Thursday, May 31, 2007

Six Flags (NYSE:SIX): Update

Since the last time I wrote about Six Flags (NYSE:SIX; see archives), the stock has done nothing. But I do think it’s time to revisit the story as the most important summer for the co is approaching fast. This summer appears to be the "do or die" season for Six Flags. After billionaire Daniel Snyder took the helm of the co, he and his team have geared up for this summer. They have sold some of the weaker parks, advertised a lot and sold season passes.

According to Jim Cramer (who’s also bullish on the stock) 1Q signaled a strong upcoming summer. For additional color check out Cramer's interview with Six Flags CEO Mark Shapiro.

So, by buying the stock now you expect big guys to jump in, in a verge of a BIG summer. That can happen any time soon.

How long should one hang on to the stock? Not long, I will likely sell the stock before the quarterly report (buy on rumor, sell on news). Also, don’t forget to look out from the window. If it’s raining for sixth consecutive day, get out.

From a technical perspective, the stock is in a mild uptrend, and close to the trendline. This should provide some support for the stock.

Position: Long SIX

Sandisk (NASDAQ:SNDK): Samsung continues to have problems with NAND

- Oppenheimer comments on Sandisk (NASDAQ:SNDK) saying checks show that Samsung continues to have issues at 51nm and has made little progress with 51nm output still limited <5%. Samsung has had trouble moving to 51nm since mid-February when it hinted at moving out its product transition timetable. Hynix also continues to have issues moving to the 60nm node, constraining NAND flash expansion plans at both OEMs. This compares very favorably for SNDK-Toshiba who brought on 300mm/53nm NAND Flash in Feb-07 and continues to ramp into production at Fab3.

OpCp is also hearing that the 2nd batch of Apple iPhone orders are starting to come in and could provide provide some more stability to the demand/pricing picture. NAND flash spot prices continue to be stable, compared to last year this time when NAND spot/contract prices were down 5-10%. While near term retail demand picture in May might be soft, they see retail demand picking up in late June and into 2H07. Maintains Buy and $53 tgt on SNDK.

Notablecalls: This may create some buy interest in SNDK today. Would have called it actionable yesterday but following the almost $2 bounce, I'm somewhat more cautious.

RightNow (NASDAQ:RNOW): Added to Sell List at Goldman

- Goldman Sachs is adding RightNow (NASDAQ:RNOW) to their Americas Investment Sell List and lowering price target to $15 from $17. Firm's call is that its high valuation compared to the software sector in general underestimates the risk, particularly shorter term. The company is going through a business model transition away from perpetual licenses, the sales force was given modified territories in 1Q, the sales management changed, and the compensation was realigned. They are slightly lowering their top and bottom line estimates for 2Q and full year 2007.

RightNow trades at a substantial premium to the rest of the software sector. The stock is trading at 82X 2007E EV/adjusted FCF multiple compared to the software group median of 19X. 2008E multiples are 57X for RightNow and 17X for the software median.

Notablecalls: More often than not, changes in sales force indicate problems to come. GSCO's on right tracks here. Expect to see some selling pressure.

Motorola (NYSE:MOT): Color on cost cuts

Couple of firms comment on Motorola (NYSE:MOT) after the co announced another round of cost cuts:

- Jefferies
notes that while MOT appears to be cheap, they believe it could take a year tosubstantially improve the company's handset portfolio. Other concerns include: 1) continued market share losses, 2) decline in iDEN business, and 3) 2H07 weakness in cable business.

The estimated cost savings of $600 million annually is about $100-150 million higher than what the firm hadanticipated, thanks to continued discretionary-cost controls, G&A expense tightening and site rationalization. These cost controls will affect all business segments. Jeffco's above-consensus estimates already bake in additional cost reductions. As such, they make no changes to their EPS estimates. Firm estimates $0.40/share for 2007 and $1.00/share for 2008, which compares to consensus estimates of $0.35 and $0.86, respectively. Maintains Hold and $19 tgt.

- Raymond James estimates the $600 million in annualized cost savings could represent incremental earnings of approximately $0.16 per share. While their 2008 EPS estimate of $1.07 is among the most optimistic on the Street, their aggressive estimates look increasingly realizable. In light of yesterday's announcement, the firm believes that management's actions may even provide additional upside earnings potential. RayJay expects to provide updated earnings estimates following the announcement of June quarter results.

Firm notes they are encouraged by the progress in Motorola's cost-reduction initiatives. Following an initial slow start, they credit much of the recent momentum to new Chief Financial Officer Tom Meredith. They continue to believe that the March quarter represented the low-water mark for Motorola, and expect the business to progressively improve through 2007. Reits Strong Buy on MOT.

Notablecalls: Well, MOT just cut 11% of its opex (based on 2006 number). Most Street estimates are starting to look very conservative here. I must agree with the analyst community here - it's going to take at least a year to come up with new and exciting handset models. Lucky for us, the market is forward looking in nature.

Btw, did you see the utter cock up called Foleo from Palm (NASDAQ:PALM)? Jesus, I mean...what the heck?!

Paperstand (KO, DELL, LNG)

The WSJ reports that Coca-Cola (KO) and Cargill have teamed up to mkt a new calorie-free natural sweetener they hope will appeal to health-conscious consumers and shake up the global sweeteners mkt, but they face serious regulatory and production challenges. Today, the multibillion-dollar global sweetener mkt is dominated by sugar, high-fructose corn syrup and synthetic sweeteners such as aspartame and sucralose. But with consumers increasingly eager for healthy foods and beverages of natural origin, Coke and Cargill may have found a sweet spot for rebiana, which is derived from a S-American herb called stevia.

According to the “Ahead of the Tape” column, Dell’s (DELL) earnings report today is unlikely to alter Street's view that the former PC champ is getting clobbered by its rival, H-P (HPQ). World-wide PC shipments by Dell fell 7.8% in the 1Q, and its share of the global mkt dropped to 13.9% from 16.4%. H-P's PC shipments, meanwhile, surged 29% in the qrtr and its mkt share rose to 17.6% from 14.9%. Dell's F1Q earnings, the first full qrtr after Chmn Michael Dell reassumed the CEO spot in Jan, should reflect that drop. Analysts expect the co to post earnings excluding 1x items of 26c a share, a 21% decline. Profit margins could be a rare bright spot. The price of computer chips has plunged this year. In April, cheap chips used in iPods helped Apple post strong quarterly margins. A similar decline may also help Dell. But Dell is grappling with many more issues, including an SEC investigation into its accounting practices. In June, the co will start selling PCs at Wal-Mart (WMT), a shift from its low-cost direct-sales model that could sap margins. With so many clouds hanging over Dell, any sunshine could light up its shares. But its storm is far from over.

Barron’s Online suggests that tech investors might consider options contracts as a way to make money off the sluggish stock performance of communications-equipment (CE) vendors this summer. This group within the S&P's 500 is one out-of-favor area that could pick up with such a surge in prices between now and the end of Sep. Shares of Ciena (CIEN), Alcatel-Lucent (ALU) and other components of the S&P CE group have lagged the mkt, on avg, this year, rising only 6.3% compared to 7% for the S&P 500. But the trick is, it may not pay to be long-term holders of the stocks if a correction follows the meltup. These shares could easily show up for less money after the summer. For that reason, selling options could be a way to make some money off the short sellers' "capitulation" without having to take a long-term bet on co’s through outright stock purchases. 3 different strategies present themselves. Investors who already own CE stocks can make money by selling "covered" calls this summer. Investors who don't own shares can sell put options, making a little money while waiting for the possibility of the mkt meltup. Lastly, investors willing to forego income in return for less risk may sell shares of Nokia (NOK) or other stocks they already own while buying calls, which give the investor an opportunity to get back into the stock later on if shares do, indeed, experience a "meltup."

“Inside Scoop” section reports that an offshore mutual-fund manager is snapping up soaring shares of Cheniere Energy (LNG) well ahead of the opening of its first liquefied-natural-gas (LNG) facility along the Gulf Coast. Orbis Investment Mgmt crossed the 10% ownership threshold on May 10 and then purchased another 112K shares on the open mkt for $4.05m. Ben Silverman, of, says Orbis "came in strong here both in terms of what they bought in the last 5 months and with the stock rising."

Wednesday, May 30, 2007

Biogen-Idec (NASDAQ:BIIB): Buyback indicates no takeover

- Baird has some interesting comments on Biogen-Idec (NASDAQ:BIIB) after the co announced an aggressive $3B stock repurchase program that if executed in full could boost EPS by 3-5% for 2007-2010 by firm's calculations. This program comes on top of the existing 20M share buyback that is currently authorized.

Under the terms of the modified "Dutch Auction", holders can tender shares for a price between $47 and $53; BIIB will determine the lowest price within that range that allows the firm to purchase up to 57M shares, or 16% of current outstanding stock.

However, much market speculation has circulated as to BIIB's take-out potential in recent days. Firm thinks this transaction may serve to detract from such a scenario. It appears to be fashionable now for large-cap biotechs to institute aggressive share repurchase programs (as they are largely viewed as indicative of management's confidence in the underlying business).

However, they think this circumstance may see a more muted investor response (given the background of significant take-out speculation preceding thisannouncement). Maintains Neutral and $56 tgt.

Notablecalls: Looking at the call volume in BIIB over the past week or so, it really makes me think something is going on. Yet, the huge buyback indicates just the opposite. Who do you believe? The call buyers or the management? My bet's on the management. Taking a quick short above the $50 level (prefer $50.50) may yield some profit today. Think about all the buyers that would just love to cash in. Would play it small, though. Tight leash, too.

Apple (NASDAQ:AAPL): Morgan Stanley out positive

- Morgan Stanley is out positive on Apple (NASDAQ:AAPL) saying co's operating leverage remains underappreciated by investors and is the main driver of firm's increased earnings forecast and price target.

MSCO believes Apple's operating margin will continue to improve from two factors:

1) Apple's operating expenses grow at 1/2 the rate of revenues. If this relationship holds going forward, every $1bn of incremental CY08 revenue drives 30 bps operating margin; and

2) Product sold through Apple's retail stores earns as much as 14 points incremental profit. All else equal, a 5 point increase in the mix of revenues through Apple stores adds 50 bps operating margin.

Firm's CY08 operating margin increases to 19.8% (from 16.7%) and CY08 EPS shifts to $5 (from $4.29). They continue to believe earnings and stock revisions are heavily weighted to the upside and think that even $7 in EPS may be doable in CY08. New tgt stands at $150. Maintains Overweight.

Notablecalls: New 52 wk high coming for AAPL today. Expect to see at least couple of points of immediate upside. Actionable call!

Cymer (NASDAQ:CYMI): Intel capex cuts pressure estimates

- Banc of America is cutting their FY'07 earning estimates on Cymer (NASDAQ:CYMI) to $2.24 versus prior $2.46. Intel (INTC) has cut its capital spending plans for the second half. Firm thinks the details of the cuts were just released to ASML (ASML) and Nikon last week. They expect these two lithography suppliers to now share the current Intel forecast with CYMI.

On May 9th, BAC cut their ASML estimates based on weaker spending by Intel. It appears the Intel cuts are modestly deeper than originally anticipated. For instance, the 45nm ramp at Intel's fab 28 in Israel is completely pushed from the second half of 2007 into 2008.

They expect CYMI's June quarter revenue to decline qt-qt and fall short of management guidance of flat qt-qt. They are also pulling down their revenue estimates for the back half of 2007. For the entire year the firm now forecasts revenues at $505 million versus prior estimate of $527 million.

The company is aggressively repurchasing stock so a lower share count will partially offset the EPS impact from a cut in revenues. Maintains Neutral but lowers tgt to $39 from $41.

Notablecalls: Capex cuts at Intel should not come as a surprise to market participants as these were hinted by company management already a month ago at Intel's Analyst meeting. The comments regarding falling short of guidance sound somewhat more omnious and may indeed pressure the stock over the next week or so. Yet, with the stock trading 15x BAC's lowered EPS number, the valuation is quite low. Based on that, I think the downside will be muted.

In case of the unlikely event of the stock getting hit today following BAC's call, I'd be looking for a bounce.

Paperstand (ICE, MSFT, CG, ITY, HPQ)

The WSJ reprots that IntercontinentalExchange (ICE) has reached an agreement with the Chicago Board Options Exchange valued at about $665m that could help settle a longstanding dispute between the options exchange and its longtime rival CBOT (BOT). The agreement, expected to be announced as soon as this morning, is designed to give ICE a leg-up in its high-stakes battle with CME, which has the support of Board of Trade mgmt. The unusual agreement ICE has negotiated would only happen if the Board of Trade becomes part of ICE.

According to the WSJ, at a technology conference, Microsoft (MSFT) today will unveil the fruits of 6 years of research pushed by Chmn Bill Gates, a computer designed like a table with a touch-screen. The system, called Surface and aimed initially for use in hotels and casinos, includes features that allow users to buy tickets to events, wirelessly retrieve and display photos and play games. It goes on sale later this year. And Palm (PALM) co-founder Jeff Hawkins, plans to disclose what Palm calls a "new category" of mobile device. Though few details are known, one industry exec expects the gadget to be somewhat larger than Palm's existing products and to include wireless networking.

Barron’s Online discusses tobacco co’s, which have received private-equity offers recently. The signs indicate more deals are coming, benefiting investors in the right stocks. "When the music stops, there may be 5 or fewer major global players," says Charles Norton, of Vice Fund. Looking for new mkts to offset smoking restrictions and falling cigarette consumption in the US and elsewhere, cigarette makers are grabbing smaller rivals, taking advantage of a cheap credit mkt. Yet instead of chasing takeout rumors, the smart bet for investors is to focus on co’s with rising profits, cash flows and dividends, such as Carolina Group (CG), the tracking stock for cigarette maker Lorillard, a subsidiary of Loews, and Imperial Tobacco (ITY). The free cash and dividends that makes these co’s worthy takeover tgts also makes them attractive to common stock investors. "It's never a good idea to buy a stock just b/c you think it's a take-out," says Nik Modi, of UBS. "If you find a potential takeout tgt that first and foremost has good fundamentals and is undervalued, then it's potentially lucrative."

“Inside Scoop” section reports that H-P (HPQ) execs cheered to new highs of the co’s stock by enthusiastic selling, totalling $21.5m. 6 co execs sold stock from May 22 to May 25, including Chmn, CEO and President Mark Hurd and Executive VP and CFO Catherine Lesjak. The execs sold both existing stock and stock from options exercises. has new piece on Utek (UTK),
read here.

Tuesday, May 29, 2007

Advanced Medical Optics (NYSE:EYE): Color on MoisturePlus recall

Couple of firms comment on Advanced Medical Optics (NYSE:EYE) after the co said late on Friday that it was recalling its Complete MoisturePlus contact lens solutions and called on consumers to stop using them after data showed a higher risk of eye infections. The announcement follows ANO's recall of the same product last year due to a bacterial contamination, and a recall by rival Bausch & Lomb Inc. (BOL) after its contact lens solution was linked to infections. The company did not give an outlook for the expected financial impact of recalling the product, one of its top selling items:

- Piper Jaffray estimates an annual run-rate of Complete MoisturePlus sales of $60 million worldwide, which they are pulling out of their model. This reduces 2007 revenue estimate by $35 million and 2008 by $60 million. Firm is reducing 2007 EPS by $0.12 and 2008 by $0.20 to $1.22 and $2.06, respectively. They are lowering EYE's price target from $41 to $37, based on the same 18x CY08 EPS estimate, which is now $2.06.

The collateral damage to AMO should be much more limited than in the case of Bausch's recall. AMO generates about 80% of its revenue from surgical products which are sold to ophthalmologists as opposed to the optometrists and consumers that purchase eye care products such as solutions, contact lenses, and pharmaceuticals over the counter. Nevertheless, AMO will have to devote substantially more resources to the division to the detriment of profit margins. Indirectly, the recall throws a wrench into the company's ability to make a bid for Bausch & Lomb by increasing AMO's financing costs.

- Citigroup notes that although the company has provided little detail on MoisturePlus sales, they estimate global sales were likely to have been on the order of $80m in 2007. With little cost flexibility, removing these sales trims Citi's 2007 forecast by $0.43 to $1.01 (which excludes any one-time costs associated with the recall). In 2008, they estimate a drop in sales of $66m resulting in a $0.37 EPS drop to $1.78 as they expect any share loss to persist in light of the difficulty Bausch & Lomb has had in regaining share after its recall of Renu with MoistureLoc. Maintains Sell and lowers tgt to $32 from $33.

Notablecalls: BOL took a 20% haircut after it announced the recall of Renu. I don't think the damage in EYE will be as bad because as Piper notes, most of EYE's revenue comes from surgical products. The financial impact of recalling MoisturePlus stands around $0.20-$0.40, suggesting 3-6 pts of downside. The stock traded around $37 in after hours action on Friday. Think I'd be bidding EYE opportunistically around the $34-$35 level but would be ready to pay more if it starts to look like the downside is going to be less than that. I think the bidding war surrounding BOL has put the entire sector in play and that may help the stock to bounce.

Also, I would not be surprised to see a downgrade or two.


The WSJ reports that the consortium of banks led by Royal Bank of Scotland said Tue it will go forward with a €71.1bn ($95.61bn) takeover bid for ABN Amro (ABN), topping a bid from Barclays and continuing a struggle with Bank of America for control of the Dutch bank's US arm. The consortium, which includes the Dutch bank Fortis and Spain's Santander Central Hispano, said the offer is 79% in cash and through the issue of new shares in RBS. The cash component was originally 70% in a proposed offer outlined last month. The trio of banks said the €38.40 is a 13.7% premium to the value of Barclays PLC's rival offer.

According to the WSJ, Tishman Speyer Properties and Lehman Brothers yesterday were near a deal to purchase Archstone-Smith trust (ASN) for more than $12bn. A deal could be announced as early as today. Exact terms of the transaction couldn't be learned, but Archstone-Smith's mkt cap is $12.3bn and an agreement would likely involve a premium. The buyers also would assume $6.3bn in debt. That would make the deal one of the largest privatizations of a public REIT.

The WSJ reports that the FTC will conduct the govt antitrust review of Google’s (GOOG) proposed $3.1bn purchase of DoubleClick. The FTC Fri made a so-called "second request" of Google, for additional information to assess any possible overlapping lines of business. The issuance of a 2nd request is a signal that the FTC is taking a hard look at the deal, as was expected.

The WSJ reports that Avaya (AV) is in talks with private-equity and strategic bidders about selling part or all of the co, the latest sign that there could be a new round of M&A in the telecom-equipment industry. Among parties that could be interested in all or parts of Avaya are private-equity firms, which are attracted to Avaya's cash flow and low debt, as well as network-equipment makers like Norton (NT). Avaya is in talks with private-equity firm Silver Lake Partners about a LBO plan.

According to the WSJ, private-equity firms are in serious discussions about a buyout of CDW (CDWC). Chicago's Madison Dearborn Partners was considered in the lead to purchase the co. But one person familiar with the discussions noted that they are at an especially sensitive stage and could fall apart. Madison Dearborn also might receive some late competition from other buyout firms.

The WSJ reports that URS (URS) agreed to buy rival engineering co Washington Group Intl. (WGII) for about $2.6bn in cash and stock, in a deal that highlights a construction boom driven by energy-efficiency and govt projects. The deal, valued at $80 for each Washington Group share, represents a 14% premium.

Monday, May 28, 2007

Thank you all for feedback!

Dear NC readers,

Must say I'm overwhelmed by feedback. Not only did many of you post comments on the site, but also sent me numerous emails with wonderful comments. Here are some examples:

It's your site - do what you please. Your content is so good that very few will be turned off by an ad banner or adsense crap.

John W.

Hi there I couldn't comment because I'm not a member. I'm the stonedinvestor I check your site once in a great while but I was turned off for JUST the reason you are highlighting too many no care posts. I even did a parody called NotableBongs for a short while! I think by cutting back you are making a great move, but be careful too much inaction makes a Blog look really dead. As for ads to each his own I wouldn't do it-- it will feel cleaner and I
think you can still be swallowed by a larger player at some later time.

Yours- Ben

Dear NC,

I have been late in discovering your work, to my detriment.... ads on the site are fine, and why not? They are so omnipresent they become part of the background anyway.(at least as long as they don't blink).....

I have become devoted to your work in a short time, so beware of walking catfish and feral rabbits and such....and many thanks for AQNT !Hope your pause refreshes, gwc

It surely looks like most of you enjoy the blog in its current state. Also, most readers don't seem to mind ads as long as they remain tasteful. And that they will.

See you all tomorrow morning.


Barron's Summary (JSDA, OXPS, XFML, BRLC)

Barrons discusses smaller oil outfits, saying that it pays to be technologically clever in the energy business. In what is becoming a race to replace rapidly depleting oil and gas reserves, technology is increasingly playing a decisive role. "The easy oil is gone; the next barrel is always going to require more technology to extract," says Geoff Kieburtz, of Citigroup. Smaller outfits may reap bigger gains from technology than the oil majors. Shares of Devon Energy (DVN) and EOG Resources (EOG), for instance, each could spurt by at least 10%. Others mentioned include APA, SLB and WFT.

Barron’s highlights Affordable Residential Communities (ARC), saying that one analyst thinks the company is worth $15 a share, more than 50% above the amount that Farallon Capital Management is offering.

Lawson Software (LWSN) shares have already recovered some lost ground, but at least one analyst thinks they have the potential to rise more than 50% beyond their recent levels.

If Jones Soda (JSDA) were to trade for 20x earnings, just above the industry norm, its shares would be valued at 7, not today's 21.50. Jones' founder and CEO, Peter van Stolk, tells Barron's he's not interested in selling the co. But van Stolk and other insiders have taken advantage of the stock's run-up to sell shares in recent mo’s. So, too, has Thomas Barry of the Bjuman Barry Small Cap Growth Fund, which unloaded its entire 1-million-share stake earlier this year. "I'd be nervous buying the stock at these P/E levels with the earnings and rev they've had," says Barry.

“The Trader” column discusses steakhouses, saying that several things must happen before steakhouses rebound. Rising beef costs must moderate, and you'd catch the first whiff of that in cattle futures. Consumer spending should improve as the housing mkt stabilizes and as gas prices drop, but these will likely be signaled by an upturn in retailers' forecast. Shares of Rare Hospitality (RARE) are off 13% this year. Morton’s Restaurants (MRT) have slipped 19% since late-Feb while Ruth’s Chris Steak House (RUTH) has declined 16%. But what smells like a buying opportunity may remain a deceptive scent for some time yet. Until then, steakhouses can hike prices (and risk losing customers), or swallow the higher costs (and risk losing profits). Stockholders can hope for buyout offers.

“The Trader“ highlights OptionsXpress (OXPS), whose shares have skidded more than 20% since Nov. Lately, however, the murmur on OptionsXpress has grown dark and ominous. Success has invited competition from both upstarts and larger firms muscling in on its turf, making it tougher to snag new customers. The cost of attracting each new account had more than doubled over the past year. And as the US contemplates trading options in penny increments, exchanges and mkt makers squeezed by narrower spreads are threatening to cut back on payments to brokerages for steering customer orders their way. These payments make up 15% of co's rev. Sensing the end of the line, growth investors have disembarked, and OptionsXpress might have continued its slide if not for a whiff of takeover speculation last week.

“The Trader” also recommends a option strategy for investors. "Collars" allow conservative investors to participate in rallies up to a certain tgt but limit downside risk should the mkt slide. You accomplish this by selling OTM calls and using the proceeds to buy protective puts. Given the mkt's upward bias, call prices have become rich. And collars "are most attractive when potential gains under the collar substantially exceed potential losses," says Thomas Schwab of Summit Portfolio Advisors. Take Apple (AAPL), for example. With shares near 112.50, selling a 130-strike call that expires Jan’09 can generate enough to buy a 110 put of similar duration. That allows investors to participate in a rally up to 130 but protects against declines below 110. Schwab screened for other stocks with lopsided call-to-put prices. Those include AMGN, NEM, BEN, COP, LTD and SPY.

Barron’s discusses Xinhua Finance (XFML), saying that last year, the co put some businesses into its media subsidiary. First, however, it passed some of them through just-created entities that were owned by insiders and by Chinese corporations. Whatever other purpose this arrangement served, it had the effect of enriching insiders and "stepping up" the value of those assets when they finally reached Xinhua Finance Media's balance sheet. By passing a television business through a entity called Upper Step, the prospectus shows, Xinhua gave $19m to ex-CFO Shelly Singhal and a long-time business partner of Bush's named Dennis L. Pelino. The co says that Singhal became the "full-time" CFO of Xinhua Finance last Sep. But SEC filings show him continuing his SBI investment banking business for several small co’s right up through his resignation this month. The prospectus also mentions a deal under which Xinhua referred Chinese credit unions to Singhal's investment consulting firm Brightline Capital, in exchange for $2.8 million in commissions. While Singhal's major role in Xinhua Finance might trouble investors even after his departure, the company is still run by officers and directors with unsettling histories. Just last week, Xinhua Finance tapped as its financial chief David C. Wang, a fellow who's followed Singhal throughout his career. Three "independent" directors overseeing good governance at Xinhua Finance, or its US-listed sub, all came from Stonepath - a co now facing involuntary bankruptcy after 3 successive financial restatements. Suffice it to say that this Chinese firm is still surrounded by red flags, and in this case, they probably don't connote good luck.

“Technology Trader” takes on Syntax-Brillin (BRLC) that struggled to bring off a $125m follow-on offering of stock last Wed. The co has had negative cash flow from operations totaling $90m in the past 6 qrtrs, so it desperately needed last week's cash. CEO Vincent F. Sollitto Jr. says the co's cash needs reflect its fast growth, with sales up 350% in the MarQ. At $6.30 a share, the mkt values the co at half a billion bucks. What's wrong with this picture? Investors have wondered whether the TV maker shows gross profits only b/c its cost of goods sold has been reduced with rebates from Taiwan Kolin, the contract manufacturer for most of the co's TVs. Many institutions pitched for last week's offering were spooked by a recent report from the accounting analysts at the Center for Financial Research and Analysis, which said that without Kolin's $165m of credits since Dec’05, Syntax-Brillian would've had a negative gross profit of almost $64m. And that's before operating expenses. Why is Kolin so generously helping Syntax-Brillian plump its results? Kolin and its affiliates are Syntax-Brillian's largest shareholders, with an 11% stake before last week's deal. Kolin sold $5m worth of that stock in the offering, and it's registered to be able to sell half of its remaining stake after a 90-day lockup. It may make better profits on the stock than on the TVs.

“Technology Trader” also negative on Open Text (OTEX). Near 23 last week, investors are valuing the co at $1.4bn. That's 45x the annualized quarterly earnings of the co's best historical quarter. License sales have gotten worse, not better. Since acquiring Hummingbird last Oct, Open Text hasn't disclosed sales for Hummingbird products. But on conference calls, the co says Hummingbird sales are down 20% since the acquisition. Applying that guidance, calculations show that licenses for Open Text's other products have fallen, too. But Open Text's continuing business challenges, and its perpetually squirrelly accounting, leave wondering about that bubbly valuation.

“Plugged In” section reprots that Sybase (SY) could be waiting in the wings to snare Openwave (OPWV). That's the word on the street as Openwave shareholders anxiously await a buyout for the mismanaged mobile-communications-software concern. Sybase emerged as a leading suitor for the outfit last week. The news surfaced after Openwave's largest independent shareholder, Harbinger Capital Partners, offered to take a majority stake in Openwave, through an unsolicited cash bid of $8.30, with a potential dividend sweetener. Sybase isn't the only interested party. Oracle (ORCL) is also said to have performed due diligence, but hasn't made a formal offer. Other potential buyers that may have been kicking the tires include IBM (IBM), H-P (HPQ) and Siemens (SI).

Tuesday, May 22, 2007

Gone fishing..

Just wanted to let you know NC is taking a short break. Need to take some time off.

While away, I'll be keeping my eye on the market just in case some unusually good opportunities happen to present themselves. If they do, I'll be sure to highlight them.

Also, I'll be thinking about the following:

- Maybe it's time to make some changes to the format. As many NC fans have noticed, I've been cutting back on the "not actionable but good to know category", highlighting calls that I think will move stocks. These are not always easy to find and there are days that are well just..slow, meaning I end up posting calls I don't really feel strongly about. Just to have some fresh content on the page.

Anyway, I feel this may not be the best approach. I feel that by posting only the best stuff, NC can really make money for readers. However, this may mean there will be days of zero posts at NC.

- Since starting NC 11 months ago, we have received many offers (some from pretty prominent players) to have our content built into their offerings. NC has agreed to couple of these offers but has never accepted any compensation for this. Essentially, NC has been a not-for-profit operation.

Yet, considering the time and effort put into bringing quality content to our readers, I'm wondering if putting Google's adsense on the page (plus maybe a banner from a sponsor) would destroy the user experience. NC averages between 2,000-5,000 readers daily.

Would appreciate any feedback,


PS: Will resume posting on Monday.

Monster Worldwide (NASDAQ:MNST): Former CEO and founder selling stock

- Goldman Sachs comments on Monster Worldwide (NASDAQ:MNST) saying that according to SEC filings posted Monday, May 21, 2007, former Monster CEO Andy McKelvey sold 1,000,000 common shares (at an average price of approximately $48.92) last Thursday and Friday (May 17 and 18). Assuming no additional sales have been made, this reduces Mr. McKelvey's holdings to an estimated 8.2% of the company's outstanding shares (down from 8.9%), but 30.9% of voting power given the 10-to-1 voting power of the B shares (down from 31.5%).

While Mr. McKelvey is no longer an employee or director of Monster, and therefore is presumably not privy to internal company discussions, his decision to reduce his ownership stake would seem to suggest that he believes a sale of the company at a premium valuation is not imminent. Although his ownership stake is not sufficient to block a transaction, with over 30% of the voting power, his backing would be helpful if a change of control were in the works.

Notablecalls: MNST stock has soared since April 12 when CEO Bill Pastore was unexpectedly replaced by Sal Ianuzzi. Ianuzzi sold Symbol Tech to Motorola not long ago and people have been assuming he was brought to MNST to sell the co. The departure of former CEO and founder Mr. McKelvey in Oct 2006 pretty much marked the low point for the stock.

I'm not a big fan of MNST here considering the slowing job market and high valuation. On the other hand, I'm not entirely sure McKelvey's stock sales will be enough to stop this train just yet. But it surely represents the first step.

DRAM sector bleeding to death

- Citigroup is out with some pretty alarming comments on the DRAM space noting that even Samsung and Powerchip have started to burn cash with negative EBITDA generation, given that PC DRAM prices have nosedived to below US$1.7 for DDR2 512Mb 533MHz and US$1.3 for eTT products.

Citi's analysis suggests that DRAM sector cash-on-hand (ex. Samsung) is only enough for 2.56 quarters or less of operation and original capex. That said, to preserve cash for further capex and avoid any financial crunch risk, they believe DRAM makers will soon be forced to halt their original expansion programs despite anticipated debt fundraising.

Samsung is the safest DRAM maker, able to survive 12 quarters of cash burn, followed by Micron at 3.6 quarters. Meanwhile, Promos can only endure cash burn for 1.3 quarters.

Contrary to the Street's belief, Hynix is less able to sustain this cash burn than Powerchip (2.3 quarters) and Nanya (2.1 quarters). This shows that even Hynix will probably be forced to trim its wafer-in capacity capex and to halt 200mm production.

Firm notes that in 2001, tier-1 players could support four months of cash burn and capex fell 27.3% YoY in 2001 and 37.3% YoY in 2002.

Notablecalls: It's sure starting to look like the SMH is running on fumes.

Paperstand (SVU, MDU)

The WSJ’s “Heard on the Street” column out saying that investors have been bingeing on shares of Supervalu (SVU). They may soon lose their appetite. The stock is up nearly 80% since early August b/c investors believe that Supervalu has done a better job than Wall St. expected in digesting the 1,100 Albertson's stores it acquired last June. Supervalu's net income more than doubled in the FY ended Feb. 24. The 4Q was particularly rosy, thanks in part to Chicago Bears fans scooping up munchies at newly acquired Jewel-Osco stores during a rare Super Bowl season. But there are challenges ahead. The co took on a substantial amount of debt to complete the Albertson's transaction, its SSS pace trails that of its biggest rivals and competition is mounting. "It's now a 'show-me' story," says Herb Achey, of US Trust. "Prove to us now that you can be a good operator." The co hasn't tinkered much with its new stores. Instead, CEO Jeff Noddle has worked on lifting morale, in part by giving local managers more autonomy. "We focused first on the ppl," he says. But much of the gains from the Albertson's deal may already be priced into the stock of the co. Growth at stores open at least a year remains tepid, and the savage competition that Supervalu already faces is about to get more intense. Analysts note that several co insiders have sold shares in recent mo’s as the price has moved higher. Since March, execs sold about 100K shares for $5m, marking the 2nd-highest level of sales by value at the co for a 3-mo stretch in the past 5 years.

Barron’s Online “Inside Scoop” section reports that a director at MDU Resources (MDU) has been on a selling binge of late, taking advantage of MDU's stock as it trades near an all-time high. Thomas Everist, an MDU board member since ‘95, has sold a total of 742K shares for a total of $22.6m since May 2.

Monday, May 21, 2007

Quick note on XFML

I wanted to highlight a pretty negative piece from Citron on Xinhua Finance Media (NASDAQ:XFML). Make sure you read it before stepping into the stock.

One person rarely makes a co, but these things tend to make investors cautious. I personally still think XFML may be a legit operation. They made Mr. Singhal resign and have appointed a internal committee to review the corporate governance issues. That's definitely good.

Anyway, despite all the negativity it looks like the stock managed to put together a nice bounce after the open. Hope some of you particpated in the move. Would consider taking at least partial profits a prudent move here.


Raymond James: Current valuations in the PV space are highly attractive

- Raymond James notes that over the past two weeks, the solar power space has experienced what is arguably its most significant pullback in at least a year, with the average solar stock down 21% from its year-to-date high as of last Friday. After Aprils gains, the firm thinks this is a healthy pullback. Almost all U.S.-listed solar stocks posted massive gains in April, with some up over 40% in the course of the month. Also, a flurry of IPOs may be pressuring existing issues as the number of publicly traded PV pure-plays on U.S. exchanges has tripled in the past 6 months - from only three as recently as November to nine as of last week (not including several micro-caps).

Much of last Friday's sell-off in the solar space can be attributed to the Chinese central bank's decision to raise interest rates and reserve requirements, in yet another attempt by Beijing to cool down China's surging economy and lofty stock market valuations.

RayJay continues to be very bullish on PV. These short-term stock gyrations aside, they believe that the global PV market is fundamentally in excellent shape and see this pullback as an opportunity to buy on the dip.

Firm believes PV manufacturers naturally stand to benefit, including Outperform-rated

JA Solar Holdings (JASO; currently at only 16.1x their 2008 EPS estimate);

SunPower Corp. (SPWR; at 27.8x 2008E EPS);

Suntech Power Holdings (STP; at 21.4x 2008E EPS);

RayJay views the current valuations as highly attractive within the context of a market growing at 20%+ per year.

Notablecalls: I'm no expert on the PV space but I do consider Raymond James one of the best firms out there. I suspect these comments will create some real buy interest in the mentioned stocks today. My favourite of the three is JASO. Going to call this one actionable.

Xinhua Finance Media (NASDAQ:XFML): Much ado about nothing?

- CIBC is out with some comments on Xinhua Finance Media (NASDAQ:XFML) noting that last week, XFML shares declined 18% during a strong week for China Media stocks. Firm believes weakness in the shares is due to peripheral factors, including the reoccurrence of a nine-year old lawsuit related to the former CFO and management departures at a subsidiary of the parent company.

Over the weekend, the company announced that Mr. Shelly Singhal resigned from its board, after being moved from the CFO to Exec Dir, Corp. Dev., on May 15. Additionally, Barron's reported that two senior staffers at Glass Lewis, a subsidiary of XFML's parent company, had resigned.

The trading pattern of the stock last week suggests that concerns over these two matter were already in the marketplace, even though the news was reported over the weekend.

While these type of events call into question the character of the current and prior mgmt at XFML, CIBC believes these issues have no impact on current fundamentals, and that weakness provides a good buying opportunity ahead of seasonally strong 2Q results. Maintains $14 tgt and Sector Outperformer rating.

Notablecalls: First, let me tell you that XFML isn't a company I know too well. Yet, chewing through some of the initiation notes it certainly looks interesting. The chinese ad industry is in a secular growth phase and it looks like XFML is in a good position to benefit from it. I especially like the co's exposure to the financial media side as numbers coming from China show the chinese people are opening brokerage accounts at a healthy clip.

The news coming over the weekend look bad at first glance but I'm not so sure the impact is as bad as suggested by the decline in XFML's stock price. Also, it looks like a rather large short line was put out over the last week. Trading around 16x 08 EPS, the stock's not exactly expensive.

I would put XFML on my bounce play radar today.


The WSJ reports that TPG Capital and the private-equity arm of Goldman Sachs last night agreed to purchase Alltel (AT) for about $27.5bn. The deal could signal still more ambitious gambits by buyout shops, which have shown increasing interest in telecom and wireless assets. The buyers will pay about $71.50 per share for the co. That represents a price of about 10% higher than where the shares traded on Fri, and about 23% higher than where its shares traded in late Dec, when The WSJ identified it as a buyout tgt. Top mgmt also has been asked to stay, though they are still "working out the details." Alltel's top 5 execs would get a combined $250m if they were to leave during a change in control.

According to the WSJ, Consolidated Edison (ED) provider of electricity to 9m ppl in NYC and Westchester County, is pursuing a sweeping plan to upgrade its aging electric system, including installation of state-of-the-art superconducting electrical cable in midtown Manhattan. The $39m installation, set to be unveiled today, will be largely funded by the Dept of Homeland Security. Agency officials say they are making the investment b/c the hardiness of electrical infrastructure in financial hubs like Manhattan is vital to the nation's economy. Superconducting cable, sold by several co’s, carries far more power than conventional cable but is expensive and poses certain technical challenges. The Con Edison project will use cable able to deflect power surges that was developed by American Superconductor (AMSC). American Superconductor hopes the marquee project will spur use of the cable by more utilities, which are notoriously cautious about new technology. "We hope this breaks the logjam," said CEO Grey Yurek.

The WSJ reports that Google (GOOG) and Salesforce (CRM) are discussing an alliance that could help them compete more effectively with Microsoft (MSFT). The co’s are still hashing out details of a potential partnership, expected to be announced in the next few weeks. But one outcome could be a Web-based offering that integrates some of Google's online services such as email and IM with those of Salesforce, whose "customer-relationship mgmt" tools help salespeople track their accounts.

“Heard on the Street” reports that national retailers of big-ticket items such as houses, boats and motorcycles aren't the only co’s facing the prospect of more late payments and losses on their consumer loans these days. So, too, are smaller regional retailers. But unlike mortgage lenders, which have been forced to tighten their underwriting standards amid the subprime meltdown, these smaller players are trying to encourage customers to keep buying by offering more zero-interest loans and extended payment plans. "At the end of the day, you do what it takes to get business," says Dennis Fink, CFO of Haverty Furniture (HVT). In the 1Q, 55% of loans that Haverty made to customers were no-interest for longer than 12mo’s, compared with 40% a year earlier. Another co mentioned is Conn’s (CONN).

“Ahead of the Tape” out saying that Microsoft (MSFT) Vista may not meet optimistic views. The tech co that really seems to be enjoying MSFT’s new OS is Apple (AAPL). The co has used Microsoft's Vista as an opportunity to make hay over the self-proclaimed superiority of the OS in its own Macs. Microsoft doesn't agree with that message, noting it has shipped 40m copies of Vista for consumers. Still, Apple has the hotter hand. Mac sales were up 35% in the 1Q. PC sales were up by 9%, a bit better than the prior 2 qrtrs, but below the avg rate of the past 3 years. "Somebody in Cupertino ought to send flowers to Redmond and a nice 'Thank You' note," hedge-fund manager Jeff Matthews noted.

Sunday, May 20, 2007

Barron's Summary

Barron’s out saying that without the burden of Chrysler, Daimler (DCX) stock could continue the rise that began last year. The shares, now around 86, could hit 100 or more in a year. Some savvy investors figure that the new Daimler is still a bargain. "Doing a sum-of-the-parts valuation, Mercedes is in Daimler for free," argues Adam Jonas, of Morgan Stanley, who values that car unit alone at between $30-40 a share.

Fund manager likes COP, AMGN and PFE.

Genworth's (GNW) shares, laggards over the past year, could climb more than 24% over the next 18 to 24 months as the company allocates more capital to higher-return businesses.

USG's (USG) earnings could rebound to $5 or $6 share in coming years. If the company trades again for 15 times earnings - its historic norm - the stock could climb to 90, from today's 40.

Bulls on Clorox (CLX) argue that the stock, now in the high 60s, could go as high as 85 in a year if the company improves its product lineup and starts selling more abroad.

According to the “The Trader” column Rob Haines, of CreditSights, is among those who expects more mergers in life-insurance sector, as co’s look to put money to work. Potential acquirers include American Intl. Group (AIG), which ended last quarter with $15-20bn in excess capital; Prudential (PRU), which has a good merger track record and more than $6bn in untapped debt capacity; and MetLife (MET), which until recently had been busy integrating its Travelers acquisition. Screening for likely targets among co’s with more than $10bn in assets, essentially those with attractive heft but which may lack the scale to compete in the long run, Haines came up with names including Conesco (CNO), Phoenix (PNX), Protective Life (PL) and Unum (UNM). These stocks trade at 0.7-1.5x BV and "could be fairly easy to digest by any one of the larger industry leaders," he notes.

“The Trader” section also highlights Chiquita Brands (CQB), which has found a way to improve one of nature's perfect foods. Working with Landec (LNDC), Chiquita is introducing "intelligent packaging" to extend the shelf life of ripe bananas by up to 12 days. This allows bananas to be sold more widely at convenience stores, fast-food restaurants and Starbucks. It is also rolling out new products like "Chiquita Fruit in a Bottle," which has snagged a 5% share in its first mkt, Belgium. The push to transform the co "from a commodity produce supplier to a more value-added, healthy consumer products co" bodes well for profit growth, says Oppenheimer analyst Barry Sine, who expects per-share earnings to double to $1.50 next year from 75c in ‘07. Given the steps that Chiquita is taking to reduce profit volatility, Oppenheimer's Sine reckons that the co's shares are worth 22. Separately, Landec shares have climbed steadily to about 13.25, up 512% since ‘03, as the co worked off its debt, improved profits and boosted its cash stash to more than $2.25 a share.

“Follow Up” section out saying that Micron (MU) looks cheap. With a tangible book value of about $8.60 a share (including the coming debt), the stock's downside risk is diminishing. It could be 6-9 mo’s before Micron sees profits again, but with spot prices of 512Mb DRAM chips, now around $1.75, approaching the marginal cost of production, price declines will slow. Such low prices, not only for DRAMs but the flash-memory chips that Micron also makes, could lift demand anew, and with it, Micron's shares.

“Sizing Up Small Caps” section discusses regional banks, which are flat in ’07. "The catalyst is not there, at least not yet," to reverse the banks' slide, says David Ellison, of FBR Small Cap Financial Fund. "But you don't know when the catalyst is going to show up," he says, so it's best to purchase reasonably-priced shares in anticipation of the improvement, even if that's a ways off. "As long as you are buying good deposit franchises, you're not going to wake up one day and find out they can't fund themselves," Ellison says. Two banking operations that fit Ellison's description are Cullen/Frost Bankers (CFR) and Seacoast Banking (SBCF). In both cases, the shares have dipped after prolonged gains that some investors believe will resume once the economy picks up and the extent of recent real-estate problems is better defined. Investors in these shares should also benefit from both institutions' attractiveness to bigger players interested in expanding their franchises.

“Technology Trader” section highlights Xinhua Finance Media (XFML), which has collected some influential US assets this year, including Glass Lewis that's staffed with veterans of the SEC and the WSJ...or at least it was until last week. That's when 2 of the most prestigious staffers at Glass Lewis resigned after apparently concluding that their new parent co, Xinhua Finance, would have flunked a Glass Lewis review of its corporate transparency. It turns out that Xinhua Finance's IPO prospectus failed to mention some awkward facts about the co's then-CFO, Shelly Singhal. Singhal was simultaneously the co's CFO and an investment banker and stock broker who runs the Bedrock Securities. And since Apr’06, Singhal's firm has been under a cease- and-desist order from the NASD, as the regulators seek to suspend Bedrock for violating several SEC rules.

“Plugged In” column out saying that it looks like Nokia (NOK) wants to cool off its serious relationship with Texas Instruments (TXN) and start dating other chip suppliers. This isn't a new phenomenon. First, Motorola (MOT) weaned itself from Freescale (FSL), by launching a relationship with Qualcomm (QCOM). Then, in Feb, Nokia announced that Infineon (IFX) would provide a single-chip platform for its entry-level handsets in emerging mkts. TI has been a near-exclusive supplier of power mgmt and baseband chips to Nokia. But it appears that the Infineon deal was only the first blow. Now there's speculation that Nokia is turning to the likes of Freescale and Broadcom (BRCM) to serve as alternative chip suppliers for higher-end handsets. The speculation is that Broadcom will win 2.5G phone business and perhaps some 3G business. "In ‘07, our goal is to win designs. In ‘08, you should start seeing products come out, and ‘09 has to be all about gain in mkt share," CEO of Broadcom, Scott McGregor, told analysts and investors. "You'll see some other products come out later in the year, [but] I can't say too much about them," he said.

Friday, May 18, 2007

AS&E (NYSE:ASEI): Results likely below consensus

- Jefferies comments on AS&E (NYSE:ASEI) saying noting the co reports after the close on Monday and they expect results to belighter than the aggressive consensus estimates of $47 million and$0.80. Backlog should look relatively strong on the surface, but with fewer quick turn-around ZBV orders in backlog the June estimatesare likely also too aggressive.

Assuming decent sequential growth in non-ZBV revenue, firm's analysis suggests the company would need to ship all of its ZBVbacklog in order to possibly reach the consensus March revenueestimate of $47 million. Given we are now in the second half of the June quarter and the company has not announced any ZBV orders, they believe this scenario of shipping all ZBVs in the March quartermay set-up the company for a fairly weak June performance. A shiftaway from higher margin ZBV revenue would likely result in compressed margins and declining earnings.

At 22x firm's C08 EPS estimate they believe there may be some downside should the company miss consensus estimates and theoutlook for growth remains negative. If investor nervousness increases, they would look at 3x $12 cash per share as a good cushion. ASEI likely bottoms in the next few months as the story moves past declining high margin DoD orders for ZBVs. In the second half of 2007 the stability of the business should firm up due to multiple recent longer-term contract awards, enabling healthy sequential growth from June quarter results.

Maintains Underperform and lowers tgt to $40 from $48.

Notablecalls: Looks like some downside in store for ASEI today. But also note that there is fair chance of a nice bounce play after the co reports on Monday as expectations will be quite low.

Under Armour (NYSE:UA): Lots of growth ahead?

- Banc of America reits Buy on Under Armour (NYSE:UA) saying the co could continue to exceed their 30-35% revenue forecast for the balance of 2007 given 1) a likely re-acceleration in women's revenue growth to 30%-plus (following just 17% growth in 1Q07) as 1Q product sourcing shortfalls are corrected and the first UA women's targeted ad campaign kicks in this summer (expected to be larger than the 'Click-Clack' campaign); 2) the launch of more targeted outdoor product (outerwear and 'inner-wear') shipping in 2H07; and 3) increasing shipments in Europe (at least triple LY) led by the continued roll-out to 300 JJB stores in the U.K. In 2008, continued expansion in the outdoor category and Europe, plus the expected launch of sneakers (in both men's and women's) could support revenue growth above firm's +26% forecast.

BAC also expects UA's gross margins (after dropping in 1H07) to rise in 2H07 and up-tick further in 2008.

Notablecalls: Interesting comments buy BAC's Rober Ohmes. Note that international accounted for just 4% of revenues in 1Q07. Plenty of growth ahead for UA. The main problem here is the valuation. Trading 35-40x FY08, the stock's expensive meaning there is very little room for error. I think UA's one of the stocks you buy when they stumble.

In the very s-t, I think BAC's comments may generate some buy interest. But do note that the stock has bounced considerably over the past couple of days and some important averages (namely the 200 EMA) are near.

Citigroup comments on couple of fast movers

Citigroup is out with positive comments on couple of fast movers:

- First, they believe the recent pull back in Akamai (NASDAQ:AKAM) represents a buying opportunity. AKAM's 1Q results missed expectations but fundamentals were robust. Some investors were anticipating 1Q to be AKAMs 6th consecutive beat & raise qtr; results at the hi-end of guidance resulted in a ~20%+ drop in the shares.

Firm estimates AKAM's 07 rev and EPS growth at ~45% with 08 rev growth of 34% and EPS of 38%. Based on their ests, AKAM trades at a P/E of 34x 07 and 25x 08. If AKAM were to maintain its current 07 multiple on 08 ests it would yield a $59 share price or 37% higher than the current level. Citi thinks AKAM shares can provide an attractive return without exceeding current ests and expects the shares to rebound from current oversold condition.

AKAM competitor Limelight's pending IPO (S-1 filed March 22nd) will keep competition concerns top-of-mind but the firm thinks market demand and AKAM's differentiated offering will trump such worries.

- Secondly, coming out of restriction, Citi is updating their view on Riverbed (NASDAQ:RVBD) taking their rating to Buy from Hold. Post an impressive March and with a new product cycle at its back, the company's tech advantage is lengthening and momentum continues to build. Future catalysts include Steelhead Mobile, channel expansion, and an increased storage presence.

Riverbed continues on its hyper-growth track while progressing toward it starget operating model. While an opex catch-up may result in a margin pause for June, the company is on track to exit 2007 at ~20%+ Op Mgn vs the 20-25% LT target. Citi's prior CQ2 estimates of $43M and $0.07 are now $49M and $0.12. Tgt is raised to $52 from $34.

Notablecalls: Of the two calls, AKAM's certainly my favourite. The stock has been beaten down despite the fact nothing has really changed when it comes to fundamentals. The growth is still robust and we're yet to see any pricing pressure.

Paperstand (GE, IMCL, REGN, DNA, ONXX, KOG, CHC)

The WSJ reports that General Electric (GE) is close to agreeing to sell its plastics division for almost $11bn to Saudi Arabia's largest industrial co, Saudi Basic Industries. If the deal is completed, the Saudi co known will have bested Basell of Hoofddorp, after a long auction process. Several private-equity firms were also interested at one time.

„Heard on the Street” reports that shares of ImClone (IMCL) have tumbled more than 9% since Tuesday on heavy volume after embargoed data from an important cancer trial was released to 24K physicians expected to attend the conference of one of the largest oncology groups, the ASCO. Shares of Regeneron (REGN) have fallen almost 15% since and Genentech (DNA) is down 3%, while Onyx Pharma (ONXX) is up almost 10%, as investors pass around abstracts, or summaries, of data to be released as part of the ASCO meeting. Even though regulators have clamped down recently on co’s relaying mkt-moving information to select investors, it isn't the first time that stocks have moved sharply ahead of the key event, amid the growing hunger of investors to get an information edge on volatile stocks such as biotech co’s. "Oncology stocks consistently have shown unexplained volatility around the time ASCO releases data on embargo to its members," says Steven Harr, of Morgan Stanley.

Barron’s Online out saying that Kodiak (KOG) shares should scale new heights as the co plumbs the depths of the Rockies in search of untapped energy. The rocky shale Kodiak is drilling through is thousands of feet thick in the Vermillion Basin of Wyoming and Northern Colorado, far thicker than gas explorers usually encounter. Though it is more expensive and challenging to drill here than in most places on the continent, high gas flows from Kodiak's first wells and from those of another nearby energy-and-exploration co, Questar (STR), indicate that this region could become one of N-America's best natural-gas finds. Kodiak has yet to turn a profit, but the co is expected to start generating earnings once it shifts into production mode. Led by a cost-conscious mgmt team, each member with decades of energy experience in the Rockies, Kodiak has enough cash on the books to cover ‘07 operating costs. Speculators have driven Kodiak's shares from around $3 last fall to a record high $6.40 on May 1 on the two wells dug by Kodiak and a string of positive results from the area's largest player and first mover, Questar. Randall Abramson, of Trapeze Asset Mgmt, says Kodiak "is a very compelling resource story with a potential for an awful lot of natural gas." He sees the stock as a play on the potential value of reserves locked in Kodiak's land.

“Inside Scoop” section reprots that 4 insiders at Centerline (CHC) have been busy lining their coffers with shares of the co since the stock fell to a yearly low. CEO, Chmn, Vice Chmn and a managing trustee have bought a total of $9.3m of the co's stock since May 11. The cluster of purchases represents the highest level of quarterly buying at the co over the past 5 years. Stephen Ross, the co's non-exec Chmn, spent the most, buying 402K shares for $7.2m. Ross is "a legend in the real-estate business, so his involvement in [Centerline] and his buying here certainly makes it attractive," says Ben Silverman, of

Thursday, May 17, 2007

MEMC (NYSE:WFR): Comments on buyback

- CIBC comments on MEMC (NYSE:WFR) after the co announced a much-anticipated share repurchase program for up to $500M of outstanding stock, though timing has not been disclosed.

Firm notes this is a definite positive for the shares, as investors have been anxiously awaiting a productive use of the ever-growing cash balance. At an avg. price of $60/share, the program would reduce share count by 8.33M shares, which if completed in 2008 would increase EPS estimate by $0.15, to $4.28 from $4.13. Based on CIBC's 19x target multiple, this could raise the calculated fair value of the shares by nearly $3, to $81. In the past 4 quarters, WFR has generated $457M of FCF, providing nearly all of the required funds for the share repurchase.

Firm believes the $500M authorization is larger than expectations, signaling optimistic prospects.

Notablecalls: The stock traded to $60 in after hours in reaction to the news. Looking at the chart, I feel there may be some more upside to WFR today. Just a gut feel, nothing more. (NYSE:CRM): Growth becoming more expensive

Analysts are not too happy about's (NYSE:CRM) Q1 results:

- Morgan Stanley notes solid top line Q with upside to revenues but cash flow from operations was a little lighter than they anticipated and a significant increase in capitalized costs masked margin declines from their calculations. While the firm has readily acknowledged the significant growth of revenues, they remain concerned that the company is generating the growth at an increasing cost. They need to see better operating leverage - something that has yet to improve, and in fact may be weakening. Hence, they remain Underweight CRM shares.

- Cowen says they would not be surprised to see the stock trade off in the coming weeks following a decent, but not great quarter, in the face of high expectations and the looming specter of a full frontal assault by Oracle and Microsoft in the coming quarters. While most financial metrics were good, none were outstanding, and the company continues to be only marginally profitable on a GAAP basis. Despite a high level of predictability in the subs model, the firm believes heavy infrastructure investments intended to stimulate growth could have a negative impact on profitability and FCF should the competitive environment heat up, a scenario they consider highly likely. CRM trades at 38x Cowen's revised FCF forecast of $146M (+67%). Maintains Neutral.

Notablecalls: Well, it looks like growth is becoming more expensive for CRM. ORCL, MSFT and SAP have participated half-heartedly in the SAAS space so far but as Cowen notes, this may be changing soon. I don't think CRM's a core short here but it may see some downside over the next couple of days.

Paperstand (CCU, AAI, MEH, STI, COMS, JPM)

The WSJ reprots that strong momentum was building last night for a final plan to clinch the $19.4bn sale of Clear Channel (CCU) to a duo of private-equity firms. Major shareholders Highfields Capital Mgmt and Fidelity Investments were expected to be on board with a new buyout proposal brought forward last week. This proposal would sweeten the offer for the San Antonio media-and-entertainment co by 20c a share, to $39.20. The deal also offers current shareholders a chance to own as much as 30% of the newly constituted Clear Channel, which would be majority-owned by Bain Capital and Thomas H. Lee Partners. The shareholders' support for the plan clears the way for a deal that has endured months of contention among shareholders, the co's mgmt and the private-equity firms.

According to the WSJ, AirTran (AAI) is expected to announce that holders of almost 57% of the shares of Midwest Air (MEH) have agreed to sell their stock under AirTran's $389m offer to acquire the airline. B/c the support represents a shift in favor of its longstanding effort to purchase Midwest despite opposition from the rival carrier's board and mgmt, AirTran is also expected to extend the deadline for Midwest shareholders to tender their stock. Although AirTran's latest bid for Midwest expired at midnight yesterday, a new deadline is expected to be set for Jun. 8.

“Ahead of the Tape” column out saying that a wave of cash is looking for a home in the stock mkt. With Bausch & Lomb’s announcement yesterday that it had agreed to be taken private, there are now 12 co’s in the S&P500 index set to go private this year. The total price tag for these co’s stands at $179bn, according to S&P analyst Howard Silverblatt. That's a lot of cash investors will have to redeploy. "This is a lot of money that will have to find a home," Mr. Silverblatt says. S&P500 index funds will pump the money right back into stocks in the index, as will many of the actively managed mutual funds that use the index as a benchmark. First and foremost, they'll need to buy the shares of the co’s replacing the outgoing members of the index. Of course all the cash "coming" into the stock mkt was really the stock mkt's to begin with. The reality is that, with so many co’s going private, there are fewer stocks to buy, and that's sending the ones that remain higher.

“Heard on the Street” column reports that SunTrust Bank (STI) has sold 9% of its $2.3bn stake in Coca-Cola, and has said it will decide what to do with the rest by year's end. The move is meant to appease exasperated investors who see the Coke shares as an asset that SunTrust has been squandering for decades. Still, it could be too little too late to save SunTrust from a takeover long thought to be impossible. The bank's sale of the beverage maker's shares could make SunTrust more vulnerable, b/c any buyer of SunTrust currently would have to include the mkt value of the Coke holding in the purchase price. Shedding the stock would make a takeover of SunTrust less expensive, and some analysts have long argued that the Coke stake amounted to a "poison pill" that kept SunTrust in control of its destiny. "The clients who are holding the stock are the ones that believe there's going to be a deal," says Nancy Bush, of NAB Research, who has followed SunTrust closely for two decades. "It's very sad to me. This was once upon a time a great franchise."

Barron’s Online highlights 3Com (COMS), saying that the challenges to 3Com may be more than Citadel knows how to fix. Citadel upped its stake in 3Com from 1% to 8% in April, and has sent a note to the 3Com board offering to provide "input" to turn the stock around. The co's share of networking products has shriveled over the years dramatically. For 3Com to achieve sustained sales growth and profitability will be tough in a mkt where even Cisco is finding growth elusive. Worse, after taking sole control of the China venture, 3Com will end up with far less cash, a fact that gives value investors pause. Without that pristine balance sheet, 3Com looks more like an expensive networking stock trading at 25x next year's earnings. "It's difficult to see what Citadel could possibly do better than 3Com mgmt, at a time when the co is in transition, and given that networking is always competitive even for Cisco," says Mark Mowrey, of Al Frank Asset Mgmt. Mowrey is holding on to the stock for some upside potential, but "if I weren't already in the stock, I wouldn't put new money into it at this point," says Mowrey.

“Inside Scoop” section reprots that JP Morgan (JPM) is trading around all-time-high territory, and co insiders are celebrating the co's success by selling stock at a greatly increased pace. Over the past 30 days, execs have sold $14.4m in stock, comprising the majority of the $22.4m in stock sold over the last 2 years. The biggest sellers were CIO Ina Drew, and Steven Black, the co-CEO of JPM's investment-banking unit.

Wednesday, May 16, 2007

Motorola (NYSE:MOT): Comments on new products, restructuring and ESL

Several firms have commented on Motorola (NYSE:MOT) after the co a well-attended "Mobile Experience" meeting in New York. Following the product announcements, the company hosted a lunch meeting with CFO Tom Meredith:

- Raymond James maintains their Strong Buy rating saying that first and foremost, Motorola will become fixated on improving its cash conversion cycle, leaning down inventories, and better managing receivables and payables. The cFO indicated the company would announce additional downsizing and restructuring (likely to be announced May 30 or 31). While no details were provided on the magnitude of such a downsizing, he indicated the initial downsizing was not nearly significant enough.

In general, management seems to have regained confidence following the humbling experience of profit and market share losses in the March quarter, a sign the business may be stabilizing.

- CIBC notes they remain comfortable with their thesis and Sector Performer rating on the company. They are warming to the story, but are still looking for evidence of a clear turn and signs of market traction with the new 3G models (like the Z8, Q9, and RAZR2, which were highlighted at the event) before turning more positive. Firm believes the turn has come yet and comments by new CFO Thomas Meredith suggest 2Q07 trends remain very tough.

- Banc of America notes they believe the new products, with similar design but better features and functionality, are a step in the right direction. They are also encouraged by the new leadership, and expect Mr. Meredith to be a change agent. Firm believes MOT is moving up market at a time when the handset industry is transitioning to more fully featured products. They believe this tend is favorable for Nokia, Sony Ericsson, Research in Motion, Palm, and QUALCOMM.

Notablecalls: Nothing really unexpected emerged from the meeting. The RAZR2 is a cool phone but hardly a game changer. Heads have started to roll at MOT and according to whispers a merger of co's Networks and Connected Home business units will be announced soon. This will create some savings but as the CFO hinted, will likely be just the beginning. Which is positive, of course. Motorla has become too bloated and unfocused and now needs to correct itself.

On another matter, SEC filings published last night showed that Eddie Lampert, the billionaire hedge fund manager known for making large bets on a few companies, including Hoffman Estates-based Sears Holdings Corp, has acquired a 925,000 share stake in Motorola. Lampert received special permission from the SEC to postpone disclosing the details of some of his holdings. That "confidential treatment" expired last night. The filings also showed he poured close to $800 million into Citigroup stock and another $30 million into Clear Channel. Eddie didn't become rich by being stupid. It looks like his cost basis for MOT is pretty close to current market price. With Ichan and Lampert on board, I would not be surprised to see other big game hunters join soon.

Anyway, I continue to stand by my bullish thesis on Motorola.


The WSJ’s ”Ahead of the Tape” column reports that in the past few months, private-equity firms have been sizing up European insurers. Expectations are building in the stock mkt for deals and restructuring. Whether this leads to action remains to be seen, but already Europe's insurers are doing more to keep their shareholders happy. The Dow Jones Wilshire Global Insurance Index is up 6.55% this year. "Incumbent managers have an opportunity to create a lot of value," says Michael Huttner, a JP Morgan insurance analyst in London, adding that "managers might think if they don't hurry, it will be done for them." Only US listed co mentioned: Aegon (AEG).

“Inside Track” section out saying that not all stock purchases by CEOs are created equal, and a smaller purchase can sometimes be a better indicator than a larger one. John Riccitiello, the new CEO of Electronic Arts (ERTS), and W. Edward Scheetz, president and CEO of Morgans Hotel (MHGC), each bought shares of his co's stock last week, but the strength of the signal sent by the transactions differs significantly, said Jonathan Moreland, of Mr. Moreland said he finds Mr. Scheetz's purchase of $291K worth of Morgans Hotel stock a more positive sign than Mr. Riccitiello's purchase of almost $1m of EA stock, partly b/c of Mr. Scheetz's more timely trading history, and partly b/c of the recent runup in Morgans Hotel stock. "I was impressed that Mr. Scheetz was putting more money into a stock after it had risen so strongly in the past months," Mr. Moreland said. "I was also impressed with his track record, much more than with the gentleman at Electronic Arts."

Barron’s Online discusses Wyeth (WYE), whose shares closed at a 5-y high last week. It's no wonder. Despite the regulatory delays, Wyeth has one of the pharma industry's strongest pipelines. 2 or 3 potential blockbusters could hit the mkt by ‘08, and profits could beat expectations. Yet the stock trades at one of the lowest multiples in Big Pharma, and its performance YTD has lagged several of its peers. Thus, it wouldn't surprise us if the stock still has room to run. "The pipeline is strong and holds a lot of potential," says Herman Saftlas, of S&P. "Key drugs are doing well, and I forecast double-digit earnings growth, perhaps 10-11% annually over the next 2 years. Yet the stock trades at a discount to Big Pharma."

“Inside Scoop” section reprots that insiders at Blue Nile (NILE) have sold nearly $20m in stock since May 1, led by Chmn and CEO Mark Vadon and President, CFO and Director Diane Irvine. "When you look at the numbers," Ben Silverman, of, says, "these guys are taking some big profits now. It's well-deserved if you look at where stock has come from." As for investors, Silverman adds, "The signal is: Proceed with caution."

Tuesday, May 15, 2007

Amgen (NASDAQ:AMGN): Comments on Medicare NCD

Couple of firms comment on Amgen (NASDAQ:AMGN) after Medicare proposed a national coverage decision (NCD) to restrict reimbursement of Aranesp and Procrit for cancer:

- Goldman Sachs notes that assuming the limitations are implemented, except for MDS, Aranesp sales in 2008 might be reduced by 30% which is consistent with their 2007-09 forecast of $2.4bn (-13% yoy), $2.4bn (+ 0%), & $2.5bn (+1%), resp. Epogen sales would not be affected, but another proposed NCD is likely in 2007. They have assumed Epogen will decline by 4%, 14% & 10% in 2007-09, resp.

Despite the decline in Epogen & Aranesp sales, the firm expects 8-11% yoy EPS growth in 2007-09 due to expense control and share repurchase. Amgen shares are trading at 13X 2007 EPS (incl. ESO) & PEG of 1.5 based on 3-year EPS CAGR of 9%. The PE & PEG of drug stocks are 17X & 2.3, resp. GSCO's 12-month target of $72 is based on 16X Amgen's 2008 EPS of $4.50.

- Citigroup notes the proposal was published four months ahead of schedule after last week's FDA advisory panel meeting on the drugs. The scope and timing of the proposal will likely surprise investors and put downward pressure on Amgen.

In Citi's view, these reimbursement proposals could potentially restrict >50% of the CIA market depending on the final decision. The oncology segment represents ~17% of total Amgen?s sales. Thus, they see further downside to the stock relative to their $54 target price and expect Amgen to test the $50 support level.

They are very concerned that the FDA's Cardiorenal Advisory Committee in the fall will further vote to restrict usage of Epogen in the nephrology setting representing approximately 26% of Amgen's total sales. Thus, the firm continues to expect further weakness in the stock until CMS and FDA complete their review of the product labels and reimbursement in the nephrology setting.

Notablecalls: AMGN is down over 3 bucks in early action and I would not be surprised to see the stock hit $52 today. Would pick up some stock there for a bounce, as valuation is still cheap, despite the cuts.

Arris (NASDAQ:ARRS): How will it continue to grow?

- Raymond James is out with some cautious comments on Arris (NASDAQ:ARRS) noting that late last week, Liberty Global (LBTYA) posted March quarter telephony new net-adds (majority VoIP). The company signed on 172,000 telephony subscribers, up 3% from December. This compares to firm's 225,000 estimate. They view the March quarter results as lackluster and reinforce their view the majority of cable operators (which Arris serves) have hit steady state VoIP new net-adds. While healthy from a cable operator perspective, they view this trend as somewhat concerning for Arris's growth prospects.

Two of Arris's top four customers, Liberty Global and Time Warner (TWC), have reached what appears to be peak embedded multimedia terminal adaptor (E-MTA) volumes.

As it relates to Comcast (CMCSA), RJ estimates the operator will experience modest quarter / quarter growth the next three or four quarters and peak somewhere between 650,000 - 750,000 VoIP new net-adds per quarter (up from 571,000 in March). While impressive from an operator perspective, given an E-MTA average selling price of $70-$80 (and falling over time), the firm is hard pressed to understand how Arris will continue to grow its E-MTA revenue base meaningfully.

Notablecalls: ARRS' business is about 1/3 CMTS (cable modem termination systems) and 2/3 eMTA (embedded multimedia terminal adaptor). CMCSA accounts for roughly 40% of revs.

The CMTS side carries high margins but the margins have likely peaked already and are likely to decline from here. CSCO and MOT are likely to regain share over the next couple of yrs.

It also looks like the eMTA side is no longer high growth territory. Trading 18x 08 EPS, ARRS doesn't really look like a bargain here.

Monday, May 14, 2007

Motorola (NYSE:MOT): Mid-quarter checks suggest some stabilization

- CIBC comments on Motorola (NYSE:MOT) saying their mid-quarter checks suggests MOT has managed to stabilize its handset market share in most regions, yet in Asia inventories remain high and continue to make an impact on sell-in. Given Asia's impact on MOT, they are lowering their shipments target in 2Q07 to 44.5M (-2% QoQ) from 46M.

Firm notes they have seen evidence of two trends that illustrate the progress MOT is making internally to address its issues. Adoption of a firm global pricing policy (and adhering to it). A shake up in the global distribution system, reducing arbitrage activity and forcing regional sell-through disciplines.

MOT will host an event on May 15 in which it will show a mix of already introduced models and new models, including new derivatives of the MOTOFONE and a new slick RAZR-like clamshell. CIBC expects features to still be light, and would keep expectations low. Looks for late '07 for change.

The firm is tweaking their estimates to reflect more near-term sell-in challenges. For 2Q07, they are slightly reducing revenue estimate to $9.2 billion from $9.4 billion. Pro forma EPS estimate is unchanged at $0.04. They are looking for a clear turn and new 3G models before turning more positive.

Notablecalls: Nice comments by CIBC's Ittai Kidron. Zander and his team are trying to fix the problems ailing MOT's largest division - the mobile. While the pricing and distrubution system are important, I think what investors really want to hear is that the mobile poducts development labs are working feverishly to come up with new and cool products. There has been some ga-ga over the RIZR R8 lately but looking at the looks like all the other phones out there.

The stock is starting to look good. In fact, it looks like it cleared the 50 day EMA on Friday. The last time MOT closed above this average was in October 2006. I continue to stand by my bullish thesis on MOT.

Sandisk (NASDAQ:SNDK): May have some s-t upside in it

- Citigroup is positive on Sandisk (NASDAQ:SNDK) saying QTD NAND contract pricing action augments near-term plusses (margin and expense related upside potential) and intermediate-term catalysts (pos 2H07 est revisions and multiple expansion), bolstering conviction in their call.

Tactically, they advise investors to build positions patiently thru the Q on market volatility (for now less urgency needed than in analog Co's ADI, ISIL, FCS and SMTC). NAND contract pricing was stable in 1H May and overall densities are tracking flat QTD with 4Gb+ up 10% (vs 1Q averages). While the firm expect a modest June swoon (seasonality), prospects are increasing better-than-modeled 2Q07 pricing (-5% embedded in their 3Q07 royalty calculation). Recalls Samsung/Hynix guided to +20% 2Q pricing).

Citi remains confident NAND fundamentals can move into under-supply by late-3Q. Upcoming milestones impacting sector psychology include: 1) MOT's 5/15 new product launch (embedded/removable NAND demand), 2) Bi-monthly contract pricing updates 3) Monthly US retail card/drive/MP3 sell-through date (released the last week of each Q (NPD/CIR)), and 4) Apples's late-June iPhone aunch (embedded/removable NAND demand).

Notablecalls: Well, SNDK's chart looks good. May have couple of bucks of upside in it if it gets moving. One to watch.


The WSJ reports that DaimlerChrysler (DCX) is expected to announce as early as today a deal to sell a controlling stake in Chrysler Group to private-equity firm Cerberus Capital Mgmt. The proposed deal would allow the auto giant to shed Chrysler's $18bn in retirement and health-care liabilities and could open the door to further restructuring of the nation's unionized auto makers. Under the proposed deal, Chrysler Chief Executive Tom LaSorda would continue to run the company.

According to the WSJ, the Army is pushing to turn a crowded multibillion-dollar competition for the next generation of troop transports into something closer to a winner-take-all event. Now that the Pentagon is planning on buying many more of the vehicles, Army officials say they would like to see one primary design. That would make the vehicle much easier to maintain. "If you have four different vehicles, that means you have to have four different logistics systems to provide parts. You have to train soldiers how to fight from four different vehicles. It becomes very expensive and complex," the senior Army official said. US Central Command say that it now needs as many as 17,700 vehicles, enough to ensure that every soldier who leaves the base in Iraq is riding in one of them. The surge in demand has forced the smaller players, such as Force Protection (FRPT), to team up with major vehicle producers to increase production. Mike Aldrich, VP of business development and govt relations, said the Force Protection-General Dynamics (GD) joint venture could produce more than 10K MRAP vehicles by the end of ‘08. "What's holding us back is a substantial order," he said. Oshkosh Truck (OSK) has also entered the fray.

“Ahead of the Tape” out saying that if the housing-mkt shakeout has an epicenter, it probably lies in Florida. For co’s with business tied closely to the state, that is a problem. Home builders are getting hit hardest in Florida. Building permits for new-home construction were 51% below their year-ago level in the 1Q. Florida still boasts one of the lowest unemployment rates in the country. But it wouldn't be surprising to see its broader economy worsen in the mo’s ahead. Big public builders have established an outsized presence in Florida. Co’s that supply builders are feeling pinched. PGT (PGTI) generated 92% of its business in Florida last year. In the 1Q, PGT's sales were down 25%. Florida Rock (FRK) reported that 1Q sales were down 33%. Banks with exposure to Florida real estate have been getting hurt, even some far away from the state. In April, Webster Financial (WBS) warned that credit quality on its Florida residential-construction loan portfolios had deteriorated. Retailers with big exposure to the state could suffer, too. MarineMax (HZO) has been lowering its sales expectations. It generates more than 40% of its sales in Florida. Haverty Furniture (HVT) has said its sales in Florida are getting hurt by the combination of the housing downturn, rising insurance rates and rising property taxes charged to out-of-state residents. Florida has little in the way of exports, and so it is unlikely to get much help from strong global economic growth, says Goldman economist Jan Hatzius. He doesn't think the housing downturn is enough to push the whole US economy into recession, but it could be a "canary in the coal mine" of trouble in regional economies.

Sunday, May 13, 2007

Barron's Summary

Barron’s cover lines up Top500 co’s based on cash-flow returns on investment. This year top honors go to Goldman Sachs ( GS), Franklin Resources (BEN) ranks 2nd. The bronze went to Apple (AAPL), while Terex (TEX), took fourth place, and Paccar (PCAR) fifth.

Barron’s interviewed analyst likes NUE, RS, STLD and AKS. Another fund manager top10 holdings include PENN, AMT, MKL, KMX, POOL, NDN, PNK, BYI, ACF and GISX.

If the merger of Thomson (TOC) and Reuters (RTRSY) goes through as planned, resulting cash flows could make Thomson shares worth roughly 20% more than Friday's level.

The Dolans, controlling shareholders of Cablevision (CVC), have offered $36-and-change fore share that now tade above 35. Dissenting shareholders say the company is worth $50 to $60 a share. "We'd hang in until [the Dolans] force us out," says Christopher Marangi, of Gamco Investors.

With lower interest rates, Annaly Capital Mgmt (NLY) could earn more than $2 a share, which could propel its stock into the low-20s. Some savvy investors now think the worst is over. "The yield curve will start to steepen in the 2H07 and continue to do so in '08 as the economy begins to slow and the Fed cuts rates," says Arnie Schneider, CIO of Schneider Capital Mgmt.

The shares of Constellation Brands (STZ) are starting to recover after a sharp drop earlier this year. As the company tends to its challenges, the shares could jump more than 25% in a year. Tim Ramey, of DA Davidson, sees profits climbing 20% in F'09, to $1.75 a share. The shares, now trading at just 13.5x that est, could well hit 29 in 12-18 months, he says.

“The Trader” column discusses Virgin Media (VMED), whose shares trade at a big discount to their US counterparts. Virgin's shares have long attracted hedge funds with a keen nose for bargains. To Brad Ruderman, of Ruderman Capital Mgmt, Virgin's selloff last week illustrates the "very, very tight leash granted to mgmt" by Wall St, after predecessor NTL had loaded the co with debt to build its infrastructure. "But what was negative for the previous regime is now positive for the co," Ruderman says. "It has a state-of-the-art network already in place, and now it's up to mgmt to monetize the value of that network." He reckons shares are worth at least 35, with Virgin's cash flow and dominant network also enticing to buyout firms. Drawing parallels between UK and US cable businesses can seem as absurd as, well, comparing soccer and football. But at about 24, Virgin shares trade at just 6.4x ‘07 operating cash flow, compared with multiples of 8-9 for stateside counterparts, says Oppenheimer analyst Thomas Eagan. He calls the stock's pullback "overdone" and says "now is the time to buy."

“The Trader” also out saying that the selling in the shares of Dean Food (DF) may be overdone. The shares seem to have discounted a worst-case scenario, making valuation more compelling. Mgmt had guided ‘07 profits to $1.72 a share, the low end of its forecast range. Jim Lane, of TriPoint Asset Mgmt, also sees limited downside. If shares slide toward, say, 25, an earnings yield approaching 6.6% could make Dean a tgt for larger food co’s. If dairy margins firm up, the shares could trade up to 42.

“Technology Trader” section discusses Seagate (STX) and Western Digital (WDC), whose shares are down 16% and 11% respectively, YTD. Some analysts have even suggested that flash memory could completely replace drives in PCs, and put Western and Seagate out of business. But PC sales are doing just fine, and flash - in great part owing to its cost - is not going to replace disk drives globally for years to come. Once investors come to appreciate those facts, Western Digital shares could appreciate another 20% or more. Western is cheaper than Seagate by a wide margin, trading at a 2-y-low P/E multiple of about 9.4x the next four quarters' estd profit, below its 5-y median of 11.6x, while Seagate is near its median of 12.2x. "Western has an attractively valued stock for a co that is one of the premier players in a mkt that's set to grow at least 10% a year for several years," says Citigroup analyst Paul Mansky, referring to the expected ramp-up in disk-drive unit sales. Mansky thinks that Western Digital is "a technology laggard by design," and that some investors underestimate Western Digital's strategy of gaming the technology curve to turn in profits and steady cash flow.