus Range: 99.0 to 104.5

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

Successful Investing Eddie Lampert Style

By Yaser Anwar, CSC of Equity Investment Ideas

I hardly consider myself a value investor but i don't ignore the powerful returns investors can harness by picking healthy businesses that will still be here 5 to 10 years (& more) from now.

After all one of my main inspirations comes from Eddie Lampert, who i consider to be the best wealth manager as well as top value investor amongst the value cohort. In my opinion, he's even better than Warren Buffet.

So today i'd like to provide how you can invest for success Eddie Lampert style:
Be a long-term value investor. The key words here are "long-term" and "value"


Constantly on the lookout for situations in which the conventional wisdom of the commentators and "experts" is incomplete. Eddie gave his favorite example: The view that Kmart would neither emerge from bankruptcy nor survive its first Christmas as a new company in 2003 - has turned out to be only "conventional" and not at all "wisdom."


Be an avid reader of books, newspapers, and magazines.


In college, Lampert spent countless hours reading Buffett's famous detailed annual letters to Berkshire shareholders. And he's also reversed engineered all of Buffett's main purchases, examining the businesses at the time of Buffett's purchases and trying to get inside Buffett's head to understand his thinking


Approach much of what is written and said with an appropriate amount of healthy skepticism. Lampert belongs to the selective contrarian's camp.


Be particularly careful with respect to the loudest views, the most widely held views, or the so-called "expert" views.


Double check the accuracy and the sources of your data. For many commentators, analysts, and reporters, their success is dependent on the excitement or controversy generated by their articles - not on the accuracy of their writing or of their predictions.


Lampert's prescription for investors: "Read broadly, and be appropriately skeptical of the so-called experts." Example: Most pundits missed the turnaround at IBM, missed the turnaround at American Express, missed the turnaround at JC Penney, missed the emergence of Google, and missed the resurrection of Kmart - until it was abundantly clear that those companies had succeeded.


Lampert's advice for managers: "Think about and understand one's business and its strategic and financial characteristics, make decisions based on that understanding, and have the confidence to stay with well-reasoned decisions even in the face of vocal doubters."

Sources: Sears Holdings (Message from Chairman, Sep 05 issue) & GuruFocus

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

Cramer's MAD MONEY Recap (US Manufacturing)

Tonight was a RE-RUN from February or January, although the show didn't say "This is a rebroadcast so we are wasting your time with 6-month old re-runs."

Cramer on MAD MONEY tonight the featured was a longer-term call about the top 10 manufacturing companies in the US that can make you money. Cramer says the real money is many unloved and unnoticed US manufacturers. He likes theme because of BRIC-Brazil, Russia, India, China. These are cyclicals though, not secular growth names.

He said these are your shopping list stocks to buy any time they dip or take a dive:

#1 Fluor (FLR) in plant construction who rival Foster Wheeler and Halliburton;

#2 Cummins (CMI) in Diesel engines;

#3 Caterpillar (CAT) for mining and construction equipment and for clean diesel;

#4 Dow Chemical (DOW) in chemicals;

#5 Deere (DE) in tractors etc;

#6 Boeing (BA) in planes and defense;

#7 Nucor (NUE) as the best steel producer that is non-union;

#8 United Technologies (UTX) as the conglomerate winner;

#9 Ingersol Rand (IR);

#10 Toyota Motor (TM).

Jon C. Ogg
August 28, 2006

Generic CIPRO Injections Filed

The US FDA today approved several Abbreviated New Drug Applications (ANDAs) for generic versions of Bayer Corporation (BAY-NYSE/ADR) Pharmaceutical Division's CIPRO I.V., a drug to treat certain bacterial infections. It has been prescribed for more than 340 million patients worldwide.

Ciprofloxacin (sip-row-FLOX-a-sin) Injection, USP, is indicated for the treatment of many infections, including pneumonias, bone and joint infections, complicated intraabdominal infections, skin and skin structure infections, and therapy of patients with fever, and even anthrax.

Generic CIPRO Injections Filed

The US FDA today approved several Abbreviated New Drug Applications (ANDAs) for generic versions of Bayer Corporation (BAY-NYSE/ADR) Pharmaceutical Division's CIPRO I.V., a drug to treat certain bacterial infections. It has been prescribed for more than 340 million patients worldwide.

Ciprofloxacin (sip-row-FLOX-a-sin) Injection, USP, is indicated for the treatment of many infections, including pneumonias, bone and joint infections, complicated intraabdominal infections, skin and skin structure infections, and therapy of patients with fever, and even anthrax.

Market Wrap (Aug. 28, 2006)

DJIA 11,352.01; Up 67.96 (0.60%)
NASDAQ 2,160.70; Up 20.41 (0.95%)
S&P500 1,301.79; Up 6.70 (0.52%)
10YR-Bond 4.797%

Intel (INTC) rose 2.5% to $19.39 after FBR raised it to an outperform, and on what may be an imminent restructuring.

Charming Shoppes (CHRS) rose over 9% to $12.99 after it was announced Friday thatthey would replace GTECH in the S&P Mid Cap 400 Index.

Adeza Biomedical (ADZA) fell 3% to $15.26 on cautious FDA comments about it pre-term birth drug, although the stock had been down almost 10% at one point today.

Unilever (UL) rose almost 1% to $23.90 after selling its EU frozen foods business.

eBay (EBAY) rose 1.6% to $25.72 after announcing they signed an advertising pact with Google (GOOG); GOOG rose 2% to $380.98.

Avanex (AVNX) rose a sharp 14% to $1.88 after lifting its preliminary revenue numbers.

Anadigics (ANAD) rose 16% to $6.99 after a weekend report in Barron's called it "tasty" for investors.

Cendant (CD) lived up to its recent pattern of trading down another 2.5% to $1.92 on no real new news, but it had been down over 5%.

Energy Partners Limited (EPL) rose 32% to $24.40 after a higher bid surfaced, and its old merger partner Stone Energy (SGY) fell almost 7% to $44.35.

Valero (VLO) fell a steady 3.1% to $60.45 on strong volume after Hurricane Ernesto was downgraded over Cuba and is now on a path to miss the entire Gulf of Mexico energy complex.

First Cash Financial (FCFS) rose 8% to $19.23 after an upgrade and after the company raised guidance after making a small acquisition.

Kinder Morgan (KMI) rose 2.5% to $104.21 after the company approved the going-private management-led buyout, although this was expected and not new news.

Jon C. Ogg
August 28, 2006

Market Wrap (Aug. 28, 2006)

DJIA 11,352.01; Up 67.96 (0.60%)
NASDAQ 2,160.70; Up 20.41 (0.95%)
S&P500 1,301.79; Up 6.70 (0.52%)
10YR-Bond 4.797%

Intel (INTC) rose 2.5% to $19.39 after FBR raised it to an outperform, and on what may be an imminent restructuring.

Charming Shoppes (CHRS) rose over 9% to $12.99 after it was announced Friday thatthey would replace GTECH in the S&P Mid Cap 400 Index.

Adeza Biomedical (ADZA) fell 3% to $15.26 on cautious FDA comments about it pre-term birth drug, although the stock had been down almost 10% at one point today.

Unilever (UL) rose almost 1% to $23.90 after selling its EU frozen foods business.

eBay (EBAY) rose 1.6% to $25.72 after announcing they signed an advertising pact with Google (GOOG); GOOG rose 2% to $380.98.

Avanex (AVNX) rose a sharp 14% to $1.88 after lifting its preliminary revenue numbers.

Anadigics (ANAD) rose 16% to $6.99 after a weekend report in Barron's called it "tasty" for investors.

Cendant (CD) lived up to its recent pattern of trading down another 2.5% to $1.92 on no real new news, but it had been down over 5%.

Energy Partners Limited (EPL) rose 32% to $24.40 after a higher bid surfaced, and its old merger partner Stone Energy (SGY) fell almost 7% to $44.35.

Valero (VLO) fell a steady 3.1% to $60.45 on strong volume after Hurricane Ernesto was downgraded over Cuba and is now on a path to miss the entire Gulf of Mexico energy complex.

First Cash Financial (FCFS) rose 8% to $19.23 after an upgrade and after the company raised guidance after making a small acquisition.

Kinder Morgan (KMI) rose 2.5% to $104.21 after the company approved the going-private management-led buyout, although this was expected and not new news.

Jon C. Ogg
August 28, 2006

Is Intel Grabbing the Battle Axe in the Restructuring Review?

When will the Intel (INTC) restructuring be announced? It has been telegraphed from April, but we still do not have all the details out on it yet. There is talk that Intel may announce its restructuring plans as soon as this week, and it looks like the company is behind schedule on announcing it. With how corporate life can be, it would be of no surprise if they announced it this week when so many employees are out on holiday. The stock is up almost 2% today to $19.25, but it is actually up 10.5% since the August 11 close.

Part of the reason for posting this is that today is thatthe recentresearch reports are giving a feel that something is about to happen. Citigroup noted some supply shortages and tight inventory at Intel and Friedman Billings Ramsey upgraded their rating on INTC from a "Market Perform" to an "Outperform" rating and took the target up to $23 from $19. Needham also had some comments on the "processor wars" actually being good for PC manufacturers. Earlier this month Cowen & Co noted that organizational changes will be favorable.

With the pricing cuts, margin squeeze, tight inventories, weak PC sales, the Vista delay, and with the unit spin-off coming IT JUST FEELS AS THOUGH THE RESTRUCTURING IS ABOUT TO HAPPEN. The consensus is starting to look like 10,000 to 15,000 jobs will be cut in total out of the 'top to bottom review' going on at the company. One of the biggest losers may be Oregon, where so many R&D jobs are located. The company has sort of already signalled in the vicinity of 1,000 managerial jobs going away and we already know about the transfer of the 1,400 bodies that will be transferring to Marvell in the unit sale, and about 600 others. This 1,000 and 600 jobs pointed to may be of some debate, and there is a shot that those are overlapping.

What the street is really "hoping for" is bad news for current Intel employees. Unless there is a hidden boom in the PC and semiconductor markets we don't about, the street is sending a subliminal message to Otellini, CEO of the company: "Bring out your battle axe! If you need to go re-hire you will be able to."

Please understand that this is more opinionated than based on sheer fact or based on some secret research report from human resource monitors. The shares were probably punished a little too hard and it looks as though a technician would say the company has finally gotten out of a 6-month downward channel. This opinion is also based on the history of public companies and what they do when trends reach certain points.

Unfortunately, this is probably going to irk employees when or if they read this and they will almost certainly bare the brunt of most of the battle axe when it is wielded. Wall Street often wants different paths than employees, and the painful solution is starting becoming obvious. Understand that some of this has been telegrpahed by the company and industry insiders, but the full details have not yet come out.

This was first telegraphed in April, and they are basically past the date to show their exact plan. "No stone will remain unturned or unlooked at," Otellini said. "You will see a leaner, more agile, and more efficient Intel Corp."

Jon C. Ogg
August 28, 2006

AMZN Buyback

Amazon.com (AMZN) is trading up 3.2% today after announcing a $500 mln share buyback, but upon closer inspection this financial decision ranks right up there with how the company used to spend $1.10 for every $1.00 of revenue. With the stock trading at a current P/E ratio of nearly 40, its earnings yield is a meager 2.5%. This compares to a US 10-Year Treasury that currently pays 4.8% on an annual basis.

As the following very basic example assumes, AMZN would be better off just putting the money in some investment grade corporate bonds. We realize this example makes a lot of assumptions, but it still illustrates that shareholders would be better served if AMZN opted to put the $500 mln to some other use.

Let’s assume that AMZN has $500 mln lying around burning a hole in its pocket. If they take that $500 mln and actually buy back stock, the share count will decrease by 17.2 mln shares. If earnings over the next four quarters were to equal earnings over the last four quarters, the earnings per share would increase from $0.74 to $0.77 due to the lower share count. Now let’s assume that AMZN takes that $500 mln and decides to invest the money in investment grade corporate bonds. With investment grade bonds currently yielding 97 basis points above the 10-Year, AMZN would pick up a yield of 5.77%, which translates into $28.85 mln. Again, if we assume that earnings remain the same, spreading that $28.85 mln across the 419 mln shares would increase EPS by $0.07 from $0.74 to $0.81 per share! Which choice makes more sense to you?

http://tickersense.typepad.com/

Stock Screen Alert: Spyders and Diamonds

Normally we run many stock searches looking for potential break-outs. After a post-weekend market search and not really knowing until yesterday where the most likely path of Hurricane Ernesto would hit, there was an interesting data piece that set off an "approaching the highs" search for potential break-out stocks.

This is one we run from time to time for individual stocks that may not be on a radar screen yet, but the funny thing is that the screening gave an alert for the Spyders (SPY) and Diamonds (DIA) as they started rallying this morning on relief that the oil and gas wells in the Gulf of Mexico would be spared by Ernesto. As most of you know, these are the S&P 500 Index Depository Receipts and the Depository Receipts for the DJIA. It probably goes without saying that this didn't seem nor did it feel like the case by the way the tape has been trading.

The Spyders (SPY) are trading up 0.6% at $130.62, which is now only 1.65% under the $132.80 high this year. The Diamonds (DIA) are also up 0.6% at $113.56, which is only
2.7% under the $116.80 high this year. We ran the NASDAQ 100 Trust, the Q's, (QQQQ) and they are way off the highs at $38.62, which is about 10.8% under the $43.31 highs this year.

The various index searches often follow each other when you consider the fact so many components and sectors are intermingled among all 3 index readings. It needs to be said that these levels will be important to watch because this week will likely be the thinnest trading volume all year. Many traders also brace every year for a September through early October downward trend (if you believe in calendar-based trading models). so if these markets rally too much from here on thin volume while the A-Team traders are in the Hamptons and elsewhere, then there may be some built-in expected profit taking levels.

We do not subscribe to any purist calendar-based trading models as much as fundamental/technical approach most of the time, but it would be reckless to at least not notice this and to not acknowledge it. We'll have to see when the A-Team players get back next week just how much conviction they are willing to give to the "Fed's successfully engineered soft landing" theme that the market seems to pricing in.

Jon C. Ogg
August 28, 2006

Cosmetics IPO Filing: Physicians Formula

Physicians Formula Holdings filed for an IPO on Friday, and it was given a proposed stock ticker of "PHYS". The company is a designer and maker of everyday women's cosmetics, The California-based company sells its products to customers such as Wal-Mart, Target, CVS and Walgreens. Duetsche Bank and Citigroup are set to act as the joint book runners for the deal, and the co-managers are listed as Bank of America, Cowen & Co, and Piper Jaffray. Terms were not yet formalized, so stay tuned in the coming weeks. The company appears to be profitable and more information can be found at the www.physiciansformula.com website. The company has decent traction in its market, but it is not considered one of the ultra-premium brands as they are not currently entrenched into department stores. There is not a backdoor investment play on the company per-se, and Summit Partners holds about 76% of the stock before the IPO.

SFBC Goes For a Name Change: PharmaNet Development Group

In a typical move, and probably an unexpected one, SFBC Internationally has formally changed its name and ticker from SFCC to the new name and ticker PharmaNet Development Group, Inc. (PDGI).

"The PharmaNet Development Group name builds on the reputation and prominent market positions of PharmaNet, Anapharm and our other subsidiaries as a leading drug development organization committed to patient safety and providing excellent service and integrated global drug development capabilities to our clients," said Jeffrey P. McMullen, president & chief executive officer of PharmaNet Development Group.

What the company didn't say was, "Because we injured so many people off of human testing of drug molecules and because we had such negative press and tainted trials, we had to walk away from the prior SFBC International name. We hope that this will make our shareholders hopeful. We really hope that the name change will adequately trick the pharmaceutical industry into believing we are a new company not at all tied to the problems of the past."

The Company also announced the appointment of John P. Hamill to Executive Vice President and Chief Financial Officer, David Natan to Executive Vice President, Reporting and Analysis (Chief Accounting Officer), and Thomas J. Newman, M.D. to Executive Vice President, Late Stage Development. Dr. Newman will retain his responsibilities as chief operating officer of the Company's late-stage business. In addition, Anne-Marie Hess was appointed Executive Director, Investor Relations and Corporate Communications.

If you have been reading 24/7 Wall St. content for a while you will probably recall several occasions where we have said the way to turn a pig into a dog was to give it a bath and send it in for a makeover. This company has been trying to shed whatever baggage it could get rid of. You can take a dog out of a junkyard, but it is very hard to take the junkyard out of a dog.

We wish the new company PharmaNet best of luck, but this will come with a cost all on its own. Can a leopard change its spots for a zebra's stripes?

Here are some of the other big corporate name changes:

ValueJet changed its name to Airtran after a horriffic plane crash in the Everglades that was rumored to be far from a "sudden death" for the passengers and crew.

Philip Morris changed its name to Altria to get away from the old tarnished tobacco name; oddly enough the wordplay can change the name to "A Trial" if you shuffle the letters around.

Accenture is the old Anderson Consulting, and it is doubtful anyone wants to remember the "Anderson" name.

Google was supposedly named "BackRub," although the real name as a service used by the public looks like it has always been Google. Can you imagine how conversations would end up if people asked "Have you Back-Rubbed yourself yet?"?

IBM was originally called Computing Tabulating Recording Corp. Can we just call it Abacus International instead?

Nintendo, before it was a card company and then a gaming company, was named Marafuku. You wouldn't want to know what US consumers would butcher that name into.

Yahoo! started as "Jerry's Guide." Can you imagine all the aversion to working for and getting options in "Jerry's Kids or something like that"....?

Jon C. Ogg
August 28, 2006

Is Google Really a Dead Money Stock?

The basic initial answer is "Probably Not."

It is not popular nor is it in vogue to discuss the Internet search and service behemoth with questions, but if you look over the last month you will scratch your head. It is probably with a high probability that the stock is just taking a breather before it begins a major move. But in which direction?

Over the last month since July 27 the stock has spent almost the entire time in what is basically a $370.00 to $390.00 trading band. This is far from the norm for a massive growth stock. It has only had 4 trading days where it traded under $370.00 and only 3 of those days where it closed under it. In the same time, the stock has only hit $390.00 and not gotten over that hurdle. After looking at the chart and after factoring in its major 50 day and 200 day moving averages, the chart here will probably make it easy to see why.

News for whatever reason is just not impacting the stock. Maybe we can blame August, maybe not. Getting the MySpace from NewsCorp (NWS) was the biggest deal on the web for all of 2006, yet it just hasn't budged. This morning even on a deal with eBay (EBAY) and even with new tools to compete against Microsoft (MSFT) on business offerings the shares are not even up 1%. The company has a $113 Billion market cap and trading volume has been running light. It may be the street starting to demand some greater things from a formerly massive growth stock. The company is worth $113 Billion in market cap, which puts it at roughly 3-times the size of Yahoo! (YHOO) and still slightly under half of the value of Microsoft.

This is a great company and right now the low volatility in the name may be more tied to the calendar and tied to some key moving averages more than anything. They have begun rolling out many services that they will be able to potential monetize down the road. The company began with a pledge of doing no evil, but it has many monetizing ideas for the company if it will tweak some of the offerings they curreently offer for free. It is also hard to say any solid direction right now because of the thin volume and the market, and the fact that no company in history has so rapidly grown into one of the top 10 most influential companies in the world.

We won't take the low road and go against the company because of its dominance and because of its potential that still exists, but it was interesting to look at the how quiet the numbers on the stock have been.

Jon C. Ogg
August 28, 2006

Bird Flu Stock Flying : Sinovac

Sinovac Biotech Ltd. (SVA-AMEX), announced that the preliminary result of the Phase I clinical trial on Pandemic Influenza Vaccine (H5N1). The result proves that the vaccine with different dosages can induce an immune response, of which the vaccine contained 10ug antigen has been proved to have the best immunogenicity with the sero positive rate of 78.3%, which exceeds the EU CHMP criteria for seasonal influenza vaccines (greater or equals to 70%). There is no serious adverse event reported on the 120 volunteers and it is proved that the vaccine is well tolerated and immunogenic. Sinovac will supposedly reconstruct the seasonal influenza vaccine plant to expand the production capability for pandemic influenza vaccine (H5N1) to 20 million doses per year and thereby it allows the company to have enough stockpiling capability of vaccines for the influenza pandemic. The project is said to have an anticipated completion in 2007.

SVA shares are trading up 11% at $2.25 pre-market, and the 52-week trading range is $1.81 to $7.92. This stock is the one the street has referred to as the Chinese flu and bird flu stock. It has a mere $79 million market capitalization and is essentially not followed by major firms. The stock has been sort of in the dead zone for some time as Bird Flu has not been taking headlines and has failed to pose any real threats to humans to date. Its shares have been spending most of the summer down around the $2.00 handle. This is the sort of news that can propel shares, but US investors need to always think of caveats before trading Chinese drug company announcements when it is during the dead days at the end of August.

Does bird flu taste like chicken?

Jon C. Ogg
August 28, 2006

Corel + InterVideo

InterVideo (IVII) is being acquired by Corel (CREL) in a $196 million pact, which is a $13.00 per share cash buyout. InterVideo closed Friday at $9.60 per share, and its 52-week trading range is $8.46 to $11.60. In the last two years, IVII did briefly spend time above this buyout price. Before the buyout, IVII's market cap was $134 million. Corel's market cap is merely $242 million, so the company is actually making a pretty big bite here even if the deal looks small on a nominal basis.

So on top of Corel's office suites and its photo/painting suites, here is what they will get: InterVideo's suite of advanced digital video and multimedia software products allow users to record, edit, author, distribute and play digital multimedia content on PCs and other devices. In 2005, InterVideo also acquired a majority interest in Ulead, a leading developer of video imaging and DVD authoring software for desktop, server, mobile and Internet platforms. When the acquisition is completed, Corel will provide the industry's broadest portfolio of digital media software ranging from photo sharing and image editing products to advanced digital imaging, video editing, and high-definition DVD creation and playback software.

This acquisition will be financed through a combination of Corel's cash reserves, debt financing, and InterVideo's cash and cash equivalents which stood at approximately $105 M as of June 30, 2006.

Jon C. Ogg
August 28, 2006

Pre-Market Stock Notes (Aug. 25, 2006)

(ABPI) Accentia Bio in exclusive license for sinusitis products with Mayo Foundation.
(AHR) Anthracite Capital is selling 4M shares from time to time via a private broker agreement.
(ANAD) Anadigics given positive valuation article in Barron's.
(APPB) Applebee's names David Goebel as its new CEO of the company.
(BF/a) Brown Forman is buying tequila maker Herradure for some $875 million according to WSJ.
(BMRN) BioMarin Pharma gets $4M milestone payment after an FDA approval.
(DELL) Dell was featured in Barron's as still having challenges even after trying to move to improve customer service.
(EBAY) eBay entered into a pact for non-US ads and e-commerce.
(FCFS) Firstcas Financial raised prior EPS guidance of $0.94 to $0.95 up to new range of $$0.96 to $0.97; making a $33+ million acquisition.
(FOXH) FoxHollow is making a $32M acquisition.
(GI) Giant Industries gets $83 cash offer from Western Refining.
(GMTC) GameTech CFO is resigning for personal reasons.
(GOOG) Google according to NYTimes will offer online tools for bsuinesses such as software for e-mail, a calendar, chat programs and a website development tool; also gets advetrtising pact from eBay.
(INTC) Intel up 1% on upgrades and on talk of a restructuring.
(ISV) Insite Vision said the FDA accepted its new drug application for the treatment of bacterial conjunctivitis.
(IVII) InterVideo gets a $13.00 buyout from Corel.
(KMI) Kinder Morgan approved the $107.50 buyout from its CEO and investor group.
(MO) Altria close to spin-off of Kraft according to WSJ note.
(MYL) Mylan is acquiring a 71% interest in Matrix labs in India.
(NANX) Nanophase gets extended pact and $5M investment from Rohm & Haas.
(NTLI) NTL is close to getting a formal offer, but there is ongoing talk that the buyout prices have been too low.
(NYX/NDAQ) The New York Post is reporting that many companies are in talks with the NASDAQ to change listings from the NYSE after the NYSE latest listing price hikes.
(OLGR) Oilgear gets $15.25 buyout offer from private equity group.
(PTEN) Patterson UTI signed pacts to acquire $100M in rig components.
(RACK) Rackable Systems up 5% on coverage call and on options restatement note.
(SFCC) SFBC announced approval to name change to PharmaNet Development to get away from its old image of problems.
(SFY) Swift Energy is paying $175M for interests in 5 properties in Louisiana.
(TTWO) Take-Two Interactive shares are cheap according to Barron's.
(UL) Unilever sold a majority of its EU frozen food operations for about $2Billion.
(VSTH) VitalStream gets exclusive online ad insertion status for ABC Radio.
(WNR) Western Refining is paying $1.5B for Giant Industries.
(WRE) Washington REIT filed to sell $500M in mixed securities.
(WRNC) Warnaco Group has an activist Investor group trying to get the company back on track according to Barron's.

Select Analyst Calls (Aug.28, 2006)

AQNT reitr Buy at ThinkEquity.
CHS cut to Sector Perform at CIBC.
CPB cut to Neutral at CSFB.
CTCM started as Neutral at UBS.
D cut to Hold at Citigroup.
HGSI reitr Outperform at Wachovia.
HRL cut to Neutral at CSFB.
INTC raised to Outperform at FBR; reitr Buy at B of A.
MHGC cut to Sell at Merrill Lynch.
NVDA raised to Outperform at FBR.
RACK started as Buy at W.R.Hambrecht.
ROH cut to Hold at Citigroup.
UHS cut to Hold at Jefferies.
WMT reitr Buy at B of A.
WSM raised to Strong Buy at Raymond James.
X cut to Underweight at Prudential.

Ebay And Google: Friends Or Foes?

Stocks: (EBAY)(GOOG)

Ebay was rightly concerned when Google launched a direct competitor to PayPal, Ebay's online payment system. A look at Ebay's 10-Q shows that PayPal is the auction company's fastest growing division.

But, Google and Ebay will now cooperate on a program that should bring significant revenue to both. First, and perhaps most important, Google will supply text ads to Ebay's auction sites overseas. This could certainly bring both companies tens of millions of dollars each year given the audience and page-views that Ebay has. The company now claims to have over 200 million registered users. EBay's international business is also growing faster than its domestic auction business.

Less clear is how the second componet of the partnership will work. The two companies said they will cooperate on a VoIP "click-to-call" feature so that buyers can talk to sellers and advertisers. It is unclear whether this is something that buyers want. If its is, Ebay's Skype and PayPal divisions could be helped, which is odd since Google has both VoIP-like and online payment businesses of its own.

What is clear is that this is one of the partially-baked deals that the large internent and "content" companies are forming hoping that some aspects of the deals will "stick to the wall." Whether that will happen here, beyong the component of text ads at Ebay auction sites, which is almost certainly a winner, is unclear.

Ebay's stock may rise on the news, but that could be premature.

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

Google's Tepid Move Into Business Software

Stocks: (GOOG)(MSFT)

Google is challenging Microsoft in the business software arena. At least that is how the headlines read. But, it is a limp beginning.

Google will bundle its Gmail program, its scheduling software, and instant messenging applications so that they can be used by small businesses and non-profits. Universities will also be targeted. The strongest part of the offering is probably that Google will host the software on its own servers which means that small companies will not have to keep the software on their PCs. Google maintains that this PC hosting function is expensive for smaller firms.

Google will also offer a premium version of the service that will be free of advertising and will have the administrative functions that larger enterprises want.

The move is viewed as a challenge to the Microsoft OS and server platforms which will be upgraded next year under the name Vista.

The Google offering does not have spreadsheet or Word-like features to create written documents. Although the hosting aspect of the software my be attractive to businesses, the lack of important features like work processing make it a partial solution at best. It is difficult to imagine that many companies will make the change. It may be used as a supplement to Vista, but it is hardly a direct competitor.

Microsost has no need to worry, unless Google adds the other critical features that make the bundles applications complete.

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

Kinder Morgan: A Strong Wind Cannot Blow All Day

Stocks: (KMI)(KMP)(KMR)(GS)(MER)(JPM)

The Chinese philospher, Lao Tzu made the observation that "a strong wind cannot blow all day".
Kinder Morgan today announced that it would go private at a sharp premium to its stock price. At a purchase price of $107.50, the buy-out represents a 27% premium over Friday's close pricing the deal at $15 billion. The buyers will also assumer $7 billion in debt. Goldman Sachs, which seems to have a stake in most private equity deals, AIG, Carlyle and Riverstone will put up most of the money. The company will take on some debt, provided primarily by banks including Deutsche Bank and Wachovia.

Morningstar recently remarked that future growth in the company should be "tempered". Earnings in the last quarter were a bit disappointing. But, the company is one of the biggest operators of oil and natural gas pipelines, a business that grows at the need for oil, and the price, ramps up. The research firms expects operating earnings plus gains on equity investments to be $1.6 billion in 2006. Although this numer is impressive, does it justify a $22 billion buy-out?

Over this weekend, Barron's made the point that shares in companies like Goldman Sachs, Merrill Lynch, and JPMorganChase may have reached their peaks. M&A activity and private equity transactions are bound to slow as the economy cools off, interest rates rise, and the stock market moves down.

One of these big equity deals will burn its financial supporters. In every cycle, there is a signature deal which signals the beginning of the end and economic historians look back on ther period. If Barron's is right, Kinder Morgan could be that deal.

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

Barron’s Digest August 28, 2006 Issue

Stocks (NSRGY)((CA)(SONO)(DELL)(WRNC)(MDV)(HOV)(WCI)(HD)(LOW)
(MHK)(CFC)(DHI)(CTX)(PHM)(LEN)(KBH)(LEV)(WHR)(H)(ANAD)(BCS)
(GS)(LEH)(MS)(MER)(C)(JPM)

Nestle’s came out with excellent results last week. Despite pressure from commodities prices sales and net profits rose 11% for the first half of 2006. Programs to cut costs and make the company more efficient seem to be working.

CA, the former Computer Associates, is trying to put its accounting and business model issues behind it. But Wall St is not buying the new act. The company is making some intelligent acquisitions and buying back stock with some of its cash flow. With some of its core businesses growing again, CA could deliver double-digit earnings growth.

Sonosite, which makes medical imaging equipment, missed Wall St’s numbers, but know that the miss is behind the company, AG Edwards thinks the stock could rise 45% over the next 12 months. The company’s position in the hand-held ultrasound market is improving. The company says it should still make consensus forecasts for the year.

Dell may be getting beyond its recent problems, including its battery recall and poor earnings. One of the keys may be improved customer service. The company’s CEO will not give quarterly forecasts, but in an interview said he was comfortable that Dell was doing what it had to improve revenue and margins over time. Dell admits that cutting back on customer service was a mistake and will put $150 million into its call centers in the US. Dell’s CEO also said that although global PC sales growth has dropped 9%, there is still an opportunity to do well in developing markets like Asia. The company also said that it will not increase its retail sales presence. The CEO also says that Dell dropped prices too fast particularly in relationship to the company’s costs. The company also indicated that its sales to corporations were doing well, better than its next three competitors combined.

Warnaco has tried several turnarounds, without real success. Now a hedge fund, Barington, has bought a big share of the company’s stock. Sales have been flat this year and operating margins are running 7%, below expectations in the 10% range. The hedge fund is threatening a proxy fight. He is also suggesting that the company might be sold to Philips Van Heusen. But, such an acquisition would dilute PVH’s earnings growth. If the company’s shares are going to rise, it will still probably have to be on its own strength in revenue and earnings improvements.

With the housing market taking a beating, it may be worth looking at stocks in related industries, especially those they have dropped substantially. Barron’s thinks some of them could have attractive valuations, particularly if the housing market recovers in 2007. These include Centex, DH Horton, Hovnanian, KB Homes, Linnear, Levitt, MDC, Pulte, Toll Brothers, WCI Communities, Black & Decker, Masco, Sherwin Williams, Lowes, Home Depot, Mohawk Industries, Whirlpool, CountryWide Financial, Ethan Allen, Furniture Brands, and Realogy.

Anadigic’s computer chips power popular cellphones and digital TV. The company’s shares have struggled despite good financial results. Fans of the stock see it at least doubling this year. Revenues this year should be up 80% over 2005. The company has close tied to Motorola, Intel Qualcomm and Cisco. It also has excess production capacity. As Qualcomm moves into 3G and Intel into wireless chips, Anadigics, which supplies both companies, could benefit.

Shares of big brokerage firms may be hurt by a dropping stock market, higher interest rates and a slower economy. These companies include Morgan Stanley, Merrill Lynch, Goldman Sachs, Citigroup, Bear Stearns, and JPMorganChase. M&A, asset management and private equity have driven earnings growth. However, with funding getting more expensive, customer activity in these segments may drop. Brown Brothers has a sell on the group because they believe that earnings will not longer grow as fast as they have in the recent past. At this point, it will be harder and harder for the firms to top their already spectacular performances.


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

Media Digest 8/28/2006: WSJ, NYT, Reuters

Stocks: (GOOG)(MFST)(F)(EBAY)(DJ)(S)(VZ)(CMCSA)(TWX)

Reuters writes that Google will launch a bundled version of its free e-mail, scheduling, and messaging software to run basic business activities. The software pieces are already offered separately. To compete with some portions of Microsoft Windows, the new package is set up to run over the internet instead of being hosted on the PC. The product is aimed at small business and non-profits, but Google plans to announce a paid version for large enterprises.

Reuters writes that a report in the Detroit News says that Ford is considering selling a large part of Ford Motor Credit. The potential transaction is one reason Robert Rubin of Citigroup stepped off the automakers board.

The Wall Street Journal writes that EBay has signed a deal with Google to exclusively display its text ads on Ebay auction sites outside the US. The companies will also cooperate in ways for consumers to call merchants.

The Wall Street Journal writes that its parent plans to sell six of its Ottaway regions papers as its continues to push into electronic delivery of news.

The New York Times writes that the nation's largest cellular companies look to expand their sevice reach and keep competitors out of the business by buying large numbers of teh radio spectrum being auctioned by the FCC. About 60% of the total bids are from Verizon Wireless, Cingular, and T-Mobile. Only about 20% are from an alliance of Time Warner, Comcast and SprintNextel.

Douglas A. McIntyre

Microsoft And Apple: The Empire Bits Back

Stocks: (AAPL)(MSFT)

The management of Microsoft must feel worse with each passing say. They are, after all, the world’s largest software company, founded by the world’s richest man and most famous business figure. A company with shares that traded at next to nothing in the 1980s only to make it all the way to $60 in early 2000. Then, the bloom went off the rose, and the shares have been fairly flat between $22 and $30 for the last four years. No matter what the big software company does, including upping the dividend, getting into video games, or having one of the world’s largest only properties has made much difference for shareholders.

And, of course, the have had to watch the resurrection of Apple, which Microsoft and almost everyone else had left for roadkill. In 1997 and 1998, while MSFT’s stock was moving sharply up, Apple’s stock fell to around $5, after trading near $20 in 1992. Apple’s stock moved to near $20 in 2000, only to drop to close to $10 in 1991. And it stayed there to 2004.

Then, Apple introduced the Lazarus called iPod. On the back of one product, Apple’s stock moved from well below $20 in 2004 to over $86 earlier this year.

Despites stock options scandals, burning computer battery recalls, and doubt about whether iPod sales will keep their fantastic pace, Apple still holds close to $70.

Microsoft has spent the last few months trying to convince Wall St that it can be the real deal again. It can innovate. It can grow. It can do things other than live off its operating systems and start divisions with silly business plans that do nothing but make money.

Toshiba, which will build the new Microsoft Zune multimedia player, unwrapped the product last week. If Zune succeeds in taking big share form the iPod and iTunes, Microsoft can boast that it is still a “player”. If not, it becomes another visible also-ran like MSN.

According to EETimes, Toshiba filed the plans for the new player with the FCC for approval. The Zune is a mixture of weird features and potential iPod killers. Which feature will make the thing sell is still open to guessing.

The Zune has an FM tuner. It is hard to say why. Maybe Microsoft believes that people will start to listen to the radio like they did in the 1970s and 1980s. Maybe they think the feature will compete with portable satellite radio players. It’s hard to tell.

The Zune does have an 802.11 WiFi connection, and that is very important. The FCC filing says that the Zune will be able to share photos, songs and albums with up to four other devices. And, it is built in. No attachments or new gear has to be added to make it work. That will be important. It may be the Achille’s heel of the iPod. The Zune also has a 30-gigabit hard drive which is pretty impressive.

Microsoft is likely to spend hundreds of millions of dollars making the Zune, marketing it, and building a store of music to supply the device.

The large investment, plus the wireless feature, may actually put a dent in iPod. If so, it could turn the tables for both stocks.

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

JPMorgan Scalps Applied Materials

Stocks: (AMAT)

JPMorgan recently cut that shares of Applied Materials which creates equipment used to make microchips from “overweight” to “neutral”. Odd, because the company is doing so well.

Applied Material just announced a quarter in which it net rose from $370 million a year ago to $512 million. Revenue was up 56% to over $2.5 billion. According to the company, new orders were up 82% to almost $2.7 billion. MarketWatch, quoting SEMI, the industry trade group, said that chip equipment rose 60% in the second quarter to $12 billion. It also said that Applied Materials expects its target market to rise to $37 billion in 2008 from $20 billion in 2004.

Applied Material said that its next quarter would be fairly flat .Chip equipment sales may not expand much in 2007.

Even if Applied Materials growth has slowed somewhat, it valuation had dropped considerably before the Morgan downgrade. The company’s stock is down from a 52-week high of over $21 to just above $16.

As Morningstar pointed our in its most recent report on Applied Material, the company is by far the leader in its industry: “The firm has the broadest product portfolio and offers customers the closest thing to a one-stop shop.” Morningstar has a fair market value of $20 on the company, and does not suggest selling it until it reaches $21 which is its high for the last year.

As chip inventories increase, it is fair to argue that Applied Materials has a limited chance to grow near-term. But, with chip demand rising longer term, the company is more likely to prosper than almost any in the industry.

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

Google’s Difference: Yahoo!, eBay And Amazon.

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


Google stock chart looks a lot like a chart of its revenue. Almost straight up. Beginning at about $100 in Fall 2004, it moves up in steps to $475 in January 2006. It then has traded a bit either side of $400 since then and now sits at $374.

The charts of Yahoo!, eBay, Google were hit with an ugly stick sometime between January 2005 and January 2006. Yahoo! hit almost $44 early this year, and now trades at $29. eBay traded close to $60 at the beginning of 2005 and now sits at $25. And, Amazon traded at $50 late last year and is now at $28.

Wall St. no longer believes that the three grandfathers of the internet age are growing fast enough to justify premium prices anymore. And, a look at the August short interest in each company drives the point home even more strongly.

The short interest in Google was 5.819 million on August 15. The stock trades 6.376 million shares a day, so the short coverage ratio is less than a day. Short interest also dropped 3% from July.

Yahoo!’s stock had 92.209 million shares short as of mid-August, up 6% from the previous month. The stock trades only 30.109 million shares a day, so the coverage ratio is over 3 times.

Amazon’s short interest rose 10% from July to August to hit 40.229 million. The stock trades 12.139 million shares a day, so the short coverage ratio is, like Yahoo!, north of three times.

Over at eBay short interest rose 3% to 51.412 million. The average number of shares a day traded for eBay is 20.735 million.

Supporters of eBay, Yahoo!, and Amazon point out that they are still the dominant companies in their sectors of the new online world and that taking away their core business will be difficult for competitors. They will argue that Google has not made money from anything other than search advertising and that its products that compete with Yahoo!’s content, eBay’s auction and payment properties and Amazon’s e-commerce platform are new and untried.

Tell that to the shorts.

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

Wal-Mart’s Poor August

Stocks: (WMT)(TGT)

According to a number of media reports, Wal-Mart’s same store sales for the US were up 2.7% over the same month last year. News accounts made a great deal of the fact that the number was at the high end of Wal-Mart’s prediction of 1% to 3% growth. The news is still a bit like a person who is 50 pounds underweight saying that they had gained five pounds.

Wal-Mart’s same store sales in August of 2005 were up 3.5%. And US revenue for the quarter ending July 31 was up only 6.9% from the year before.

As MarketWatch pointed out over the weekend, Wal-Mart’s rival, Target, said its same store sales should rise 2% to 4% in August. If Target hits the high end of that, it is probably taking some market share from Wal-Mart. Nonetheless, Target’s same store figure in August a year ago was 6.3%.

Wal-Mart’s stock may rise on the news. But, it really shouldn’t. The fact that the clouds are not quite as dark as feared does not mean it will be a sunny day.

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

Worst Wall St Analyst Call Of The Week:Savvis

Stocks: (SVVS)(AKAM)

Janco Partners moved Savvis from “hold” to “accumulate” on August 23. Word came out two days later that the short interest in Savvis was up 245% from July to August when it hit 1.79 million shares. Savvis trades 200,000 shares on a good day.

Savvis offers storage and bandwidth to transport video and data over IP. It was spun out from Bridge Information Services, which promptly went bankrupt. In the June quarter, the company did $190 million in revenue and $6 million in operating income. Interest payments took the operating profit to an $11 million net loss.

Savvis has total liabilities of $598 million in liabilities, including $275 million in long-term debt. It has only $461 million in total assets. The company’s debt has covenants that restrict is ability to borrow, buy back stock or pay dividends.

Savvis also went through a 1-fo-15 stock split in June to get the price of its shares up.

Savvis is also competing against Akamai in many of its core business. Akamai is larger, has a much better balance sheet and has over 80% of the content delivery business in the US.

The company’s stock has already run from $7.35 in November to over $25 now. It is difficult to see what catalyst will take it higher.

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

Small Cap: The World Gets Tough For Answers.com

Stocks: (ANSW)(GOOG)(MSFT)(YHOO)

Answer.com’s revenue is driven by customers that come to its website for retrieve information on more than three million topics.

The company has two big problems. One is that much larger companies like MSN, Yahoo!, Ask.com, and Google offer similar services. While they may be exactly the same as what answer.com does, they are similar enough so that most consumers are not likely to make a distinction.

The second issue that the company has is that its growth in daily queries is slowing considerably. Based on the company’s 10-Q, daily queries were 1.77 million in Q3 05. For Q4 05, they grew to 2.1 million, and then to 2.59 million for Q1 02. However, in Q2 06, the number only rose to 2.69 million. With the growth of search functions on the internet, the number is very disappointing, especially given that the company’s share of the search market is so small.

The company admits that the growth was slow, but does not give any roadmap to an improvement: “Our average daily query traffic grew by 100,000 in the second quarter of 2006 as compared to the previous quarter. We attribute this level of growth, which was significantly lower than in prior quarters, due to the following factors: (i) the amount of content we added this quarter, as compared to earlier quarters, (ii) the success of our various marketing activities and (iii) the popularity of our website amongst the population of Internet users.”

Answer.com’s growing loses also have to be cause for concern. On revenue of $1.511 million in Q2, the company had an operating lose of almost $2.9 million. The company has about $12 million in cash and marketable securities. At the current rate of deficits, the company will be out of cash in four quarters.

Answer.com also has a rich valuation, especially for a company with such small market share. With a market cap of $72 million, the company trades at about 17 times sales. The comparable number for Google is less than 14 times.

Answer.com’s stock has come down some, but probably not enough. It trades at $9.23, against a 52-week high of $15.23 and low of $8.46. If inquiries at the company’s website do not begin to increase at a much better clip, it is hard to see how the stock can maintain its current valuation.

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

Asia Markets 8/28/2006 Softbank, Sony Down

Asian markets were down as the Nikkei fell sharply.

The Nikkei was off 1.1% to 15,763. Canon was down 1.6% to 9510. Fuji Photo was down 1.9% to 4110. Hitachi was up .2% to 737. Hoda was flat at 3870. NEC was off 1.7% to 650. NTT was off 1% to 585000. Docomo was up .6% to 177000. Sharp was up .7% to 2065. Softbank was down 5.6% to 2020. Sony was down .6% to 4970. Toshiba was up 1% to 783. Toyota was down .5% to 6220.

The Hang Seng was off .1% to 16,932. Cathay Pacific was flat at 14.3 China Mobile was up .7% to 50.1. China Unicom was down .3% to 6.94. HSBC was up .2% to 139.1. Lenovo was down .3% to 2.92. PCCW was up .2% to 4.69.

The KOSPI was off .1% to 1,328.

The Straits Times was off .7% to 2,436.

The Shanghai Composite was up 1.7% to 1,650.

Douglas A. McIntyre

ConocoPhillips (COP) Refines its Profits

By CrossProfit, edited by Saul Sterman

Our primary analysis for ConocoPhillips (COP) is that high oil prices should continue generating above normal earnings for the next several years.

The Facts:

COP is banking on an 18% – 20% stake in Russian Lukoil to shore up its dwindling North American well production. A full 10% of production is expected to come from Lukoil.

The divesture of wells in Canada is negligible (less than 30,000 bpd) and is part of the Burlington Resources acquisition agreement. The BR acquisition was an expensive North American natural gas play. The re-entry into Libya should provide handsome profits on 40,000 bpd at a production cost of $5 per barrel! This should more than make up for the Canadian loss. COP is counting on natural gas prices remaining above $6.55 per Mcf, otherwise the BR acquisition becomes mathematically problematic. COP is the largest natural gas producer in North America.

Venezuela is no longer considered a viable reliable option for replacing existing production sites. There is plenty of heavy crude down there but no one is willing to risk spending billions to develop these new fields.

The new refinery project in Yanbu, Saudi Arabia, in conjunction with Aramco and Halliburton, should contribute to the refining division earnings as of H2 2011. This single new ’Saudi sour’ refinery project will have the capacity to supply 2% of U.S. consumption.

Historically refining operations have had far lower margins than crude production. In 2005 production accounted for only 27% of sales yet was 62% of earnings. Lately this has not been the case and has benefited COP. COP has a 36% stake in the Alaskan Prudhoe Bay fiasco. Prudhoe Bay represents approximately 15% of COP’s global oil production (136,000 bpd out of 916,000 bpd).

COP’s historical financial performance (balance sheet, income statement/earnings per share etc.) depicts a classic rollercoaster ride. Over the past decade the energy sector has been highly volatile and COP consistently exemplifies this to an extreme, more so than some of its competitors.

Comparison to peers as of 08/25/2006:

ConocoPhillips (COP) verses Chevron (CVX) verses ExxonMobil (XOM).
COP’s market cap = 109 billion, trading at a trailing PE of 6.1, dividend yield = 2.2%
CVX’s market cap = 147 billion, trading at a trailing PE of 9.2, dividend yield = 3.2%.
XOM’s market cap = 419 billion, trading at a trailing PE of 11, dividend yield = 1.8%.

The question that an investor should ask is whether COP is the best out of the three companies. On the surface COP looks very attractive. The stock is trading at a low multiple (6.1) and is paying a nice dividend. However further analysis reveals a slightly different and somewhat complicated picture.


Fundamentals: (from our proprietary research/analysis)

Reserves Replacement:
COP = 109% (enables future production growth)
CVX = 58% (not good at all, hampers future growth)
XOM = 105% (enables future production growth)

Reliance on U.S. Economy:
COP = 73%
CVX = 45%
XOM = 31%
(Should a slowdown occur in U.S. consumption COP more likely to take a hit than XOM or CVX.)

2006 & 2007 Earnings Growth:
COP, 2006 = 25% & 2007 = 13%
(Recent Q2 results are momentarily better due to BR acquisition accounting manipulations. We see oil remaining high but natural gas at 6.60 -7.70 for Q4)
CVX, 2006 = 19% & 2007 = 1%
XOM, 2006 = 18% & 2007 = 6%

Russian Roulette:

All those familiar with the Yukos travesty know that Vladimir Putin can not be trusted to abide by international standards of commerce. The entire dismantling of Yukos was due to mafia style politics; essentially someone got on Putin’s wrong side and is factually confirmed from the current events. Yukos could have done exactly what the Russian government is doing now; sell off assets and pay off the (alleged) tax bill and still be a viable business. This is the true litmus test proving that what Putin has done is nationalize private assets under the guise of capitalism only to find some new suckers that pray that the (elected) dictator won’t do the same again. If the prayers become the prey it serves them right. Not to mention that the Russian government (Putin’s circle of ten) is pocketing all of the proceeds and leaving Yukos shareholders out to dry. We call this dormant disease Putinits. The question is when will the next outbreak occur? The market currently assesses a high risk premium on Lukoil.

At CrossProfit we emphasize fundamental analysis and delve into technical analysis only upon completion of rigorous fundamental analysis. The CrossProfit evaluation line is based on fundamentals.

CrossProfit Evaluation Line: (buy below the line and sell above the line)
COP EOL 06/07 = 69.80
XOM EOL 03/07 = 75.80
CVX EOL 10/06 = 65.30

For those that are unfamiliar with the term, EOL = end of line. The evaluation line is a twelve month forward looking line that specifies a risk/reward evaluation factoring in market volatility and determines whether or not an investment opportunity exists. Towards the ‘end of the line’ the line is usually less accurate as the evaluation was based on data available a while ago. In plain English, the CVX evaluation line is the least reliable because it ends in 10/06.

Based on the above;
COP has a 6-7% upside
CVX is currently slightly overvalued
XOM has a 8-9% upside

All data excludes dividends. We expect XOM to raise its dividend or issue a special dividend in Q2 2007.

So what does all this mean?

1) Higher margins benefiting COP refineries.
2) Canadian/Libyan production cancels out each other.
3) Paid a very high price for BR acquisition resulting in lower PE multiple.
4) Increased natural gas capacity from acquisition stays profitable and contributes to earnings growth as long as the bottom doesn’t fall out on pricing.
3) Positive reserves replacement.
4) Putinitis.
5) Pipeline investment in Venezuela but no new production or refinery projects.
6) Yanbu not relevant for now.
7) Prudhoe Bay is statistically not relevant (see below).

Prudhoe Bay:
Only one COP refinery relies on Alaskan oil for its supply and that refinery can be supplied from other sources. COP will take a hit on production profits from the Alaskan fiasco. However, with refinery margins up and refining and marketing contributing over 65% of revenue, COP still comes out ahead on a YOY (year over year) basis. Had the Alaskan problem occurred a few years ago it would be a different story.

Conclusion:

COP is a gamble on geopolitics including internal Russian politics. COP could turn out to be the best of the three by far. Assuming that a 73% reliance on the U.S. for revenue is a positive factor and the gamble on spreading supply sources amongst several high risk areas pay off, there is a theoretical 28% upside. CrossProfit concludes that 7% by next year is more likely. Should the geopolitical risks diminish, a higher PE ratio is in order.

As of today there is little downside risk. Should Putin decide to play his hand tomorrow the market has already factored in most of the damage from Putinitis. Either way COP is a stock to buy and hold for long term gains and dividends.

Summary:

The investment outlook for the oil and gas industry is positive. CrossProfit analysts conclude that oil prices are expected to remain relatively high in 2006 and 2007. Order of preference is as follows; XOM, COP, CVX.

Disclosure: This comment was written by a CrossProfit analyst and does reflect the opinion of CrossProfit.com.

http://www.crossprofit.com

Corporate Bankruptcies to Rise

By Yaser Anwar, CSC of Equity Investment Ideas

An annual report published by PricewaterhouseCoopers’ Corporate Advisory and Restructuring group says corporate bankruptcies are on the rise for the first time since 2001.


BusinessWeek says the report forecasts that 88 publicly-traded companies will file for bankruptcy this year, up from 80 filings in 2005. The report also predicts that roughly 100 public companies will file for bankruptcy next year.


A majority of the bankruptcies will be in the retail and consumer products sectors. They’ll also be in the manufacturing industry, including automotive, plastics, paper, computer, and electronic product sectors.


Due to a slowing economy, rising interest rates and energy prices, and waning consumer spending as reasons for the increase in bankruptcies.


However, investors should note that even though bankruptcies are trending up, they’re still low by historically. In 2001, a record 257 public companies filed for bankruptcy. The average number of bankruptcies between 1998 and 2003 was 170.

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

Insider Buying at Leucadia (LUK) & Selling at Foster Wheeler (FWLT)

By Yaser Anwar, CSC of Equity Investment Ideas

Insider BUYING: Leucadia National (LUK) - Date of Trade: 8/22/06 - Average Price: $25.83

Recently Alan Hirschfield, Director at LUK bought the $258,332 purchase of 10K shares at $25.83 each. After all, there is a compelling case against conglomerates. Capital markets, the argument goes, are better than chief executives at allocating resources among industries. Why should fund managers who like, say, telecoms also be forced to invest in property? If they want exposure to both, they can build a portfolio better than any conglomerate boss could.


Conglomerates therefore tend to have lower market values than the sum of their operations. Focus brings other benefits too. Managers do not divide their time, energy and expertise among industries.


These arguments, however, appear to apply only in a specific historical context. Take America, which probably has the most focused companies in the world: the oft-cited success of General Electric , an outstanding conglomerate, is the exception that proves the rule.


Yet a century ago Americas biggest companies were all conglomerates, run by robber barons not unlike todays tycoons in poor countries. De-mergers and spin-offs became seriously fashionable only after the 1970s.


The most likely explanation for this evolution is that conglomerates go out of fashion as markets become more efficient. Two professors at Harvard Business School argue that efficiency arises from the presence of specialized intermediaries. In the market for capital, these are mutual funds, venture capitalists, equity analysts, auditors, and so forth. In the market for labor, they include executive-search firms, vocational and business schools, and certification agencies.


In the markets for products and ideas, they include intellectual-property lawyers and consumer activists. The America of the Rockefellers and Morgans had few such intermediaries, just as poor countries do today.


Like GE, however, LUK is an exception that proves the rule. And a little bit of everything goes a long way at this New York-based company. It has stakes in businesses ranging from copper mines and banks to wineries, internet services and timber.


Since LUKs founding more than 150 years ago, it has also acquired outfits in manufacturing, health care, insurance and real estate. And LUK is quick on its feet for a company a century and a half old. Annual profits for the past three years have grown an average of 98% with revenues topping $1 billion last year.


Nor is LUK slow to put an underperforming asset on the chopping block: WilTel Communications was sold for more than $833 million last year which, despite its lack-luster performance, meant that LUK turned a profit on this company.


Clearly, LUK is a premium conglomerate that manages its portfolio aggressively, setting its subsidiaries clear targets and ditching underperforming companies. Or, as the legendary Jack Welch, former boss of GE used to say: fix, sell, or close. Most recently, LUK has bought a 9.9% stake in iron-ore group Fortescue Metals, which along with the acquisition of a $100 million note of one of its subsidiaries, makes a total investment of $400 million.


A study (Break-Up! When Large Companies are Worth More Dead than Alive) by Atulya Sarin of Santa Clara University and David and Diane Denis of Purdue University some years ago found that firms are more likely to focus when the managers themselves own lots of equity.


That is the case at LUK, where as well as Mr. Hirschfield its directors are major shareholders. All the more reason to buy the stock, at $25.32 on a PE of 11.86.

Insider SELLING: Foster Wheeler (FWLT) - Date of Trade: 8/21/06Average Price: $42.61


Earlier this month Ray Milchovich inked a contract, effective August 11, to continue as Chairman, President and CEO FWLT. Ten days after it took effect, he sold 141,565 of his companys shares at $42.61 each, pocketing $6,032,297.


On August 9th posted second quarter earnings of $108.4 million, or $1.53 a share, compared with $27.9 million, or 55 cents a share, a year earlier. Revenue increased 42% to $745.3 million from $526 million in the same period last year with new orders booked rising 66%.


Given that at the end of May both S&P and Moodys raised their credit ratings for FWLT. Its Engineering & Construction group designs and builds facilities for the oil and gas, chemical, pharmaceutical, and other industrial markets while FWLTs Power Products & Services subsidiary makes steam-generating units and related equipment for power and industrial plants.


At first, with higher profits and an increased credit rating, FWLT would appear to have put its years of balance sheet and asbestos related problems behind it.


Trouble is, its businesses are highly cyclical and such a large sale of stock by its boss suggests that perhaps the light at the end of the tunnel could indeed be an oncoming train.


Sources: SEC Filings, Insider Moves & Y! Finance

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

Weekend Edition: Best of 247WallSt

This weekend edition is the best from 247WallSt from the last week, including the articles most picked up in the media. Articles are run as they orginally appeared.

Weekend Edition: Cramer Weekly Review

In Jim Cramer's MAD MONEY this week, Cramer had many names. Thursday was
sort of a dud, but he impacted many other stocks.

On Thursday he commented that you had to find hidden values in the
supermarkets and in the drugstores to make money in this market. In the
Supermarkets he prefered Danon (DA) and Tootsie Roll (TR). In the
drugstores he said some undicovered hidden values were Chattem (CHTT),
Matrix Initiatives (MTXX) and Perrigo (PRGO).

On Wednesday Cramer offered a break-up plan for Time Warner (TWX) that could
take teh stock to $26.00, but he said it is a sell until the company does
what he says. Cramer also said Cisco Systems (CSCO) is back and back
solidly and could go to $25.00 before any real pullback because of how it
has positioned itself.

On Tuesday Cramer went looking for "Hidden Treasures" and identified
GameStop (GME) as the best way to play the gaming stocks on the upcoming
releases and on the trends in gaming, but he said he would not own the top 4
game design studios. In his other hidden treasures Cramer said the ones to
own were Sigma-Aldrich (SIAL), Texas Utilities (TXU), Sonoco (SON).

On Monday Cramer wanted to show you how to make money on "supply shortages"
by choosing the following: national Oilwell Varco (NOV) for the rig shortage
issues, Chemical & Mining Co of Chile (Sociedad Quimica) (SQM) as the way to
benefit from non-medicine Lithium shortages now that so many lithium ion
batteries are being recalled, and he likes AMN Healthcare Services (AHS) as
the best way to win from the shortage in nurses in the US.

Booyah!

Jon C. Ogg

Weekend Edition:New York Times: Will The Owners Sack The Prince?

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

The New York Times Company is controlled by the descendants of the company's founder Adolph S. Ochs. Eight people control that trust and one of them is the current publisher of the New York Times, Arthur Sulzberger, Jr. The shares in the trust have the power to elect 70% of the company's board of directors. Pretty nifty.

The trust was established to make sure that The New York Times will remain editorially independent. It shares that structure, for similar reasons, with other media companies like the Washington Post. Several decades ago, this was the rule and not the exception with large newspaper companies.

But, times have changed. Famous family-controlled companies have been sold off. The Times Mirror company, controlled by the Chandler family, was sold to The Tribune Company. The Chandlers are now unhappy with that deal because the Tribune's stock is so low. There is talk of auctioning off the pieces of the Tribune to get the Chandlers and other shareholders some walking around money.

At Dow Jones, the publisher of the Wall Street Journal, the family of the founders also controls the board. Recently it appears that they became impatient with management and a poor stock price and moved out long-time CEO Peter Kann, along with his wife who also held high rank in the company.

All of this brings us back to The New York Times Company. Several institutions, led by a division of Morgan Stanley, recently withheld their votes for election of the company's directors. They are sick of the low stock price.

Wall Street's short community is also making a heavy bet against NYT. Short interest in the company rose 13% in August going up to 15.8 million shares from 13.9 million in July. That number is very high. According to ShortSqueeze, the company's short interest is now almost 12% of the float. It would take 12.6 trading days to cover this short position based on average daily volume. At The Tribune Company the days to cover are 6.6. At Gannett, 5.3 days. And, at McClatchy, 4.2 days.

The time will come, or perhaps it has, when Mr. Sulzberger, Jr's tenure at the helm of the company will be questioned by his relatives. In 2005, according to the company's proxy, he made $1.6 million in based salary and bonus. The other members of his family might wonder where their $1.6 million a year is.

The reason that this is so nettlesome is that the stock in NYT has dropped from nearly $50 in early 2004 to $21.70. The 52-week low for the company is $21.54.

The Class B shares held by the family do not trade the way that the Class A shares listed on the NYSE do, but the drop in overall value speaks for itself.

As the generations between a founders and his descendants grow, often inheritance becomes more important than founding values.

Another reason for impatience is the company's financial performance. While NYT's stock is off due to a seachange in media which is moving readers from paper products to the internet, the Times has been slow to cut costs, has probably not cut deeply enough, and has decided to build an expensive new headquarters.

Since most Wall St analysts think it will be at least two years before online versions of newspapers begin to replace the attrition of print advertising and subscription revenue, Mr. Sulzberger is in a bind.

No one should be surprised if his family gets restless.

Douglas A. McIntyre

Weekend Edition: Exxon's Short Interest Rises

Stocks: (XOM)

The short interest in ExxonMobil went up this month by 12 million shares to 49 million. For a company that trades 23 million shares a day, that may not seem like much.

But, why lay odds against Exxon at all. Depending on who final numbers come out, it may top the Fortune 500 in revenue. Its market cap is $414 billion. In the last quarter, the company did $99 billion in sales and operating income of $18.6 billion, both substantial increases over the immediately previous quarter.

But, there are a few little issues lurking around Exxon. One is that oil prices may not go up forever. Gas consumption in the US and elsewhere is dropping off due to rising prices. It appears that BP will keep the Alaska pipeline open, at least partially.

There is also a move afoot in Congress. As the Fort Worth Star-Telegram wrote recently: One analyst, Paul Sankey of Deutsche Bank, asked (Exxon CEO) Hubble whether Exxon Mobil was concerned about "negative attention from Washington" in the form of proposals for excess profits taxes. Such a bill was introduced in Congress last year but has yet to receive committee approval.

Although the odds that such a bill would make it into law may be fairly long, if the rise in profits at the big oil companies continues, such an action in Congress is probaly more likely.

ExxonMobil's stock trades at $70, very near its 52-week high. Two years ago, the stock was at $45. For a company that has one of the largest market caps in the world, that is a real run. And, what goes up, must come down.

Douglas A. McIntyre

Weekend Edtion:New York Stock Exchange Short Interest For August

NYSE short interest for August compared to July.

Largest Short Positions


Ford 124 million up 15 million
AT&T 120 million up 14 million
Lucent 110 million down 7 million
Qwest 69 million up 14 million
GM 67 million down 9 million
Sprint 61 million up 5 million
Motorola 54 million up 38 million
HP 51 million up 1 million
Disney 50 million up 1 million
Exxon 49 million up 12 million
Halliburton 48 million up 6 million
TimeWarner 47 million down 10 million
Interpublic 46 million up 3 million
Pfizer 44 million down 10 million
Lowe's 41 million up 1 million
Bristol-My 41 million down 7 million


Largest Short Internest Increases

Motorola up 38 million to 54 million
Ford up 15 million to 124 million
AT&T up 14 million to 120 million
Qwest up 14 million to 69 million
News Corp up 14 million to 24 million
Exxon up 12 million to 49 million
NorthFork up 11 million to 13 million
Wachovia up 10 million to 35 million
FirstEnergy up 10 million to 13 million
Tribune up 8 million to 17 million
Texas Inst up 7 million to 34 million

Largest Short Interest Decreases

Home Depot down 34 million to 32 million
TimeWarner down 10 million to 47 million
Pfizer down 10 million to 44 million
GM down 9 million to 67 million
Bristol-My down 7 million to 41 million
Lucent down 7 million to 110 million
Xerox down 7 million to 8 million
DuPont down 7 million to 12 million


Largest Short Interest Ratio (days to cover)

Pre-Paid Legal 99 days
Krispy Kreme 62 days
Primedia 45 days
Amer It Pasta 41 days
Hancock Fabric 36 days
Superior Ind 36 days
La-Z-Boy 32 days

Largest Percent Increases


NorthFolk 372%
Volt Info 339%
FirstEnergy 286%
Motorola 233%
Hewit 174%
Zimmer 160%


Largest Percent Decreases

Morgan Stanley Pref A -99%
Highland Cred Software -99%
KeySpan -77%
Petroleo Brazil -76%
Energy East -71%
L-3 Commications -64%

Douglas A. McIntyre

Weekend Edition:Wall St Hangs Up On Phone Companies

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

Short interest in all of the major phone companies rose in August. AT&T short interest rose 14 million to 120 million shares. The short interest in AT&T is the third largest of any stock traded on the NYSE. Shares short in Qwest rose 14 million to 69 million. Shares short in Qwest ranked fourth of any stock traded on the NYSE. And, shares short in Verizon rose 3 million to 37 million.

All three stocks have had their runs. AT&T is up from its 52-week low of $21.79 to near its high, trading at $30.56. Qwest has run from $3.69 to $8.60, also near its 12-month high. And, Verizon is up from $29.13 over the last year to $34.52. That is also near VZ's 52-week peak.

The bet against the big telcos may not be a bad one.

Cable firms including Comcast and Time Warner Cable are horning in on telephone service with VoIP. Companies like eBay unit Skype actually offer free VoIP.

For the telcos to match cable offerings, the are forced to put down fiber that is expensive to install. The three large telephone companies will have to invest, and in some cases are investing, billions of dollars so that they can offer fast broadband and internet TV along with their phone service.

The cable companies are also bidding for radio spectrum in the hopes of offering wireless phone service, another flanking move against the telcos.

With expensive infrastructure upgrades ahead and increasing competition from cable for products like wireless phones, the telcos may have seen their shares peak, at least for a time.

Douglas A. McIntyre

Weekend Edition: AMD's Pipe Dream

Stocks: (AMD)(INTC)

AMD has been upgraded recently on word that its chip sales are beginning to recover and the worldwide PC and server business regain some momentum. Maybe that will last. The stock has moved from under $23 to $25.55 in just four days, a move of over 11%.

AMD commented to the Wall Street Journal that it thought that its chip sales for worldwide servers would move up to 40% by 2009. According to research firm IDC, AMD's market share in Q2 was 20.2%, up from 17.1% in the same quarter last year. Even if AMD's share rose at this rate from 2006 to 2009, its piece of the market would only be 28%.

And, then there is the road block that Intel represents. With nearly 80% of the market and its new Xeon 5100 chips shipping, it would seem unlikely that Intel, with over six times the revenue of AMD, is going to roll over.

AMD's stock has rallied on some evidence that its share is growing and the bragging of its management that the growth is about to accelerate at an almost impossible rate.

Wall St doesn't like to be fooled.

Douglas A. McIntyre

Weekend Edition: Home Depot Looks For A Bottom As Housing Falters

Stocks: (HD)

Shares in Home Depot traded pretty close to their 52-week low today. It is closer to a three year low, but who is counting. Bob Nardelli became HD's Chairman at the beginning of 2002 when the stock was at $50, and things have not been the same since. The stock now trades at $33.70. Looking back five years, an investor would have done much better to just put money into an S&P index fund.

Existing home sales dropped to a two-year low today and inventories of new homes are at an all-time high. New home construction is not exactly having a good year either. All that goes to say that the entire drop in Home Depot's stock cannot be blamed on management.

In the April 30 quarter, HD has revenue of $21.5 billion. Operating income was $2.4 billion. There was little topline growth in the four quarters before the July 30 period, but, in that most recent quarter revenue did grow 17% to $26 billion. Based on guidance, that may be nearing the high-water mark.

Over the last two fiscal years, Home Depot's revenue has grown at about 12% year-over-year so the rise in sales recently could be viewed as good news, but no one believes that the road ahead will be smooth.

Interest rates and home sales are likely to keep Home Depot's stock below $35. With no end in sight for the economic problems crippling the company, there is little reason for the shares to recover.

Douglas A. McIntyre

Weekend Edition:Ford Won't Go Private

USA Today reports that the Ford family is considering taking the auto giant private.

Unlikely. Ford has a market cap of about $15 billion and a share price that hovers around $8. The company also has a large debt load and an underfunded pension. But, the company has over $2o billion in cash.

Investors who bought the company two years ago, especially institutions, are unlikely to let their shares go at under $10. That would drive the cost of any buyout up substantially. A price much below that would almost certainly bring a rash of shareholder suits.

In addition, if the Ford family announced that it was taking the company private, it would probably open itself up to bids from other car companies, which could include Nissan and Renault, if their talks about a global alliance with GM falter. As fudiciaries, the Ford board of directors would have no choice other than to entertain competing bids.

With Ford in trouble, it may still need access to the capital markets. As a private company, that would be much more difficult.

Ford going private. Dream on.

Douglas A. McIntyre

Weekend Edition:Cramer's Break-Up Plan For Time Warner

Stocks: (TWX)(VIA)(CBS)(CMCSA)

Jim Cramer, the most famous stock analyst in America, has suggested that Time Warner is worth much more in pieces than its is as a media conglomerate.

His analysis says that Time Warner cable is worth $11 a share, especially with its recent acquisition of assets from Adelphia. AOL may be worth $2 a share, of $8 billion, especially to a company like Microsoft. The company's studios should fetch $3 a share from a competitor like Paramount. HBO could be solf to a company like Viacom for $4 a share. The basic cable networks like CNN would be worth $6 a share to a company like CBS. He values the company's magazine group at close to nothing.

Time Warner may be worth more than he thinks. The studio division of Time Warner does about $10 billion a year with $1.3 billion in operating income. It would probably go for substantially more than Mr. Cramer's price of $12 billion.

Comcast has a market cap of $72 billion. Based on the subscriber count of Time Warner cable vs. Comcast's count, the cable operations could be worth $55 to $60 billion. Operating income at TWX cable operations runs about $4 billion per year. With the new Adelphia subscribers, that number should go up.

The operating income at the Time, Inc. publishing division is close to $750 million a year. Annual revenue is close to $5 billion. That company is probably worth $6 billion to $7 billion.

With operating income of over $3 billion, the TWX network group is probably worth in excess of $20 billion.

Cramer's number for AOL may be right. The division has almost $2 billion in operating income, much of its at risk.

The break-up value of TWX may be worth north of $120 billion. So, $30 a share on a break-up may be a better number.

Douglas A. McIntyre

Weekend Edition: Nasdaq Short Positions For August

Following is the Nasdaq short interest in individual stock August 15 compared to July 14, 2006.

Largest Short Positions

Company Total Share Short Increase/Decrease

Sirius 129 million up 19 million
Yahoo 92 million up 5 million
Level 3 85 million up 3 million
JDS Uniphase 84 million up 1 million
Microsoft 73 million down 15 million
Intel 69 million up .3 million
Charter 66 million up .3 million
Cisco 55 million up 16 million
Oracle 53 million up 11 million
Jet Blue 53 million up 2 million
eBay 51 million up 1 million
Dell 47 million up 11 million
Comcast 43 million up 5 million
Symantec 41 million down 4 million
Amazon 40 million up 4 million
Starbucks 35 million up 4 million
Take Two 33 million up 1 million
Sun 33 million up .3 million
Finisair 32 million up 4 million
Conexant 29 million down 1 million
XM 29 million down 8 million
Apple 28 million up 4 million
Qualcomm 28 million up 1 million

Largest Increase


Company Increase

Sirius up 19 million
Cisco up 16 million
Dell up 11 million
Oracle up 11 million
UAL up 7 million
Comcast up 5 million
Yahoo up 5 million
Starbucks up 4 million
Finisair up 4 million
NutriSystem up 4 million
Apple up 4 million


Largest Decreases

Company Decrease

Microsoft down 15 million
XM down 8 million
PMC Sierra down 7 million
PetroHawk down 4 million
Symantec down 4 million
McData down 3 million
Hansen down 3 million
Juniper down 3 million


Largest Days To Cover Ratios

Company Days To Cover

SCO Group 154 days
Integrated Alarm 116 days
Introgen 60 days
Kensey Nash 50 days
Pharmacyclics 49 days


Largest Percent Increase


Company Percent

Loopnet 712%
Savvis 245%
UAL 178%
Books-A-Million 125%


Largest Decreases

Company Percent

PGT -79%
DOV Pharma -63%
West Corp -60%
Sigmatel -55%
ArQule -54%

Douglas A. McIntyre

Weekend Edition: Dollar Store Woes, Maybe More Than Just Dollar General

Dollar General makes less money than its clients

Stock Tickers: DG, DLTR, FDO, NDN

After Friday's close Dollar General (DG) came clean and issued a profit warning by saying that EPS would now be in a range of $0.14-$0.15 per share, which is below the Company's previous guidance of $0.18-$0.22 per share provided in June.

Dollar General's gross margin for the second fiscal quarter of 2006 is below expectations as the impact of adding more national brand items to the consumables mix was more negative than planned. Additionally, the gross margin has been negatively impacted by the mix of sales which has been more heavily skewed toward lower margin highly consumables than anticipated. Back to school sales were also below expectations.

Dollar General (DG) is down 10.5% premarket, down $1.49 at $12.60 on last look. Its ending P/E Friday was 13.55 and it commended at $4.3 Billion market cap. The old 52-week trading band was $13.02 to $19.84, so this will be a new year low for the dollar store. Here is how this ranks with comparables:

Family Dollar (FDO) $3.7B; 20.3 P/E; $24.63 Friday close and $19.40 to $27.95 52-week trading range.

Dollar Tree (DLTR) $3.1B; 17.7P/E; $29.38 Friday close and $20.56 to $29.87 52-week trading range.

99 Cent Only (NDN) $807M; $11.60 Friday close and 52-week trading range $8.61 to $13.88. P/E skewed b/c restructuring and filing delays.

These "dollar stores" are perhaps the first victim of economic issues when the wholesale market is still hanging in there with high costs. It squeezes their margins on the back-end and their retail clients are the first ones impacted by any economic slowdown. Rising energy costs and wholesale pricing power have definitely impacted the ability of the company to keep a lid on cost of goods sold. By and large these stores are the least pleasant of the entire retail sector, equal to or barring convenience stores that are mom and pop shops that get sold to each new first generation family.

So with Dollar General as the king of the sector having the lowest "old" multiples and with it trading at a 52-week low, are the others just slower to react or is the street over-reacting to what they were already trying to price in?

Either way, it is still fun asking how much each item costs at the dollar store.

Jon C. Ogg

Weekend Edition: What Are The Chances of an Under Armour Buyout?

Under Armour buyout rumors

This isn't your grandparent's polyester, but a buyout at the price today or at a premium would be a hefty price tag. This is a great company, but it would probably be cheaper to partner with the company than it would to forcefully buy them out. Outside of a huge insider holding, there appears to be some provisions making a deal difficult to do without management's blessing.

Today shares of Under Armour (UARM) are up over 2% to $35.75 on what is being tossed around as "rumors of a deal." The company has been deemed more valuable since they signed an NFL deal earlier this month and signed more distribution deals; but the company now has a market cap of about $1.7 Billion, it has a 71 trailing P/E ratio, trades at 51-times 2006 earnings, and trades at about 40-times 2007 earnings. In truth, if Nike (NKE) or Reebok (part of Adidas) really want to do something then they won't care about the multiples. Just to be fair to the company: as UARM has exceeded earnings targets, those multiples may be conservative and maybe even under-stated.

BUT.......If Nike or Adidas or another apparel beast just now decided that there is value when they could have picked this up around the IPO or even tried before, then these management teams should be punished and punished severely for having their heads somewhere other than just in the ground for this long. In truth, Under Armour is probably comparable to an extreme business model of Nike's Dri-Fit(tm) or of Reebok's Premier Tech(TM). There is absolutely nothing wrong with the company as far as anything that is known, and it is a solid brand name in the US. There are doubts on how well the company will do in Europe, but that is a story I don't even want to get into.

The insiders already sold a slew of shares back in May at $34.00 minus fees, so they already got at least the first part of their reward and quasi-dynasty money. The company has also not been able to get back above the $40 mark it saw before they had earnings issues in February. That $40+ mark was also just in July, so any deal would have to be at a solid premium to today's mid-$30's stock price.

The IPO never did see this level in the open market, but they priced the IPO at $13.00 last November and that was above an already-raised range. If Nike or Reebok just now have decided that this could help them in the market share of a Dri-Fit(tm) or Premier Tech(tm) for moisture and heat management sportswear, well we already said it enough.

There is a long-shot scenario, although it would probably be a dream scenario. For someone to buy this company, they would need to do a deal with management and not pursue this as hostile. That way they could structure this with earn-outs and with performance clauses. Management at the company is also young, very young. UARM stock trades at a monster multiple of about 10-times its real net book value. Insiders still hold a substantial amount of the stock.

This is a solid brand with a solid position and still has room to grow market share on its own. Nothing said in here is really meant to be negative on UARM, even though the valuations would make a buyout seem unlikely. Now if this company ever takes a serious hit on its stock because of a performance hit in the near future, THEN maybe the management at Nike or Adidas shouldn't be punished if they wanted to step in and do a deal. Unfortunately it looks like outsiders may have missed their window for now.

Under Armour is a solid brand name, and that isn't the issue here. The company is NOT a member of our proprietary BAIT SHOP because of valuations and because of the age of management that controls such a large portion of stock, among other reasons.

Jon C. Ogg

Weekend Edition: Government Spying Concerns Causes Earnings Miss (Applied Signal Tech)

Government cellular phone spying hits investors too in Applied Signal

A classic earnings miss is hurting shareholders in Applied Signal Technology, Inc. (APSG) this morning. The first thing to note is that with all the heat the government was taking on international cell phone snooping and "maybe domestic" cell phone and landline snooping (nod, nod, wink, wink), this earnings miss is probably not that surprising at all. It also hasn't helped that a recent ruling went against the government on this initiative and the current election is making this part of a larger ongoing issue.

The company engages in the design, development, manufacture, and marketing of advanced digital signal processing products, systems, and services in support of intelligence, surveillance, and reconnaissance primarily to the United States Government for global security. In short, they sell spook-ware to the government.

The company posted a mere $0.08 EPS versus estimates of $0.18 and versus last year's $0.15. Revenues were $39.5 million, up from last year's $36.3 million but down from the $45+ million.
Ryan Beck's analyst is actually lightly defending the shares this morning on weakness because of sensitivity to individual orders and because the company should be viewed in a smoothing-out manner. Friedman, Billings, Ramsay downgraded the shares to a Market Perform from an Outperform rating. CE Unterberg Towbin also downgraded APSG to a Market Perform from an Buy rating.

APSG is trading down 16%, or down $2.52, at $13.11 after last nights warning. Perhaps an issue to note here is that IF this really does get perceived as a "value" it could become an acquisition target for one of the defense and homeland security companies. L-3 (LLL) would have been a shoe-in potential buyer, but now that the CEO passed away the company is sort of in lock-down mode and may be on the block itself. With a market cap of under $184 million, it would be an easy integration for any larger company as long as it wouldn't be a situation the government objected to. This has not yet been added to the BAIT SHOP as a takeover candidate, but this last drop may accelerate its status off the watch list as it would be an easy integration for a larger outside defense or homeland security-oriented company.

Like it or not, governments spy. Like it or not, our world isn't going to be changing any time soon where the government feels it doesn't need to spy. Like it or not, this company isn't going to stop getting spy-tech orders. Like it or not, Applied Signal isn't going away any time soon.

Jon C. Ogg

Weekend Edition: Chinese IPO Filing Alert: New Oriental Education

New Oriental Education, TOEFL test prep in China files for a coming IPO


Stock Tickers: EDU, REVU

New Oriental Education & Technology Group Inc. filed to come public on the NYSE under the ticker "EDU." It plans to price 7.5 million ADR's at between $11 and $13 per share, with each ADR representing four common shares. New Oriental hired Credit Suisse and Goldman Sachs as underwriters. New Oriental is a Beijing-based provider of private educational services in China as a test prep school and English prep. New Oriental is a huge name in China and is said to partially be the reason so many students had high verbal GRE and TOEFL scores. This is actually considered a hot name in IPO-watchers out of China, although it is not thought of as "the next Baidu" type of IPO.

If you want to compare this to anything, the most comparable company would be a Princeton Review (REVU) here in the US, or even Kaplan (owned by the Washington Post). Princeton Review is the SAT and prep-test leader in the US, or at least was, and certainly helped YOURS TRULY (ME) improve SAT scores to weasel into college. REVU unfortunately hasn't done too well as a public company. REVU has only a $144 million market cap, trades under its old IPO price, and has been a dead-money stock trading between $5 and just over $6 for most of the last 18 months. It has also posted net losses for the last two years and is "hopefully" at the end of a long fight to get back to annual profits. We will follow up with New Oriental's financials in a later story for a full comparison.

Jon C. Ogg

Weekend Edition: FCC Auction Results Still Surprising; T-Mobile Is Most Aggressive

T-Mobile buys more FCC spectrum by far

Stock Tickers: DT, VZ, VOD, S, T, BLS, LEAP, CMCSA, TWX

The additional dollar rate of licenses really seems to be slowing down and the bids essentially go until there are no more at this FCC auction, so we thought we would show how this is going so far. We have compiled the results through Round 38 of the bidding. This may go into September still, but it seems to have slown down. If you look on the FCC site they show these results in a nearly-live format. This is expected to toal out at $14 billion to $15 billion according to pre-auction estimates, so these "winning bidder" numbers may actually end up looking different at the end.

The clear winner so far, which has been a little surprising here, is Deutsche Telekom's (DT) aggressive bidding for the T-Mobile unit here in the US. It was thought that Verizon (VZ) was going to be the most agrressive pre-auction, so that is why we say this is surprising. This actually may be an indication that T-Mobile may try to agressively grow with more WiMax and communications offerings. T-Mobile is not thought of in the same light by most when they compare up to Sprint NexTel, Verizon, or Cingular. Maybe that will change, maybe it won't. At one point T-Mobile was even going to be sold, but the price never reached the level the company was seeking.

Auction No. 66 is for 1,122 licenses:
36 Regional Economic Area Grouping licenses,
352 Economic Area licenses,
734 Cellular Market Area licenses.

Qualified Bidders: 168
Rounds Completed: 38
Bidding Days: 11
Results for Round 38
Gross Bids: $12,743,128,200 ($11.8 Billion is from the top 5 bidders)
Dollar Change: $76,153,000
Net Bids:$12,563,802,750
Dollar Change: $55,014,600 (from end of Round 37)
New Bids: 289
Licenses with PWBs*: 978
FCC Held Licenses: 144
Eligible Bidders: 128
* PWBs = Provisionally Winning Bids


Cellco dba Verison Wireless; Verizon (VZ), Vodafone (VOD)
Cingular: AT&T (T), BellSouth (BLS)
Cricket: Leap Wireless (LEAP)
MetroPCS (private, for now)
SpectrumCo LLC: Comcast (CMCSA), Time Warner (TWX), Sprint Nextel (S), Cox Communications, Bright House Networks.
T-Mobile: Deutsche Telekom (DT) unit

Consortium new bids Licenses Winning Bids eligibility
Cellco Partnership 0 4 $2,798,738,000 179404211
Cingular AWS, LLC 20 45 $1,185,569,000 136093685
Cricket Licensee
24 54 $737,857,000 90061053
MetroPCS AWS, LLC 1 5 $960,146,000 82485264
SpectrumCo LLC 18 112 $2,036,019,000 263745264
T-Mobile License LLC 31 132 $4,100,643,000 354814737

Total from Top Bidders:
352 $11,818,972,000


Jon C. Ogg

Weekend Edition: Smith & Wesson Sets Up to Gun Down Competitors

Smith & Wesson looking at acquiring companies

Stock Tickers: SWHC, TASR, ADG

Today Smith & Wesson (SWHC), or what investors call "Dirty Harry," filed to sell up to 15 million shares of common stock. The shares closed down 2.9% at $8.54 today, but shares are down 2.8% to $8.30 after-hours. This is said to be $130.65 million based on current market prices. The official S-3 says that this will be for general corporate purposes that includes acquisitions, yet the simultaneous S-4 hints that this is more for acquiring companies than anything else.

Smith & Wesson has a current market cap of $337 million, and trades with a 39.3 trailing P/E ratio, and if current estimates for 2007 are accurate then it has a forward fiscal April 2007 P/E of under 30. The company did just recently move over to the NASDAQ for trading. The April 30 financials showed only $731,000 cash, total short-term assets at $53.1 million, and total assets at $94.698 million. Its current liabilities were $31.6 million and total liabilities were $53.365 million.

Here are some notes from the company:

This prospectus covers shares of common stock and shares of preferred stock that we may issue and sell from time to time in connection with acquisitions by us of other businesses. We expect the terms of any such acquisitions will be determined by negotiations with the owners or controlling persons of the businesses to be acquired and the shares issued in connection with such acquisitions will be valued at prices reasonably related to market prices current either at the time of agreement on the terms of an acquisition or at or about the time of delivery of the shares.

We will not receive any cash proceeds from sales of the stock covered by this prospectus. We will, however, acquire assets, stock, or businesses in connection with acquisitions and may receive proceeds upon the exercise of options, warrants, convertible securities, or other securities we issue or assume in connection with acquisitions.

We are authorized to issue 100,000,000 shares of common stock, $.001 par value, and 20,000,000 shares of undesignated preferred stock, $.001 par value. At April 30, 2006, we had outstanding 39,310,543 shares of common stock and had reserved approximately 2,908,167 shares of common stock for issuance with respect to options outstanding under various stock option plans. No shares of preferred stock were outstanding at that time. The following description of our capital stock is intended to be a summary and does not describe all provisions of our certificate of incorporation or bylaws or Nevada law applicable to us. For a more thorough understanding of the terms of our capital stock, you should refer to our articles of incorporation and bylaws.

The big question................

So, who would Smith & Wesson acquire? They are the ONLY public gun-maker in the US. With a $337 million market cap, Taser (TASR) is out of reach with its $467 million market cap and lofty 100+ P/E. There is a munitions maker named Allied Defense Group (ADG) valued at $116 million. Outside of these two names, there are probably hundreds of smaller players that are not public that could be within the scope of the company.

The CEO is about to appear on CNBC with Larry Kudlow after 5:00 PM EST, and as positive as Kudlow is you can just almost be assured that the tone will be very rosy and friendly for what the street thinks of as a controversial stock. The company is also in a bid for a large government contract, so that will likely come up as well.

Michael F. Golden, Smith & Wesson President and CEO, said, "We have previously indicated our intention to expand and diversify our business through strategic acquisitions and alliances. Our expanded credit agreement and these registration statements are intended to assure that we have sufficient resources to take advantage of any opportunities that present themselves. We do not currently have any definitive plans for acquisitions or alliances and have not entered into any letter of intent or other documentation with respect to any such transaction. We also have no current plans to raise additional funds through the public securities markets or through our credit agreement."

The Company has received approval for a $30,000,000, two-year Revolving Acquisition Line of Credit with TD Banknorth, NA. When finalized, the new credit facility will be available to finance up to 90% of the price of acquisitions, subject to certain terms and conditions.

The strong wording from the company and the tone of this would lead one to believe that Smith & Wesson isn't making this public just because they like to do SEC filings.

Jon C. Ogg

Weekend Edition: Apple Pays $100 Million to Settle Creative Claims

Apple folds and pays $100 million to Creative.

Stock Tickers: CREAF, AAPL, SNDK, BRST, SNDK, MSFT

Creative (CREAF) actually got $100 million out of Apple (APPL). Creative is another MP3 maker with a competing product that has actually been around in MP3 markets longer. Shares are now up 29% to $7.80 on this news.

So what is next? Well, you can imagine the cockroaches may come out of the woodwork to sue Apple now like Creative did. Apple must have either decided it really did hurt Creative, or they just don't want any more legal issues going on while it is having its own options "issues" in the news.

This may make the case of Burst.com (BRST-OTC) seem a little stronger to the investment community. That was filed by Burst back in April, and it is probably worth noting that Burst did actually get money out of Microsoft (MSFT) in patent cases.

Also, will this lead Creative to go after other MP3 makers? SanDisk (SNDK) has been making headwinds in this area with its new consumer products. That is pure conjecture there, so don't take that as anything other than a quick thought before you do research in that area.

Apple® and Creative Technology, Ltd. (CREAF) today announced a broad settlement ending all legal disputes between the two companies. Apple will pay Creative $100 million for a paid-up license to use Creative's recently awarded patent in all Apple products. Apple can recoup a portion of its payment if Creative is successful in licensing this patent to others. In addition, the companies announced that Creative has joined Apple's "Made for iPod" program and will be announcing their own iPod® accessory products later this year.

"Creative is very fortunate to have been granted this early patent," said Steve Jobs, Apple's CEO. "This settlement resolves all of our differences with Creative, including the five lawsuits currently pending between the companies, and removes the uncertainty and distraction of prolonged litigation."

"We're very pleased to have reached an amicable settlement with Apple and to have opened up significant new opportunities for Creative," said Sim Wong Hoo, chairman and CEO of Creative. "Apple has built a huge ecosystem for its iPod and with our upcoming participation in the Made for iPod program we are very excited about this new market opportunity for our speaker systems, our just-introduced line of earphones and headphones, and our future family of X- Fi audio enhancement products. We expect that the one-time licensing payment of $100 million will contribute approximately $.85 of earnings per share to our current quarter, ending September 30, 2006."

Jon C. Ogg

Weekend Edition: Diebold Doesn't Want You To Read This

Diebold still having problems over electronic voting machines.


On July 14 we wrote and posted a story called "Will House Hearings Impact Diebold?" discussing the electronic voting machines. The hearings were merely to determine if the new standards will prevent or limit the perception of problems existing. On July 14, DBD closed at $37.97. This company is not a one-trick pony since they are the ATM leader, but there is the potential of a massive windfall if they can secure the trust for electronic voting machines accross the US.

This "public trust and perception" may be at risk if the most recent event has anything to do with it. If the public views their votes not being properly counted then they will say to hell with all electronic voting machines. Ultimately we all know that will be available on an electronic basis, but fear and discomfort can bog down progress just as much as any government mandate.

In elections this week in Alaska Diebold-built touchscreen voting machines did not properly upload votes into the central computing system and these results had to be manually counted and manually uploaded. Supposedly this was because the Kodiak precints were required to be presented in more than one language. This is also because of new technology in remote areas, but think of all of the places in the US considered "backwoods" and wonder if this will be isolated to one event. If you think back to the time you have voted at a precinct, ask yourself if the voting monitors and volunteers there will all know how to be on-site techies capable of handling any electronic "issues" that come up. According to a "Anchorage Daily News" article the spokesperson for the Alaska Democratic Party noted that this is indicative of larger problems with the machines.

Ultimately we will all be using electronic voting machines and maybe even remote voting is not out of the realm of possibilities, but for now this is obviously an "at risk" situation for Diebold and anyone else wanting to profit off of electronic voting machines.

Shares of Diebold (DBD) over the last 5 days have traded down from $42.00 to today's 0.5% decline to $40.92.

Jon C. Ogg

Weekend Edition: Who Will Bank of America Acquire Next? And Where?

Bank of America is getting ready to transform.

CNBC's Charlie Gasparino said the network has learned that Bank of America (BAC) may do a transformational deal. This is not of ANY real surprise if they see something they can integrate and we have notified about B of A being at the federally mandated caps of not being able to do banking acquisitions in the US because of the 10% of the deposit base limitation in the US. That figure does not include credit union deposits, but so far B of A has not been able to get that definition changed (yes, they have tried making the credit union argument according to a Federal Reserve contact). That means they cannot acquire a Bank in the US, but they can branch out into non-banking operations in the US or go international to buy a non-US deposit institution.

CNBC sort of hinted that the company will most likely go the route of an international bank, and HSBC (HBC) was thrown out as "one example" of an international bank in this criteria. Oddly enough they just sold its franchise equivalent stake of its Hong Kong retail operations to China Construction Bank for about $1.25 Billion that we noted this morning, so where does this leave them? You could probably go pick two dozen large international banking operations that they could go after, and the list may be too long to note.

They could also be "transformational" in other domestic financial operations outside of banking, but the street is into more of a de-conglomerization attitude these days so that may not be in the works. They have just recently integrated the large acquisition of MBNA for credit cards, so we'll have to see what are the next obvious candidates. Bank of America has gotten more into mortgage offerings and has even sent out insurance offerings in the mail to its customers, so that could be the case too. The company could also go after a money management and asset advisory firm, so long as they are not deemed "deposits" according to federal reserve definitions. You could even see them go for a pure-play auto loan company or merchant banking operation. We could even make the case that they will want a pure-play brokerage firm, although most of those firms have managed to remain independent because of critical business being tied to a small number of individuals that "walk out the front door" every night.

You can flip a coin as to what they will do. If you pick heads for a US deal, then you have your answer that it would be a non-depository institution. If you pick tails then you can presume they would go after a large international bank that doesn't have a large US deposit base. To make matters more complicated, if you picked tails it could be the international bank that has a large non-depository operations inside the US to boot.

Whatever B of A decides, you can bet the list of "speculation companies" will come out one after another.

Jon C. Ogg

Weekend Edition: Ryanair's Lawsuit Against the UK; A Prelude to an Earnings Miss?

Is Ryanair setting up for an earnings miss?


There is an interesting story going on with the Irish-based discount airline leader Ryanair that has stormed the EU for cheap fares in recent years. Ryanair (RYAAY-NASDAQ/ADR) is reportedly following through with a threat by suing the British government's Department for Transport for GBP3 million (the equivalent of almost $6 million) because of losses it faced from flight cancellations and delays. This is after the police arrests from the UK terror plot to blow up planes in mid-air and the claim is to return security to normal.

There were reports last week that the discount flyer was threatening to sue the government if there were not a laxing of airport security and improvement in staffing. It also wants the restoration of hand baggage in its initial complaint, particularly since Ryanair started charging 2.5 Euros ($3.20-ish US) for each check-in luggage piece in January of this year; and that has temporarily been waived for bags that would have been carry-on otherwise.

The ADR's in the US fell almost 4% the day after the foiled UK terror plot. On August 10 shares closed at $55.64 and they closed down at $53.86 the following day. Shares closed lower yesterday at $51.52. Shares were up 1.1% in overseas trading earlier today. This stock is more than 10% higher than its 52-week lows and still up over 65% from its 2-year lows.

While the company claims the proceeds will be donated to charity, this sets up an interesting legal precedent. The UK has said there are no grounds for the suit according to overseas reports. It also has the earmarkings of an earnings warning, which has not been issued by the company in a corporate press release or disclosure of material information search. If the company is not planning to issue an earnings warning, it is at a minimum of prepping the street for this potentiality of an EPS miss. This at least gives the CEO some wiggle room if or when the numbers are soft, and now he can show something anecdotal to back up the "ex-terror" results.

Shouldn't they simultaneously be suing to seize terror assets to recoup losses from this as well?

Jon C. Ogg

Weekend Edition: Hi-Ho Hoku!

Here is the huge day seen on Hoku Scientific on it proceeding withmanufacturing plans and with an upgrade.

This morning there is a huge jump in Hoku Scientific (HOKU), with its shares up 28% to $4.43 on monster volume compared to most days for the stock. Piper Jaffray raised this stock from a market Perform rating up to an outperform rating. The thinly-traded company also awarded a contract to a Lockwood Green venture to provide construction and engineering related services for its new polysilicon production plant that will manufacture and sell polysilicon for solar applications. The terms were not disclosed and really aren't that important as this signals the company is proceeding ahead. This stock has been battered this year and cut by 3/4 before interest in the name resurfaced in recent trading days. This is one of the thin-volume microcap plays out there with a $70+ million market cap. The company has posted marginal profits on and off, and the fact that they may be able to capitalize off of the shortages of materials in the construction of alternative energy products for residential solar panels.

So far, this upgrade looks like the "Analyst Call of the Day."

Jon C. Ogg

Weekend Edition:The Analyst Call of the Week

Here is what can happen when a solid analyst makes the right type of call:Bear Raised XM (XMSR) to Outperform from Underperform.

Some weeks there are incredible calls from brokerage firm analysts, and some weeks there are dismal calls. This week's most impressive call goes to Robert Peck of Bear Stearns for his upgrade on XM Satellite radio (XMSR) where he took the stock from an Underperform to an Outperform rating. He noted that the company and the FCC were close to having issues resolved and that the units would ship in time for the holiday season.

The release confirmed this this morning. We noted that the shares were up 5.7% earlier, but now they are up almost 8% at $13.93 on the news. Shares closed the day out at $11.24 this Monday before his Tuesday upgrade, meaning the stock is up 23.9%. It is even remarkable that there has not been a "sell the news" reaction to the event.The most recent data for August's short interest had the stock with over 28 million shares in the short interest. While that represents about 12.5% of the free float, it is far under the 37 million shares in the short interest for the month of july.

It looks like some of the smarter short sellers were covering ahead of the FCC and after Cramer was calling on Sirius (SIRI) to try to acquire XM.While we often feature negative analyst calls, the street is likely tipping their hats to Mr. Peck at Bear Stearns this week.

Jon C. Ogg

What Is Topps Worth?

Would you like some baseball cards with your investment?

The Topps Company, Inc. (TOPP) early Friday announced that at the Company's Reconvened 2006 Annual Meeting of Stockholders, stockholders elected the Company's four nominees -- Arthur Shorin, Timothy Brog, Arnaud Ajdler and John Jones -- to the Topps Board of Directors. This makes 10 on the board now instead of just 9, but what is interesting is that this is now at least partially more of an activist board of directors with members from Pembridge Capital and Crescendo partners instead of a board that just wants to open packs of baseball cards and chew some really bad gum.

This could portend a sale of either the whole company, or at least a sale of one of the units. They sell sports collectibles and trading cards, and they have several candy units. If you will recall Topps was unable to find a buyer for its confectionary unit in the past. If you tried the gum in the past you would know why. The gum should go the way of $1.99 6-packs of beer.

At $8.69 it is in the middle of the $6.87 to $10.39 52-week trading range, and still under the trading range for almost all of the year before that. It has lost nearly 1/3 of its value in the last 5-years, and has not been able to stay over $10.00 for most of that time. In the early 1990's this company was over $15.00 for much of the time.

Will this make my 1955 Topps Baseball set more valuable? The big issue with the modern sports collectibles arena as a business now is that most of these things are very "massively" mass produced and the sets from the late 1980's to present day that are worth no more than when they were made. Steroids scandals and the rowdy behaviour and antics of players hasn't helped, and whenever there is a sports strike the company suffers.

Topps is not a member of our BAIT SHOP, and it is questionable as to if it will make it ever. It is obvious what the problems in the industry are, but a fix to the problems does not just jump out as an obvious answer. It has very spotty earnings that are hard to adequately smooth out each period, and finding the growth prospects for the company has been more than elusive. Even if the company is able to meet or slightly exceed the scace forward estimates, it cannot be called a cheap company. It is very possible that someone else may want the company, but things may have to get worse before another group or company would step in to say "Mine!" in the land grab.

Jon C. Ogg
August 25, 2006

Market Wrap (August 25, 2006)

DJIA 11,284.05; Down 20.41 (0.18%)
NASDAQ 2,140.29; Up 3.18 (0.15%)
S&P500 1,295.09; Down 0.97 (0.07%)
10YR-Bond 4.791%

Today we got to deal with the news that a tropical depression could be upgraded overthe weekend in Tropical Storm 'Ernesto' and it is likely to enter the Gulf of Mexico; and since it has a Latino name maybe it will stay South of America. Despite the warnglings in Iran and despite Bernanke speaking with no mention of rates or the economy, today was dead quiet and Atr Cashin on CNBC said it was like commuting on the carousel where you have to pay for your ticket but end up where you started. The markets ended mixed and with the exception of a few news items we would probably like our 9 hours back. This week was as light of volume as a Christmas week.

Taser (TASR) rose 2.3% to $7.71 after getting a follow-on order of $1 million from Florida law enforcement agencies.

Corcept Therapeutics (CORT) shares were decimated by 55% to $$1.55 after it barely exceeded the placebo in its psychotic Phase II trials.

XM Satellite Radio (XMSR) rose another 4.6% to $13.50 after the FCC approved its 3 new radio designs, which will allow it to be manufactured and shipped in time for the holiday season.

Home Depot (HD) rose a whopping 0.2% to $33.48 after no one seemed to notice that they added $3.5 Billion to their shares buyback plan.

Ford (F) rose 3% to $8.01 after Robert Rubin resigned from the B.O.D. to avoid any potential conflicts from his relationship with Citigroup; then reports came later in the day that Citigroup was named as a lead advisor.

J Crew (JCG) fell 2.5% to $26.01 after having its first earnings report as a public company. The company had EPS of $0.20 vs $0.17+e, but revenues looked a tad light.

Dyax Corp (DYAX) rose 17% to $3.35 after the company essentially entered into an upfront payment and factoring agreement with Paul Capital Royalty Fund.

H&R Bloch (HRB) fell 8% to $20.81 on word of its $61+ million charge being set aside.

Isle of capri (ISLE) fell 12% to $19.26 after posting lower than expected earnings.

Finish line (FINL) rose almost 5% to $10.87 despite being down as much as 10% pre-market on lowered earnings guidance. The valuations are the reason for the recovery.

Brinks (BCO) rose 3.5% to $57.20 after a Business Week article said it was set to unlock value.

USG (USG) rose 3.8% to $48.80 after Berkshire Hathaway lifted its stake in the company.

Hoku Scientific (HOKU) rose a sharp 35% to $4.65 after it was upgraded at Piper Jaffray, which was the 'Analyst Call of the Day' after it hired a consultant to move forward with developing another manufacturing facility.

Toyota Motors (TM) fell almost 2% to $106.20 after the company is reportedly delaying some new models because of quality control issues.

Google (GOOG) was largely unchanged for the most part closing down 0.1% at $373.26 after reports surfaced saying it was at the same risk as being classified as a mutual fund.


Thanks and have a nice weekend.


Jon C. Ogg
August 25, 2006

A Sad Day For Home Depot Shareholders

Usually companies that announce substantial buybacks rise on the news. Usually doesn't appear to apply to Home Depot (HD). The company last night lifted their share buyback authorization by another $3.5 Billion to a total of $17.5 Billion. The company has already repurchased $12.5 Billion in stock. The dividend was also set at $0.15.

Shares are currently trading up a whopping $0.04 at $33.45 on such an overwhelming shareholder response.

So this leaves $5 Billion left under a buyback, which translates at $33.50 rounded up to a total of just under 150 million shares. With an average daily volume of 13.5 million shares, that translates to about 11 days worth of total trading volume. That isn't too paltry for a DJIA component, but we are talking about the company Jim Cramer refers to as the "Home Despot" whenever he can.

If Mr. Nardelli, the hated CEO and Chairman, cannot take a hint any better than this then he will eventually be thought of as unliked AND dumb. Obviously he isn't going to want to walk away from all the undeserved loot he gets, but he has shown very little as far as an "investor vote of confidence" to justify his employment package. Maybe he thinks he is in that $100-million plus income union that keeps you from getting fired even if you can't do the job. The company can even justify giving him a severance package if he thinks he needs the money. The street would be so happy to see him go they might just forget about the severance costs.

Jon C. Ogg
August 25, 2006

Wall St Covers Lowes With A Vacuum, And Sucks Out The Air

Stocks: (LOW)

First there news appeared the existing home sales dropped to a two-and-a-half year low. Then, the supply of homes for sales hit an all-time high. Finally, new home sales dropped.

Lowes hit a 52-week low today at $26.15, down from a period high of $34.85.

The homebuilding supplier's last quarter was not terribly grim. Revenu rose 12% to $13.4 billion and earnings were up 11%. But, the company guided that same store sales could be as low as 2% for the year.

But, there is just a whiff in the air that things could get worse, much worse. Nouriel Roubini, the economist, told MarketWatch that we may be at the beginning of the economic end:The United States is headed for a recession that will be "much nastier, deeper and more protracted" than the 2001 recession.

And, ancient financial writer Dan Dorfman, writing for the New York Sun quoted a Raymond James analyst as saying that "the ongoing collapse of residential real estate has far-reaching implications for both the economy and the stock market".

Right now, the idea of a hard landing is a minority view. But, that could change quickly over the next month or two if there is evidence that the housing market malaise is starting to throttle back consumer spending.

If there is any indication that Lowes same store sales are moving into negative figures year-over-previous year, the ugly collapse in its share price would get much worse.

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

The Analyst Call of the Week

Some weeks there are incredible calls from brokerage firm analysts, and some weeks there are dismal calls. This week's most impressive call goes to Robert Peck of Bear Stearns for his upgrade on XM Satellite radio (XMSR) where he took the stock from an Underperform to an Outperform rating. He noted that the company and the FCC were close to having issues resolved and that the units would ship in time for the holiday season. The release confirmed this this morning. We noted that the shares were up 5.7% earlier, but now they are up almost 8% at $13.93 on the news. Shares closed the day out at $11.24 this Monday before his Tuesday upgrade, meaning the stock is up 23.9%. It is even remarkable that there has not been a "sell the news" reaction to the event.

The most recent data for August's short interest had the stock with over 28 million shares in the short interest. While that represents about 12.5% of the free float, it is far under the 37 million shares in the short interest for the month of july. It looks like some of the smarter short sellers were covering ahead of the FCC and after Cramer was calling on Sirius (SIRI) to try to acquire XM.

While we often feature negative analyst calls, the street is likely tipping their hats to Mr. Peck at Bear Stearns this week.

Jon C. Ogg
August 14, 2006

XM Satellite Gets an FCC Sigh of Relief

XM Satellite Radio (XMSR) has confirmed that the FCC issued new grants of authority for three XM radios with FM transmitters after determining that the radios are in compliance with FCC regulations. These XM plug-and-play radios (Audiovox Xpress, Delphi RoadyXT, and XM Sportscaster) are three of XM's primary products at retail. XM is notifying its manufacturers to resume production of these devices. These new products are expected to be available at retail for the holiday shopping season.

These delays were hurting teh stock earlier this summer and this will confirm some positive research reports saying this would be resolved by the end of August. Shares are now up 5.7% to $13.64 on the news.

Jon C. Ogg
August 25, 2006

PMC Sierra Take A Breather From Its Beating

Stocks: (PMCS)

PMC got clobbered after announcing its last quarter's earnings. Revenue hit $119 million, up 66%, but some of that was from its acquisitions of Passave and Avago.

The telecommunications chip company was expecting a big lift from revenue from Passave. That did not happen. According to a Morgan Stanley analyst quoted in Forbes, it was a big let-down: "When management announced plans to acquire Passave, Sur said he had expected the acquisition to add $60 million to $65 million in revenue in 2006. PMC-Sierra management announced Passave contributed just $8.8 million in the June quarter with guidance of $13 million next quarter." Pretty big miss.

This fiasco was followed by an announcement that PMC has options pricing problems. Fortunately for PMC, the company was able to resolve that there had been errors in option pricing, it took an accounting charge, and filed a correct Q2 statement. The tiny silver lining of the cloud was that a delayed filing might have gotten PMC in trouble with the NASDAS listings police. At least the company dodged that.

Short seller in the company's shares obviously got a bit nervous, perhaps because they thought the company would get its options troubles behind it faster than companies like Apple have. Short interest in the shares dropped 7 million to 19 million from mid-July to mid-August.

Wall St is still skeptical. The company's shares traded at $10 in early June. After dropping to about $5 in mid-July, they now trade at $6.26.

The shorts may be moving out now, but if PMC does not show that it has taken advantage of its acquisitions, they will probably be back with a vengeance.

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

Repost: Ford "Loses" Robert Rubin Off the Board of Directors

This was reposted from around 9:10 AM EST this morning.

This is an interesting press release that may not tell the whole story. Robert Rubin has resigned from the Board of Directors at Ford (F) this morning. Rubin has reportedly been fairly pressing on the company getting its act together. The reason is stated as "to avoid appearance of any conflicts" because of the Citigroup relationship. Something doesn't sound right there.

In a letter to Bill Ford, Mr. Rubin said: "As the Board undertakes its upcoming review of strategic options, Citigroup's multi-faceted relationship with Ford could raise a question whether my relationship with Ford and Citigroup creates an appearance of conflict. Although no conflict currently exists and while I would have liked to remain involved, I have with great regret concluded that I should resign from the Board at this time."

Chairman and Chief Executive Officer Bill Ford said: "I greatly appreciate the many valuable contributions Bob has made to Ford Motor Company during his six-year tenure. He brought strategic thinking to every situation and has been a wise and generous counselor to me and to the company. However, I understand and respect Bob's prudent decision to resign as we continue to explore future strategic options."

This is as the company is in the midst of its ongoing expolration of alternatives. So what you have to wonder is if Rubin just didn't want to go down with the ship OR Ford is going to go much further than what the street has thought in their restructuring and the possibility that Citigroup will be actively involved just went up.

Jon C. Ogg
August 25, 2006

Hi-Ho Hoku!

This morning there is a huge jump in Hoku Scientific (HOKU), with its shares up 28% to $4.43 on monster volume compared to most days for the stock. Piper Jaffray raised this stock from a market Perform rating up to an outperform rating. The thinly-traded company also awarded a contract to a Lockwood Green venture to provide construction and engineering related services for its new polysilicon production plant that will manufacture and sell polysilicon for solar applications. The terms were not disclosed and really aren't that important as this signals the company is proceeding ahead. This stock has been battered this year and cut by 3/4 before interest in the name resurfaced in recent trading days. This is one of the thin-volume microcap plays out there with a $70+ million market cap. The company has posted marginal profits on and off, and the fact that they may be able to capitalize off of the shortages of materials in the construction of alternative energy products for residential solar panels.

So far, this upgrade looks like the "Analyst Call of the Day."

Jon C. Ogg
August 25, 2006

Tech Beat

By William Trent, CFA of Stock Market Beat

ValueLine profiled the Computer Software and Services group, and says:

The Computer Software & Services Industry should continue to perform well, both this year and through the later years of this decade. The U.S. economy is showing some signs of slowing, and business spending on equipment and software did weaken in the June quarter, but we think both business and consumer spending on computing gear and software will pick up in the second half of the year, and continue at a decent pace in 2007 and out to 2009-2011, leading to good revenue and earnings gains for this group. Indeed, investors should be able to find a number of stocks in this sector that will be of interest, since many of these equities are timely for the year ahead, and even more of them have above-average 3- to 5-year appreciation potential.




Meanwhile, the durable goods data looks pretty good for tech hardware. For computers especially, shipments, orders and unfilled orders accelerated sharply.

When averaged against a slowdown in communications equipment, this could be good news for the likes of Dell and acts as some confirmation of our theory that the strength in Microsoft’s deferred revenue could lead to better-than-expected growth in computer sales next year. The fact that Dell rallied from its preannouncement lows and stayed above them despite the battery recall and a disappointing conference call indicates that the bottom may be in place.

Dell may be further helped by semiconductor pricing. As we have discussed before, we think the semiconductor industry is about to have way too much capacity. That should result in lower prices, which in turn would help Dell’s margins (along with Hewlett Packard’s.) Applied Materials (AMAT) noted on their conference call that the outlook for next year’s equipment orders hinges on whether semiconductor makers can cut their inventory levels. AMAT shouldn’t hold their breath on this one.

At any rate, recovery can’t come soon enough for many tech players. Leading distributor Tech Data (TECD) saw sales rise 2.7% year/year, with gross margins declining due to problems with their overseas divisions. They said market conditions reflect a competitive environment. Without a significant catalyst to spur new computer purchases, the whole group could quickly return to the doghouse.

http://www.stockmarketbeat.com/

Wall St Shorts Buy Microsoft Pitch

Someone believes that Microsoft's argument that it can get back on the growth trail. After the software giant made it big presentation about Vista and its commitment to the internet as a software delivery mechanism, short interest dropped 15 million shares to 73 million from July to mid-August.

Microsoft argument that it will see improving Xbox sales and will launch a multimedia player Zune, before the holidays, at least held out some hope that the company will not depend on its operating system and server software for virtually all of its operating income. The one legged chair syndrom has plagued the company, and its investors, for a decade.

Since mid-July, the company's shares have made a move that might give some shorts pause. The stock, which was barely above $22, has moved above $26. A move of 18% on a company with Microsoft's $259 billion market cap is an achievement indeed.

If the company can continue to convince investors that the new Vista operating system can launch byearly 2007 and that one or more of its other initiatives (Xbox, MSN, the new Zune player) will do something other than suck down operating income, Microsoft's shares may just run a little more.

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

Ryanair's Lawsuit Against the UK; A Prelude to an Earnings Miss?

There is an interesting story going on with the Irish-based discount airline leader Ryanair that has stormed the EU for cheap fares in recent years. Ryanair (RYAAY-NASDAQ/ADR) is reportedly following through with a threat by suing the British government's Department for Transport for GBP3 million (the equivalent of almost $6 million) because of losses it faced from flight cancellations and delays. This is after the police arrests from the UK terror plot to blow up planes in mid-air and the claim is to return security to normal.

There were reports last week that the discount flyer was threatening to sue the government if there were not a laxing of airport security and improvement in staffing. It also wants the restoration of hand baggage in its initial complaint, particularly since Ryanair started charging 2.5 Euros ($3.20-ish US) for each check-in luggage piece in January of this year; and that has temporarily been waived for bags that would have been carry-on otherwise.

The ADR's in the US fell almost 4% the day after the foiled UK terror plot. On August 10 shares closed at $55.64 and they closed down at $53.86 the following day. Shares closed lower yesterday at $51.52. Shares were up 1.1% in overseas trading earlier today. This stock is more than 10% higher than its 52-week lows and still up over 65% from its 2-year lows.

While the company claims the proceeds will be donated to charity, this sets up an interesting legal precedent. The UK has said there are no grounds for the suit according to overseas reports. It also has the earmarkings of an earnings warning, which has not been issued by the company in a corporate press release or disclosure of material information search. If the company is not planning to issue an earnings warning, it is at a minimum of prepping the street for this potentiality of an EPS miss. This at least gives the CEO some wiggle room if or when the numbers are soft, and now he can show something anecdotal to back up the "ex-terror" results.

Shouldn't they simultaneously be suing to seize terror assets to recoup losses from this as well?

Jon C. Ogg
August 25, 2006

Ford "Loses" Robert Rubin From Its Board of Directors

This is an interesting press release that may not tell the whole story. Robert Rubin has resigned from the Board of Directors at Ford (F) this morning. Rubin has reportedly been fairly pressing on the company getting its act together. The reason is stated as "to avoid appearance of any conflicts" because of the Citigroup relationship. Something doesn't sound right there.

In a letter to Bill Ford, Mr. Rubin said: "As the Board undertakes its upcoming review of strategic options, Citigroup's multi-faceted relationship with Ford could raise a question whether my relationship with Ford and Citigroup creates an appearance of conflict. Although no conflict currently exists and while I would have liked to remain involved, I have with great regret concluded that I should resign from the Board at this time."

Chairman and Chief Executive Officer Bill Ford said: "I greatly appreciate the many valuable contributions Bob has made to Ford Motor Company during his six-year tenure. He brought strategic thinking to every situation and has been a wise and generous counselor to me and to the company. However, I understand and respect Bob's prudent decision to resign as we continue to explore future strategic options."

This is as the company is in the midst of its ongoing expolration of alternatives. So what you have to wonder is if Rubin just didn't want to go down with the ship OR Ford is going to go much further than what the street has thought in their restructuring and the possibility that Citigroup will be actively involved just went up.

Jon C. Ogg

Pre-Market Stock Notes (Aug. 25, 2006)

(ANST) Ansoft $0.09 EPS vs $0.08e.
(BCO) Brinks positive article in Business Week.
(BNHNA) Benihana $0.40 EPS vs $0.40e.
(CAT) Caterpillar settled lawsuits with Navistar.
(COCO) Corinthian Colleges is delaying its earnings report by 2 weeks or so to complete its option review.
(CONN) Conn's slightly raised guidance and authorized $50M for share buybacks.
(CORT) Corcept Therapeutics reported negative Phase III studies in its psychotic major depression studies.
(EDR) Education Realty lowered guidance.
(F) Ford is reportedly in talks to sell luxury brand unit; Rober Rubin has resigned from its Board of Directors..
(FEIC) FEI said its COO is leaving the company.
(FINL) Finish Line lowered guidance, but said it will nolonger offer quarterly guidance to avoid the quarter to quarter game; stock trading down 15%.
(FUR) Winthrop Realty filed to sell 2.5M shares.
(GNLB) Genelabs CFO resigned.
(GOOG) Google is reportedly at risk of being designated as a fund rather than operating company by the SEC because of its percentage of assets as cash.
(HD) Home Depot authorized $3.5B to repurchase shares.
(ISLE) Isle of Capri missed earnings but the numbers may not have been comparable; stock looks down 4%.
(JCG) J Crew $0.20 EPS vs $0.17e; revenues $269M vs $271M est.
(KBH) KB Homes said they are now under an SEC option inquiry after it already said it saw suspicious options grants.
(LVS) Las Vegas Sands positive article in Business Week.
(MCDTA) McData $0.01 EPS vs -$0.01est.; revenues a tad soft.
(MTZ) Mastec said its SEC inquiry has been raised to a formal inquiry.
(OVTI) Omnivision cut to Sector Perform at CIBC.
(PCYC) Pharmacyclics -$0.33 EPS vs -$0.49e.
(RAH) Ralcorp positive article in IBD.
(RRD) R.R.Donnelly buyout may have stalled according to reports.
(SUG) Southern Union selling some nat gas assets to UGI for about $580M.
(SUPG) SuperGen positive article in Business Week.
(TM) Toyota may delay introducing some new car models by six months to address quality problems.
(UGI) UGI Group is paying $580M to acquire certain nat gas assets from Southern Union.
(WXH) Winston Hotels priced a 2.4M share sale at $11.75.

Select Analyst Calls (Aug. 25, 2006)

CAMT started as Outperform at RBC.
CIEN reitr Hold at Deutsche bank.
CKFR raised to Hold at AGEdwards.
CLMT added to Buy List at Goldman Sachs.
CVTI raised to Mkt Perform at Wachovia.
CYPB started as Buy at Soleil.
EOG raised to Buy at Merrill Lynch.
FST raised to Buy at Merrill Lynch.
GNSS raised to Mkt Perform at Pip[er Jaffray.
HOKU raised to Outperform at Piper Jaffray.
HRB cut to Neutral at UBS.
LPX raised to Neutral at CSFB.
LYO raised to Buy at Merrill Lynch.
MXWL started as Buy at Jefferies.
MYL cut to Sell at B of A.
NBR raised to Hold at Merrill Lynch.
NFX raised to Buy at Merrill Lynch.
PCAR cut to Reduce at UBS.
PNK started as Outperform at Bear Stearns.
PPP raised to Buy at Merrill Lynch.
SIGM started as Hold at AGEdwards.
SNDK raised to Buy at Caris.
UHS cut to Reduce at UBS.
VPHM raised to Outperform at Cowen.
VPRT started as Outperform at Piper Jaffray.
VRTX raised to Buy at UBS.
XTO raised to Buy at Merrill Lynch.

Wall St Shorts Make Opposite Bets On XM And Sirius

Stocks: (SIRI)(XMSR)

The short community raised its position in Sirius Satellite Radio by nearly 19 million shares, the largest single increase for any stock traded on the NASDAQ. The total short position in the company now stands at 129 million.

The short interest in XM Satellite Radio, on the other hand, dropped over 8 million to just under 29 million. After the drop in Microsoft's shares short, XM has the second largest drop of any stock traded on NASDAQ.

Bear Stearns did recently raise its rateing on XM from "underperform" to "outperform", a very big "two grade" bump. The brokerage said that many of XM's problems with its product reviews initiated by the FCC were probably behind it. The company may be able to get these SkyFi2 ratios back online for the holiday season. Bear Stearns also pointed out the XM's line of portable radios was larger that the comparable products at Siruis.

XM has dropped its forecast for year end subsribers to the 7.7 to 8.2 million range, still far ahead of Siruis.

Wall St may also be betting that the Howard Stern hallow effect that the shock jock has had on building Sirius subscribers may be paying off, and that its weaker balance sheet and larger loses could impede it in its competition with XM

Sentiment does seem to be moving toward XM. In the last three days its stock has gone from $11.25 to as high as $13.50. Siruis has gone from slight under $4 to about $4.10 in the same period. Both stocks still trade near their lows, with Sirius down about 50% from its 52-week high.

After several months of Sirius being the favored stock, the pendulum appears to be swinging the other way.

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

Nasdaq Short Interest, August 2006 Sirius Short Position Soars

Following is the Nasdaq short interest in individual stock August 15 compared to July 14, 2006.

Largest Short Positions

Company Total Share Short Increase/Decrease

Sirius 129 million up 19 million
Yahoo 92 million up 5 million
Level 3 85 million up 3 million
JDS Uniphase 84 million up 1 million
Microsoft 73 million down 15 million
Intel 69 million up .3 million
Charter 66 million up .3 million
Cisco 55 million up 16 million
Oracle 53 million up 11 million
Jet Blue 53 million up 2 million
eBay 51 million up 1 million
Dell 47 million up 11 million
Comcast 43 million up 5 million
Symantec 41 million down 4 million
Amazon 40 million up 4 million
Starbucks 35 million up 4 million
Take Two 33 million up 1 million
Sun 33 million up .3 million
Finisair 32 million up 4 million
Conexant 29 million down 1 million
XM 29 million down 8 million
Apple 28 million up 4 million
Qualcomm 28 million up 1 million

Largest Increase


Company Increase

Sirius up 19 million
Cisco up 16 million
Dell up 11 million
Oracle up 11 million
UAL up 7 million
Comcast up 5 million
Yahoo up 5 million
Starbucks up 4 million
Finisair up 4 million
NutriSystem up 4 million
Apple up 4 million


Largest Decreases

Company Decrease

Microsoft down 15 million
XM down 8 million
PMC Sierra down 7 million
PetroHawk down 4 million
Symantec down 4 million
McData down 3 million
Hansen down 3 million
Juniper down 3 million


Largest Days To Cover Ratios

Company Days To Cover

SCO Group 154 days
Integrated Alarm 116 days
Introgen 60 days
Kensey Nash 50 days
Pharmacyclics 49 days


Largest Percent Increase


Company Percent

Loopnet 712%
Savvis 245%
UAL 178%
Books-A-Million 125%


Largest Decreases

Company Percent

PGT -79%
DOV Pharma -63%
West Corp -60%
Sigmatel -55%
ArQule -54%

Douglas A. McIntyre

Toyota Saves GM And Ford From Themselves

Stocks: (GM)(F)(TM)

The Wall Street Journal reports that Toyota is looking at a program to slow down its growth plans and delay introduction of certain new models by as much as six months. The company wants to improve quality control issues that have lead to recalls of some of its vehicles.

The irony is that nothing can stop Toyota's ever increasing market share, especially in the US, expept Toyota itself.

Ford has already announced that it will cut Q4 production by 21% due to slow sales of its trucks and SUVs.

Toyota's sales in the US during July were up almost 12% and the company passed Ford to take the No. 2 market position. GM's sales dropped 22% for the month as truck sales fell 31%. Ford's sales dropped 35% and truck sales were down 45%.

Several studies have shown that its take GM, and especially Ford, longer to replace their old model lines with new vehicles while Toyota does it as quickly as any large car company in the world.

With new 2007 models coming into dealers, and 2008 models being discussed and selectively shown to the public, a six month window with slower vehicle introductions may be the respite that Detroit needs to play a little catch-up.

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

Europe Stock Market Report 8/25/2006 Vivendi Up, Siemens Down

European markets were up very slightly at 5.25 AM New York time.

The FTSE was up less than .1% to 5,872. Barclays was up .6% to 648. BP was down .4% to 605. BT was flat at 241.75. GlaxoSmithKline was down .1% to 1442. Prudential was down .9% to 575. Reuters was down .7% to 387.5. Unilever was down .1% to 1248. Vodafone was up .7% to 111.5.

The DAXX was up less than .1% to 5,814. Allianz was up .5% to 131.5. BASF was up 1% to 63.97. Bayer was down .1% to 39.22. DaimlerChrysler was down .8% to 40.61. Deutsche Bank was up .8% to 89.23. Deutsche Telekom was down .6% to 11.55. SAP was down .4% to 145.69. Siemens was down .8% to 65.32.

The CAC 40 was up .1% to 5,118. Alcatel was down .1% to 9.32. AXA was up .4% to 28.24. France Telecom was down .2% to 16.43. ST Micro was down .4% to 12.43. Vivendi was up .8% to 21.01.

Douglas A. McIntyre

Gateway Makes A Good Buy Out Candidate

By Yaser Anwar, CSC of Equity Investment Ideas

Gateway has Confirmed that it received unsolicited interest from Lap Shun's John Hui to acquire GTW's retail operations.


John Hui, Chinese born technologys entrepreneur, has history with Gateway. In 2004 he sold eMachines to Gateway for $266m. On August 23rd 2006, John Hui, sent the shares higher by offering to purchase GTW's retail operations, which accounted for over 60% of its Q2 revenue, for $450 million.


He also hinted towards a possible buy out of the remaining company, which includes the professional & direct segments. Management has yet to respond to the offer & is contemplating whether Jack is right about the retail segment being subsidized & that the other divisions of the company need to be separated.


S&P calculates the amount equating to $1.21 per share, for what is around 64% of the entire Gateway business according to 2nd Q revenues.. The company acknowledges the news and plans to review the offer.


I believe that GTW's retail strategy is providing benefits by expanding its customer reach. However, due to a significant lack of market share, and strong competitors, speculating on this take-over can be rewarding but at the same time quite risky..


Doubts will remain over John's suitability to lead the company effectively and ease the debt burden. However, I believe there is still value left in Gateway. GTW's PC shipments grew 15% vs 9& Industry wide. In GTW's August earnings, it reported a narrower loss than expected (0.02 vs 0.05).


With a significant brand presence in retail superstores such as Best Buy, Gateway has been boosted by higher volumes strength in the retail segment, manufacturing efficiencies, a favorable business mix & improving cost control efforts. I expect gross margings to widen to 7-8% compared with 06's projected 6.5%., no wonder some institutional investors are seeing hidden value.


Harbert Management which recently acquired a 10.2% stake in Gateway, sent a letter to management expressing interest in working with the company to build new and unlock existing value opportunities.


With the recent HP acquisition, if not John Hui, then it makes sense for Acer or Lenovo to buy Gateway . The reason would be to integrate their operations, leverage the relationships Gateway has built up with retailers, such as Best Buy, a possibility that is certainly on the mind of John Hui.

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

Tons of Cash for Energy Heavyweights

By Yaser Anwar, CSC of Equity Investment Ideas

Thanks to soaring energy prices, the world's biggest oil and natural-gas companies are sitting on mountains of cash. ExxonMobil Corp. had more than $32 billion in its coffers at the end of June - nearly equal to the combined stock-market value of General Motors Corp. and Ford Motor Co.

At the same time, Royal Dutch Shell PLC, Chevron Corp. and BP PLC had a total of more than $26 billion in cash.

www.equityinvestmentideas.blogspot.com

Media Digest 8/25/2006 Reuters, NYT, WSJ

Stocks: (SNE)(AAPL)(TM)(F)(GOOG)(TWX)(FNM)(KBH)

According to Reuters, Apple recalled 1.8 million computers that contain batteries made by Sony. The batteries have overheated and caught fire in some cases.

According to the Wall Street Journal, Toyota may delay the introduction of some new models by six months. The company is dealing with a number of quality issue with its cars and recalls.

According to the Wall Street Journal, a wealthy British executive has expressed an interest in nuying Jaquar. Ford, the company's parent, had no comment on the news.

KB Homes said that the SEC is conducting an informal inquiry into the company's stock option grants, writes the WSJ.

The Wall Street Journal writes that Time Warner unit AOL has made deals with a number of studios to set up a movie download business.

Google has asked the SEC for an exemption from to a regulation for companies with a large dollar amount of marketable securities on its balance sheet. The company is trying to make the case that it does not exist to own securities but rather to conduct business as an internet company. If the company is turned down, it would change the way that the company makes disclosures.

The New York Times writes that Fannie Mae will not face charges over its accounting practices which the government has been probing for several months.

Douglas A. McIntyre

Cramer's MAD MONEY Recap (Aug. 24, 2006)

Stock Tickers: DA, TR, CHTT, MTXX, PRGO

Cramer tonight went to the Supermarkets and the Drugstore to see where investors can make money when the going gets tough and the tough get going.

The way to make money right now is knowing how the money managers think and to obey the business cycle. Since we are in a bad cycle and it will be that way for the next 3 months. He still likes BUD, K, KMB, PG and others but they are obvious and already up. Cramer says the hidden names in the supermarkets to make money on are are Dannon (DA) and Tootsie Roll (TR). He said he likes Hain Celestial (HAIN), but it is too speculative. DA is up 30% since he first liked it but he still likes it. TR is much smaller with a $1B market cap and it is in the cusp of the turnaround with about 8% growth and may be a true secular growth story.

In a call-in question Cramer said Hansen (HANS) is basically played out since they only met expectations. Cramer said he even rather be in Pepsi (PEP) than HANS. In another call about Hershey (HSY) afterthe recent offering announcement, Cramer said he actually thinks the stock is cheap even though they did the "borrow money to buyback stock" but prefers DA ot TR.

TR rose as much as 1.5% to $28.15 and DA rose 0.9% to $28.52 in after-hours trading right after mentioning these.

In the drugstore Cramer said the undiscovered and less exploited plays are these Chattem (CHTT), Matrix Initiatives (MTXX) and Perrigo (PRGO).

Jon C. Ogg

Asia Markets 8/25/2006 Sony, Softbank, Toyota Down

Stocks: (CAJ)(FUJ)(HIT)(NTT)(NIPNY)(SNE)(TM)(HMC)(CHL)(CHU)(HBC)(PCW)

Asian markets were mixed.

The Nikkei was off .1% to 15,939. Canon was up .2% to 5600. Daiwa Securities was off 1.2% to 1400. Fuji Photo was up 1.2% to 4190. Hitachi was up .3% to 736. Honda was down .5% to 3870. NEC was up 1.2% to 661. NTT was up 3% to 591000. Sharp was up .5% to 2050. Softbank was down 9.7% to 2140. Sony was down 2% to 5000. Toshiba was down .9% to 775. Toyota was down 1% to 6250.

The Hang Seng was up .2% to 16,921. Cathay Pacific was up .3% to 14.28. China Mobile was up .8% to 49.55. China Netcom was up 1.7% to 13.14. HSBC was up .5% to 138.6. Lenovo was down .3% to 2.94. PCCW was down .2% to 4.68.

The KOSPI was up 1% to 1,329.

The Straits Times was up .1% to 2,449.

Douglas A. McIntyre

Cramer's MAD MONEY Recap (Aug. 24, 2006)

Stock Tickers: DA, TR, CHTT, MTXX, PRGO

Cramer tonight went to the Supermarkets and the Drugstore to see where investors can make money when the going gets tough and the tough get going.

The way to make money right now is knowing how the money managers think and to obey the business cycle. Since we are in a bad cycle and it will be that way for the next 3 months. He still likes BUD, K, KMB, PG and others but they are obvious and already up. Cramer says the hidden names in the supermarkets to make money on are are Dannon (DA) and Tootsie Roll (TR). He said he likes Hain Celestial (HAIN), but it is too speculative. DA is up 30% since he first liked it but he still likes it. TR is much smaller with a $1B market cap and it is in the cusp of the turnaround with about 8% growth and may be a true secular growth story.

In a call-in question Cramer said Hansen (HANS) is basically played out since they only met expectations. Cramer said he even rather be in Pepsi (PEP) than HANS. In another call about Hershey (HSY) afterthe recent offering announcement, Cramer said he actually thinks the stock is cheap even though they did the "borrow money to buyback stock" but prefers DA ot TR.

TR rose as much as 1.5% to $28.15 and DA rose 0.9% to $28.52 in after-hours trading right after mentioning these.

In the drugstore Cramer said the undiscovered and less exploited plays are these Chattem (CHTT), Matrix Initiatives (MTXX) and Perrigo (PRGO).

Jon C. Ogg
August 24, 2006

Market Wrap (Aug. 24, 2006)

DJIA 11,304.46; Up 6.56 (0.06%)
NASDAQ 2,137.11; Up 2.45 (0.11%)
S&P500 1,296.06; Up 3.07 (0.24%)
10YR-Bond 4.803%

Stock Tickers: BAC, FNM, RAD, VG, CHS, CWTR, ZUMZ, GES, F, COGN, AAPL, RMBS, EBAY, WYN, BP, TTC, CREAF, XRTX

Here is how you would define today: Gap up, sell off, recover a tad, and barely manage to slide into the green ahead of the close. You can say it was jobs numbers, weak new home sales (like that wasn't known), oil inventories, or whatever you want. It is late-August and it doesn't take much to move things up or down right now.

Bank of America (BAC) closed up 0.1% at $52.54 despite the fact that CNBC's Charlie Gasparino said the company will likely make a transformational deal by acquiring a non-banking financial company in the US or by acquiring another depository institution outside of the US.

Fannie Mae (FNM) and its long-term holders were rewarded with shares up 4.8% at $51.57 after the government said the company would not be criminally charged in its past accounting fraud.

Rite-Aid (RAD) closed down 7% at $4.35 after it confirmed yesterday's rumors that it would acquire about 1,800 stores from Eckerd and Brooke.

Vonage (VG) rose a mystery 4.5% to $7.11 on what was really no news from the company and on thin volume.

We had a tale of two competing clothiers in womens' apparel: Chico's (CHS) fell 25% to $17.95 on what was horrible guidance; and Coldwater Creek (CWTR) rose 7.4% to $27.00 after beating earnings expectations.

Two other momentum retailers also fell as Zumiez (ZUMZ) fell 8% to $22.37 and Guess? (GES) fell 8% to $45.08.

Ford (F) closed up 0.7% at $7.82 after the USA Today and others said it may go private, although our Doug McIntyre doesn't think that will easily be in the cards.

Cognos (COGN) rose 3.6% to $29.74 after RedHerring.com said IBM may acquire it.

Despite Apple's (AAPL) recall of 1.8 million laptops, its shares closed up 0.8% at $67.90. Sony's (SNE) ADR's traded down 2.7% at $43.21 as it is the maker of that battery.

Rambus (RMBS) rose another 5% to $13.91 after it had more issues in its ongoing court saga(s) go in its favor.

eBay (EBAY) fell 4.5% to $25.77 after piper Jaffray downgraded the stock to an underperform rating.

Wyndham (WYN) rose 5.8% to $27.93 after it was announced that it would receive proceeds from teh sale of Cendant's (CD) Travelport business and on word of a share buyback plan.

British Petroleum (BP) fell another 0.3% to $68.92 after it lost another 90,000 barrels per day in production due to Prudhoe Bay pipeline equipment failure.

Toro (TTC) fell 5.8% to $38.50 after its profits rose but on weak guidance.

Creative Tech (CREAF) rose 14% to $6.90 the day after announcing Apple would settle patent claims by paying Creative $100 million; that is under the +28% initially on the news in after-hours activity last night.

Xyratex (XRTX) fell 8.5% to $19.15 after Citigroup lowered its rating from a Buy down to a Hold.

Jon C. Ogg
August 24, 2006

Vonage's Thin Volume Mystery Rally

Vonage (VG) is up 6.5% today at $7.25. The odd thing is that there is no fresh news from the company. This is in light of a recent announcement of free VoIP from another company, although that isn't really going to be a Vonage replacement for the minions of customers that love VoIP. There has been some additional insider buying as of yesterday on the wires, but the real reason may lie in the Bear Stearns initiation of coverage yesterday with a "Peer Perform" rating. It's odd that there aren't really any pure-play peers of any size, but that was there call. it looks like the street may just be relieved that there wasn't another Sell rating doled out by a respected analyst. The August short interest data shows that 5.6 million shares are in the short interest. The trading volume is actually light in the stock and there hasn't been any flurry of activity seen in the September or October stock options showing anything suspicious. The recent D-Link deal didn't have any financial terms disclosed, so this may just be a "sellers' strike" where there just aren't any sellers and a small number of buyers able to impact the stock price. A chartist may tell you they have bottomed out. We noted previously that after the last earnings the company may be getting rewarded (or less hurt anyway) merely for the thought that now they have one earnings release out as a public company that it "may" be quantifiable as to if they can exist as their own entity down the road.

Jon C. Ogg
August 24, 2006

Jon Ogg can be reached at jonogg@gmail.com; he does not own securities in any of the companies he covers.

Who Will Bank of America Acquire Next? And Where?

CNBC's Charlie Gasparino said the network has learned that Bank of America (BAC) may do a transformational deal. This is not of ANY real surprise if they see something they can integrate and we have notified about B of A being at the federally mandated caps of not being able to do banking acquisitions in the US because of the 10% of the deposit base limitation in the US. That figure does not include credit union deposits, but so far B of A has not been able to get that definition changed (yes, they have tried making the credit union argument according to a Federal Reserve contact). That means they cannot acquire a Bank in the US, but they can branch out into non-banking operations in the US or go international to buy a non-US deposit institution.

CNBC sort of hinted that the company will most likely go the route of an international bank, and HSBC (HBC) was thrown out as "one example" of an international bank in this criteria. Oddly enough they just sold its franchise equivalent stake of its Hong Kong retail operations to China Construction Bank for about $1.25 Billion that we noted this morning, so where does this leave them? You could probably go pick two dozen large international banking operations that they could go after, and the list may be too long to note.

They could also be "transformational" in other domestic financial operations outside of banking, but the street is into more of a de-conglomerization attitude these days so that may not be in the works. They have just recently integrated the large acquisition of MBNA for credit cards, so we'll have to see what are the next obvious candidates. Bank of America has gotten more into mortgage offerings and has even sent out insurance offerings in the mail to its customers, so that could be the case too. The company could also go after a money management and asset advisory firm, so long as they are not deemed "deposits" according to federal reserve definitions. You could even see them go for a pure-play auto loan company or merchant banking operation. We could even make the case that they will want a pure-play brok