Theflyonthewall.blog
Presented by Theflyonthewall.com

Friday, December 29, 2006

Through The Fly's Eyes: A Quick Look Ahead

from Eric Buscemi of Theflyonthewall.com












Highlights For Next Week


Monday January 1

* Markets closed for New Year's Day holiday
* PDUFA date for Amylin Pharmaceutical's (AMLN) Byetta

Tuesday January 2

* Markets closed in observance of President Ford's death

Wednesday January 3

* Earnings conference calls for AngioDynamics (ANGO), Landec Corporation (LNDC) and the Topps Company (TOPP)
* Sales conference call for American Eagle Outfitters (AEOS)

Thursday January 4

* Earnings conference calls for Arrow International (ARRO), Monsanto Company (MON) and Sonic Corporation (SONC)
* Sales conference calls for Abercrombie & Fitch (ANF), AnnTaylor Stores (ANN) and bebe stores (BEBE)

Friday January 5

* Shareholder meeting for Serono S.A. (SRA)

Thursday, December 28, 2006

Through The Fly's Eyes: Blockbuster

from Eric Buscemi of Theflyonthewall.com











Review: Blockbuster Total Access

After blogging about the launch of Blockbuster's (BBI) Total Access program in November, I was contacted and asked if I would like to try the program in exchange for writing a review about it. I was given a free one-year subscription of the service in exchange for promising to review the service honestly. Now that I have given full disclosure, here are a number of my thoughts on the Blockbuster Total Access program:

  • The program is an obvious improvement. The online service operates exactly the same way as it previously did, but now a rental can be returned directly to the store for a new movie. I found this came in convenient more than once - when I was in the mood to watch a specific movie that was not in my queue or when I had not realized a movie I wanted to see had just come out on DVD. Since the service costs the same as Netflix (NFLX), the added functionality is essentially a free upgrade.
  • I found the online movie store well stocked and the movies arrived quickly. My queue, which has around 30 movies in it, says that all of them are available immediately, and I have never had to wait more than two days to receive the next movie in my queue.
  • The only drawback I noticed was from the information I was given when starting the program - the movie database at Blockbuster is slightly smaller than at Netflix (60,000+ to 65,000+). That being said, I did not have any trouble finding any movies, even older movies (Dirty Harry), foreign movies (Ran), animated movies (Appleseed) or indie movies (Paradise Now).
Beyond my personal experience as a user of the service, here are two additional observations I have about the promotion:

  • Blockbuster had an eye on besting Netflix with this program, and they were smart enough to promote it to their customer base. They offered Netflix subscribers the opportunity to exchange their Netflix envelope stubs for Blockbuster movies. It would not surprise me if this catalyzed a lot of Netflix subscribers to switch to Blockbuster.
  • Blockbuster's savvy marketing did not end there. It is also offering its Total Access customers an extra coupon each month that is good for an extra free rental of a movie or a video game. This gives a reason for another demographic - gamers - to subscribe to the Total Access service and also encourages subscribers of the online service to go into the stores more often.
After using the service for a over a month, I stand by what I said when it originally came out. With this program, Blockbuster is moving in the right direction. Clearly, Wall Street has noticed - since the service was announced November 1, Blockbuster's stock is up over 33%.

Through The Fly's Eyes: Trade Deficit

from Theflyonthewall.com

A Great Commentary On The US Trade Deficit

David Malpass of Bear Stearns wrote a great op-ed piece on the correct way to interpret the trade deficit. The full article can be found on Forbes Digital Rules blog
.

Here are some some of his thoughts:

  • The imbalance, the trade deficit and related capital inflow all link the faster-growing U.S. with other aging, slower-growing economies. They are a reflection of growth in the U.S., not weakness.
  • Despite our trade deficit and other countries' trade surpluses, the U.S. economy has created 9.3 million new jobs since the 2001 recession, compared with 360,000 jobs in Japan and 1.1 million jobs in the European zone, excluding Spain.
  • Speaking of Spain -- like the U.S., Spain (3.6 million new jobs) and the U.K. (1.3 million new jobs) also ran trade deficits and created jobs rapidly during these last five years.
  • The recent upswing in the U.S. trade deficit partially reflects the shift in the demographics of the world's large economies. The under-60 population in the U.S. is expected to grow for at least 50 years, whereas the under-60 populations in Japan and Europe is already in a decline and China will also be in a decline within a decade.
We have blogged in the past on how the trade deficit has been misinterpreted by economic pundits for years. David Malpass is one economist who gets it right.

Through The Fly's Eyes: Tech Update

from Theflyonthewall.com











Tech News

  • Wikia, the San Mateo start-up founded by Wikipedia’s Jimmy Wales, is working on a search engine that will use the same strategy as Wikipedia’s user-reliant encyclopedia. Wikia is expected to be launched in the 1st quarter of 2007. (VentureBeat.com)
  • Google could vault ahead of Microsoft and Yahoo! in 2007 to become the world's most visited Web site. Microsoft is No. 1 worldwide -- largely because of downloads of updates to its ubiquitous software -- and Yahoo! is the most visited Internet property in the U.S. But Google is growing fast and the recent acquisition of YouTube could speed up its rise. (USA Today)
  • The market share of visits to the Apple Store (store.apple.com) showed an increase of 110 percent when comparing Christmas Day 2006 to 2005. The Apple Store was the fourth most visited website in the Hitwise Retail Index on Christmas Day 2006. (GigaOm.com)

Wednesday, December 27, 2006

Through The Fly's Eyes: Ford Motor

from Theflyonthewall.com













Ford and Toyota Hold Meeting

Ford (F) is essentially a rounding error when compared to Toyota's (TM) market capitalization. Ford's market cap is about $14 billion versus $211 billion for Toyota.
However, Ford is not so insignificant when it comes to revenue, generating about $166 billion versus Toyota's $190 billion, according to data from Reuters.

There is little doubt that there is a ton of upside if Ford could ever get its act together. To that end, Alan Mulally, who came to Ford after successfully running Boeing (BA), supposedly held talks with Toyota on improving procurement costs and fuel cell technology.


Toyota management can tell Ford everything they need to know about running a successful automobile company. However, history tells us that U.S. manufacturers having the knowledge does not mean they will not listen.


Mulally may be different. He comes from a manufacturing industry that has a strong union employee base. Ford is one stock to watch in 2007. If the fundamentals stop deteriorating, it could be worth getting into this stock.

Tuesday, December 26, 2006

Through The Fly's Eyes: Sizzle Inc.

from Theflyonthewall.com











A Detailed Review Of The Global Economy

Jonathan Laing of Barron's did an in depth interview with GaveKal, a global advisor to financial services firms. GaveKal gave some great stats:

  • Research & development now dwarfs capital spending--Danaher's research spending has jumped from 150% of capital outlays to 300% during this decade. And Analog Devices has also seen a big jump in its R&D-to-capex ratio, increasing from 1.5-to-1 to 6-to-1 this year. Big increases in R&D and the shift of manufacturing to Asia will continue to translate into a more productive US corporation.
  • Concerns about consumer debt levels--mortgage, credit card and auto debt has plunged from 6% of totals outstanding at the beginning of the 1990s to 1.5% to 2.5% the past few years.
  • Corporate profits remain very strong--after-tax profits and cash flow as a percentage of GDP exceed 8.5% and 15%, respectively--very high by historical standards.
  • Trade Deficit at 7% of GDP--not a concern when measured against US total household net worth which grows about $2.5 trillion per year. A traded deficit of $800 billion is more than offset by growth in US net household wealth.
  • Net foreign debt as a percentage of national net worth is only 4.6%.
  • The earning-yield and dividends for stocks earn investors 9% versus 6% for private equity to borrow money. That is what is fueling the private equity boom. Stocks should do well as long as this disparity exists.
Laing titled his piece Sizzle Inc, referring to GaveKal's optimistic outlook. The premise behind the positive outlook is that the global economy is "on a cusp of a decades-long" deflationary boom. It is a very compelling argument to invest in US stocks.

Through The Fly's Eyes: Savvis Communications

from Theflyonthewall.com






Building Serious Growth Path

Savvis Corp (SVVS), a left-for-dead tech-telecom bubble stock, continues to come back to life. While most investors are on vacation, Savvis, a large independent data center company, released some interesting news this morning.


  • Savvis will add 180,000 square feet of raised floor space through new construction. This will increase its total data center footprint more than 10 percent to over 1.5 million square feet.
  • Savvis will also sell its content delivery network services business to Level 3 Communications (LVLT) for $135 million in cash. Management said it will focus on its core hosting and managed network services businesses.
Savvis and Equinix (EQIX), another independent publicly traded data center company, continue to benefit from the strong demand for data center space. Customers require high standards for security and reliability, power availability, cooling, network connectivity, and environmental controls. Savvis has pre-booked most of the new space.

The expansion is expected to cost $200 million. With $135 million coming from the asset sale to Level 3 and 2007 EBITDA expected to come at $150 million, Savvis can fund this expansion without using outside financing--a very good sign for the financial health of the company and for increasing shareholder value.


Since TheFly blogged in April to begin looking at this sector again, Savvis and Equinix are up 38% and 31%, respectively.

Friday, December 22, 2006

Through The Fly's Eyes: A Quick Look Ahead

from Eric Buscemi of Theflyonthewall.com












Highlights For Next Week

For anyone that is actually watching the markets next week, here is just about everything happening in a very light four-day week sandwiched between two national holidays.

Monday December 25

* Markets closed for Christmas holiday

Tuesday December 26

* Healthcare conference calls: Merrill Lynch 10:00am, Bank of America 10:30am, Bear Stearns 11:00am

Wednesday December 27

* Delta and Pine Land Company (DLP) to hold earnings conference call at 10:00am
* Bear Stearns to hold retailing-broadlines conference call at 10:00am

Thursday December 28

* Learning Tree (LTRE) to hold earnings conference call
* Newpark Resources (NR) to hold shareholder meeting at 11:00am
* Hurray! Holding Co (HRAY) to hold firm-sponsored meeting with Think Equities

Friday December 29
*The Mills Corporation (MLS) to hold shareholder meeting at 10:00am

Through The Fly's Eyes: Harry Potter

from Eric Buscemi of Theflyonthewall.com










Boy Wizard to Magically Lift Scholastic Shares Again?

His name is starting to pop up again. A year and a half after the release of "Harry Potter and the Half Blood Prince," Harry is returning to the scene. Trailers for his latest movie, "Harry Potter and the Order of the Phoenix," have begun popping up on the Internet, and just yesterday, author JK Rowling announced the title to the seventh and last of the Harry Potter books - "Harry Potter and the Deathly Hallows."

All of the Harry Potter books have been released in the summer (between June and September), and with the title to the seventh installment being announced now, it looks as if the "Deathly Hallows" is likely to hit bookstore shelves in the summer of 2007.

Since the explosion in popularity of Harry Potter, the release of the books has catalyzed Scholastic's (SCHL) shares; In the three months prior to the release of the last three books, Scholastic shares have risen ~30%, ~25% and ~7%, respectively. The conclusion of this seven-book series should also boost the publisher's stock.

Through The Fly's Eyes: Research In Motion

from Theflyonthewall.com






RIM Continues To Plow Ahead

Research-In-Motion (RIMM) naysayers are proven wrong again. RIM reported outstanding results last night, once again proving that selling a wireless data device is difficult and barriers to entry high.

  • Revenue for 3Q2007 was $835.1 million, up 26.8% from $658.5 million in the previous quarter.
  • Revenue was up 49% year-over-year from $560.6 million.
  • Approximately 875,000 BlackBerry subscriber accounts were added in the quarter. This means BlackBerry is adding customers at or higher than wireless voice providers.
  • At the end of the quarter, the total BlackBerry subscriber account base was approximately 7 million.
Skeptics have believed RIM would go the way of many fad tech products as Microsoft and wireless service providers introduced their own products. However, it hasn't happened. Most service providers are partnering with RIM rather than competing against them.

While Treo numbers came in weak and most data points in the wireless handset business point to a poor holiday season for service providers, RIM is one area of strength.

If you do not own RIM, it would be hard to chase the stock this morning. Wait until 2007 and a market correction to get into this stock. But make no mistake, this is a must follow stock.

Thursday, December 21, 2006

Through The Fly's Eyes:PMC-Sierra

from Theflyonthewall.com






PMC-Sierra Misses

Another semiconductor company focused on the communications sector was light on revenue. PMC-Sierra's (PMCS) miss follows a trend we have been blogging about during the past month: National Semi (NSM), Texas Instruments (TXN), Fairchild Semiconductor (FCS) and a few others have come up short.
Jabil Circuit (JBL) last night also guided to weaker revenue for the current quarter.

It will be interesting to see if we get a pre-announcement warning from any of the big handset manufacturers, such as Motorola (MOT) or Nokia (NOK).

Through The Fly's Eyes: DirecTV Group

from Theflyonthewall.com














FCC Ruling Makes DirecTV More Attractive

Do not hold your breath that yesterday's FCC ruling, along partisan lines, will allow the Baby Bells to more rapidly enter the video business.


The FCC voted 3-2 putting in place new rules that will require local cable franchising authorities to act on applications for access to local rights of way within 90 days, and to act within six months on applications from other new competitors.


What do you think the cable companies and the supporting organizations will do? Sue and drag out the process as long as possible - similar to what the Baby Bells did for years with the Telecom Act of 1996.


What is the best economic solution? The Baby Bells will most likely have to buy Echostar (DISH) and DirecTV (DTV). This way they buy all the franchise rights in one shot and avoid having to approach thousands of towns and communities to get franchise rights - saving time and money.

Wednesday, December 20, 2006

Through The Fly's Eyes: Electronics

from Theflyonthewall.com













Sloppiness In The Electronics World

Last night, Palm (PALM) met its reduced revenue and earnings guidance, but lowered guidance again for next quarter.
Palm's weakness follows Texas Instruments (TXN) and National Semiconductor (NSM) recently lowering guidance. Both blamed weakness in the handset market for the miss.

Circuit City (CC) missed earnings due to a price war for flat panel TVs. The price war showed up at the gross margin line - dropping 192 basis points - a massive decline for an electronics retailer.
Circuit City also said satellite radio sales were weak, along with desktop PCs, camcorders and DVDs. Two areas of growth were video game consoles and laptops.

As we blogged last week, the malaise in electronics right now most likely means semiconductors will have a tough three to six months. Make sure semiconductor companies get their inventories in order before you jump back into either electronic retailers or semiconductors.

Through The Fly's Eyes: Dell Inc.

from Theflyonthewall.com











Bizarre Move By Dell

Curiously, Dell (DELL) has hired Don Carty, an old-economy executive from American Airlines (AMR), as CFO to help Dell get back to its high growth ways.


Carty is one hell of a nice guy, but was never known as an in-your-face low-cost type of guy. He was best known for smoothing relations between American's management and unions.


Investors seriously have to question the thinking behind this decision. Dell became Dell by developing a massive global logistical infrastructure that was one of the great feats in business history. Understanding this infrastructure and then helping management for someone new to the industry might be asking a lot from Carty - especially when Dell is receiving serious competition from Hewlett-Packard (HPQ) and Lenovo (LNVGY).


Adding Carty to Rollins' team seems to make Dell's executives more reactive rather than becoming more proactive. It is hard to get excited about Dell's stock after hearing this announcement.

Tuesday, December 19, 2006

Through TheFLY's Eyes: Circuit City

from Joseph Lazzaro of Theflyonthewall.com


















Circuit City Misses, And Wall Street Hits CC

Circuit City (NYSE: CC), the nation’s second-largest consumer electronics chain, surprised Wall Street with a Q3 loss, and Wall Street was not amused.

Circuit City posted a Q3 EPS loss of -9 cents, well below the Reuters consensus estimate of 7c. CC also lowered 2007 guidanace, saying 2007 sales would rise 8%-9%, down from earlier guidance of a 9%-11% gain, due to continued gross margin pressure. The company cited price war-inspired price cuts as contributing to margin pressures

Wall Street promptly pummeled the stock, sending Circuit City shares more than 18% lower, for a decline of $4.53 to $18.52 on Tuesday at mid-day.

Analysts said the market was reacting not only to Circuity City's disappointing revenue stats, but its lowered guidance, and the "barometer weight" of the that guidance. "Barometer weight" is Wall Street-speak for a company's sector and broader market implications. Because Circuit City is national in scope, with broad demographics, its revenue/EPS stats are often used by the Street to detect clues regarding the health of consumer spending and the retail sector.

And right now, those stats are suggesting that consumer spending is moderating, with growth slowing, hence Tuesday' sell-off in CC. Moreover, it was not surprising that the market moved lower at mid-day following the news, as welll, with the Dow down -20 points, and the Nasdaq down -18 points at mid-day.

Through The Fly's Eyes: Mortgage Debt

from Theflyonthewall.com

















Demand for Mortgages Drops BIG

A big drop in the demand for mortgages might be positive for stocks, suggests Paul Kasriel, the publisher of The Econtrarian.


Kasriel points out the most recent year-over-year decline in household mortgage borrowing as a percent of DPI is unprecedented in the post-WWII period.


He also points out that at the same time households are slowing down their borrowing relative to their income, corporations also have slowed their debt issuance relative to their income. Corporations are using extra income to buyback stock.


Kasriel says this could bode well for equities, since both individuals and corporations have been paying down a boat load of debt. At some point, individuals will have paid down enough debt and corporations will have shrunk their stock base to a point where demand for stocks will be much greater than supply--thereby leading to much higher stock prices.


Kasriel points out that today's situation is not too different from the late 1990s when stocks took off.

Through The Fly's Eyes: Oracle Corporation

from Theflyonthewall.com




Use Price Weakness To Buy Stock

Oracle (ORCL) reported a sharp deceleration in applications growth. Apps growth was 28% versus some 80% in the previous quarter.


However, the core of Oracle's strategy remains in place: using middleware as a platform to strengthen its position against SAP (SAP) and BEA (BEAS) and, in addition, using acquisitions to enter new vertical markets.


Oracle said that it continues to gain market share against BEA and is having very good success entering the retail vertical with revenue tripling in this space.


Oracle provided a relatively sluggish outlook for the February quarter which might lead to this stock being dead money for awhile, but investors should stay with this stock. The global economy is growing nicely and demand for Oracle's products should remain solid. In addition, there is still little euphoria for tech stocks which often signifies a top in the tech sector.

Monday, December 18, 2006

Through TheFLY's Eyes: AT&T

from Joseph Lazzaro of Theflyonthewall.com





















AT&T: The Resurgence Of "Ma Bell"

After a landmark anti-trust decision in 1984, federal regulators broke-up the old giant "Ma Bell," AT&T (T), to spur competition, innovation, and ultimately, better services for consumers from both AT&T and those newly-created Baby Bells. More than two decades later, in an ironic and somewhat paradoxical twist, the new AT&T has reassembled a portion of its old network, and the net result may be beneficial for both investors and customers alike.

First, SBC Communications, a former Baby Bell, bought AT&T for $16 billion and took its globally-recognized name. Then, AT&T agreed to acquire BellSouth (BLS), another Baby Bell, for $67 billion. Provided that deal is approved, as expected, in Q4, AT&T will have 49 million access lines, and Cingular Wireless, the company's joint venture with BellSouth, will feature 54 million wireless subscribers -- the largest wireless carrier in the U.S. AT&T's shares closed Monday down 19c to $35.47.

However, the biggest boost for AT&T's shares in the years ahead may stem from its broadband division. As both video over the Internet and VOIP phone service functionality improves, and as more businesses and residences tap into broadband's benefits, broadband demand is expected to surge AT&T is well-positioned to leverage current clients and to register solid broadband positions in the geographic markets it currently serves.

Some analysts are even predicting a broadband shortage, given projected increases in both retail and business customers. If that occurs you can add pricing power to the list of reasons to own AT&T shares. Here's another: a solid quarterly dividend of 35.5 cents per quarter. Further, with adequate growth prospects and solid cash, it's reasonable to assume more dividend increases are up ahead - all of which makes AT&T a Buy.

Through The Fly's Eyes: Credit Card Debt

from Theflyonthewall.com













MacroMavens Says Short Credit Card Companies; Go Long Fannie Mae

Credit card debt has been soaring since the home equity loan market has dried up, according to MacroMavens. Leading companies in this space - America Advance (AEA), Cash America (CSH), Dollar Financial (DLLR), EZCORP (EZPW) and ACE Cash (ACE) - have seen revenues jump 50% during the past three years and could be headed for trouble.


While credit card debt has been increasing, home equity loans have been in a decline and lending terms have become much more stringent - thereby reducing the risk exposure of these companies.


MacroMavens, in the Alan Abelson column this past weekend, suggests shorting the subprime credit card companies and going long Fannie Mae (FNM).


MacroMavens also suggested shorting regional banks and mortgage brokers.

Through The Fly's Eyes: Yahoo!

from Theflyonthewall.com






Yahoo! Still Seeking Acquisitions

Yahoo's (YHOO) reactionary approach to the web continues. Supposedly, Yahoo has approached
Facebook, a social-networking Web site, about a possible acquisition. According to Venturebeat.com, Yahoo was turned down.

It appears Yahoo was not willing to pay an $8 billion asking price.


Yahoo is now in catch up mode since Google (GOOG) purchased YouTube and News Corp. (NWS) owns Myspace.


Yahoo has missed the boat on social networking with its internal initiatives coming up short. It appears management is once again attempting to make up for failed internal initiatives by acquiring companies.

Friday, December 15, 2006

Through TheFLY's Eyes: IPOs - Week of Dec, 18, 2006

from Joseph Lazzaro of Theflyonthewall.com















Syndicate Preview: IPOs Scheduled For The Week Of Dec 18, 2006

IPOs tentatively scheduled to price during the week of December 18, 2006 include:

*Artes Medical (ARTE), a medical company that’s developing injectable aesthetic products for dermatology and plastic surgery products. ARTE has a $12.00-$14.00 filing range.

*Dayton Superior (DSUP), a provider of specialized products for the construction market; filing range: $13.00-$15.00.

*Fuwei Films (FFHL), [Note: FFHL possibly will price the week of December 18], a manufacturer of specialized plastic for packaging and imaging; filing range: $8.00-$12.00.

*Melco PBL Entertainment (MPEL), a developer of casino gaming and entertainment resort facilities; filing range: $16.00-$18.00.

*Oculus Innovative Sciences (OCLS), a developer of wound / infection treatments; filing range: $12.00-$14.00. Solarfun Power (SOLF), a manufacturer of photovoltaic and PV modules; filing range: $11.50-$13.50.

*Transforma Acquisition (TAQ), a blank check company formed for the purpose of acquiring tech/media/telecom assets or businesses; filing price: $10.00.

*Universal Power Group (UPG), a supply-chain management company; filing range: $7.00-$9.00.

* Trina Solar Ltd (TSL), a solar-power manuifacturer based in China, filing range: $13.50-$15.50

Through The Fly's Eyes: A Quick Look Ahead

from Eric Buscemi of Theflyonthewall.com












Highlights For Next Week


Monday December 18

* Oracle (ORCL) to hold 5pm earnings conference call
* BluePhoenix Solutions (BPHX) to hold 10am conference call on the acquisition of CodeStream Software
* Bank of Japan to hold a 2-Day monetary policy meeting

Tuesday December 19

* Bally Total Fitness (BFT) to hold 10am shareholder meeting
* Circuit City (CC) to hold 11am earnings conference call
* Input/Output (IO) to hold conference call to review financial outlook for 2007

Wednesday December 20

* The Pepsi Bottling Group (PBG) to hold an 8am 2007 financial guidance conference call
* Biomet (BMET) to hold 10am earnings conference call
* Pennsylvania Gaming Control Board to hold meeting at 10am

Thursday December 21

* Research in Motion (RIMM) to hold 5pm earnings conference call
* Discovery Laboratories (DSCO) to meet with FDA on way to getting Surfaxin approved

Friday December 22
* PDUFA date for Schering-Plough's (SGP) Noxafi
* Final Deadline for European Union Jurisdiciton in Ryanair (RYAAY) Bid for Aer Lingus

Through The Fly's Eyes: Rumor Mill

from Tedd Cohen of Theflyonthewall.com











Rumor Round-up

With the holiday season upon us, how about a takeover gift for your CEO this year?


Symantec (SYMC)

One again, there’s talk that Symantec is a potential target. Under its Norton brand name, the company proudly defends computers against viruses and protects computer networks. But the landscape is changing as McAfee (MFE), and now Microsoft (MSFT), are fiercely engaged in the same ongoing battle, and have been joined by Internet security offerings from providers such as AOL (TWX) and Comcast (CMCSA). Now comes word that Hewlett-Packard (HPQ) might be primed to take Symantec. OK, but if nothing happens, as has been the case for quite some time, the company will keep on growing, guarding against those nasty computer invaders.


Overstock.com (OSTK)

How’s this for openers: Knowing that the CEO of your company, in this case Internet closeout merchant Overstock.com, has been named first runner up for the second year in a row as the ”Worst CEO of the2006” by Dow Jones’ Market Watch. Way to go, Mr. Patrick Byrne. Some thought he should have been the winner this time. Talk about takeover appeal. The lookers are looking. From a share price of about $15 two weeks ago, it’s moved upward about 10%. All thanks to negatives in earnings, growth and its life blood, traffic. Suitors named include Amazon.com (AMZN), eBay (EBAY), Google (GOOG), Yahoo (YHOO), and gee, has anyone seen Carl Ichan staking out Byrne’s office?


Napster (NAPS)

Name that tune, eh, price. The online music provider’s volume has been turned up again, as it now seems to be a regular item. While its stock is strongly up this year, it’s expected to lose money, about $1 a share, and then continue its losing ways. After the summer, the company brought in UBS to help out with a possible sale. While its got name, if not making the bucks, a sugar daddy would surely be welcome.

Through TheFLY's Eyes: Weyerhaeuser

from Joseph Lazzaro of Theflyonthewall.com













Franklin Asks Weyerhaeuser To Reorganize

Franklin Mutual Advisors has put Weyerhaeuser’s (WY) management on notice: Franklin continues to believe that WY’s share price reflects a substantial discount to the intrinsic value of its underlying assets and core businesses. [Translation: the stock is not meeting Franklin's appreciation expectations.]

Franklin owns a 7.6% stake in Weyerhauser and its letter to WY’s board of directors, Franklin argued that it appears the tax law will continue to favor holding timber properties in entities such as timber investment management organizations or real estate investment trusts, and it cited several structural disadvantages for WY.

Franklin also noted an analyst’s report that projected a destruction of $24 per share in shareholder value, or nearly 35% of current equity value, and Franklin underscored that “Weyerhaeuser must immediately take steps to eliminate this disadvantage, including possibly converting the current corporate structure to a REIT.”

Weyerhaeuser (WY) shares were up $4.23 to $73.85 in morning trading Friday. WY has been a major advocate of legislation that would decrease its tax burden, but that legislation has yet to pass.

Further, control of the U.S. Congress has shifted to the Democratic Party from the Republican Party, which many believe further clouds WY’s ability to lower its current-status tax payments via legislation alone.

Through The Fly's Eyes: Black & Decker

from Eric Buscemi of Theflyonthewall.com










Weak numbers an Ill Omen for Home Improvement Industry?

Black & Decker (BDK) announced this morning that it was lowering its fourth quarter guidance to $1.30-$1.35; consensus estimates were for $1.85. This caused the stock to plummet 8.9% in trading today to 79.20 as this is being written.

The company gave a few reasons:

  • Weak conditions in the United States
  • Decreasing orders from key retailers
  • Pressure from the housing market and weaker demand for discretionary goods going into 2007
Decreasing orders from key retailers [Are they referring to Home Depot (HD) and Lowe's (LOW)?] during the holiday season is a scary sign, not only for Black & Decker, which should obviously avoided at least until they give 2007 guidance in January, but for the home improvement industry in general. Proceed with caution here.

Through The Fly's Eyes: Home Depot

from Theflyonthewall.com














Slowly Being Taken Private

The Home Depot (HD) is quickly putting to work the $5 billion of cash it raised through a debt offering. Its board has authorized the immediate repurchase of $3 billion of stock through an accelerated share repurchase agreement.

Home Depot has repurchased $6.7 billion of stock, or 173 million shares this year. Since 2002, it has purchased more than 450 million or roughly 19 percent of outstanding shares.

Taking into account the $5 billion raised, the company will have about $12 billion of debt on its balance sheet. Home Depot is expected to generate about $11 billion in EBITDA, so annual EBITDA covers total balance sheet debt roughly 1x - a tremendously conservative capital structure.

Investors need to hear evidence that the worst is over in same-stores sales decline. The most recent figures were simply awful. When better sales figures are announced, Home Depot stock should go up big time.

Through The Fly's Eyes: Ciena Corp.

from Theflyonthewall.com






Ciena upgraded to Buy from Hold, target to $36

We blogged earlier in the week that Ciena's (CIEN) earnings call on Thursday was required listening. The company survived the tech-telecom bust and was seeing good contract wins from big customers.

Yesterday, the revenue and profits kicked in and the stock rallied big. Deutsche Bank upgraded shares of Ciena citing better than expected Q4 guidance and solid pipeline. The company could also be an attractive acquisition target.

Ciena's rally should continue, stay with this stock.

Thursday, December 14, 2006

Through TheFLY's Eyes: Bear Stearns, Lehman

from Joseph Lazzaro of Theflyonthewall.com





















Bear Stearns, Lehman Make It 3-For-3 On Wall Street

Just call it 3-for-3 for Wall Street’s investment banks. Bear Stearns ( BSC) and Lehman Brothers (LEH) reported record Q4 earnings Thursday, fueled by an outstanding performance in corporate bonds and derivatives.

Bear and Lehman, two bellwether firms levered to the fixed-income market, posted Q4 EPS of $4.00 versus the Reuters consensus estimate of $3.36, and $1.72 versus the Reuters consensus estimate of $1.68, respectively. Fixed income revenue increased more than 25% at each firm.

Bear reported Q4 revenue $2.40B versus the Reuters consensus estimate of $2.20B, while Lehman reported Q4 revenue of $4.50B versus the consensus estimate of $4.35.

Bear and Lehman's data points underscore the continued strength among the investment banks, and more broadly, the good condition of capital markets and the U.S. economy heading into 2007.

On Tuesday, Goldman Sachs (GS) tipped off the earnings season for the investment banks by posting strong Q4 EPS results of $9.41 versus the consensus estimate of $8.99.

Bear Stearns traded up $3.98 to $159.87 on the news Thursday, while Lehman lost 77c to $75.96 in afternoon trading. Goldman rose $1.54 to $199.95.

Bear and Lehman particularly benefited from strong revenue results in fixed income trading and new products, including credit derivatives and credit default swaps. Most analysts expect demand for these products, and for traditional investment banking services like equities underwriting, mergers & acquisitions, and trading, to remain strong in 2007, which bodes well for all three firms.

Through The Fly's Eyes: Apple Computer

from Eric Buscemi of Theflyonthewall.com

















Apple iPhone Rumors Getting Out of Hand

For months, Apple (AAPL) fanatics have been speculating wildly about Steve Jobs' latest brilliant invention - discussing details, insider-leaked product specs, and predicting the launch date of this mythical iPhone, a device that Apple has not even officially confirmed it is making. Granted, patent filings from Apple give away its intent to produce such a product, and banter on features and launch dates for Apple's products are typical blog fodder, but they are also almost always wrong. For example, here is a rumor stating the iPhone launch was "imminent" last April.

That all being said, telecom industry website LightReading.com has pointed out new speculation about the iPhone - that Apple is going to enter the mobile virtual network operator, or MVNO, market when it releases the iPhone next year. The speculation was credited to UBS research analyst John Hodulik. This is the point where the term "irrational exuberance" begins rattling around in my head. The last time you heard about a large company entering the MVNO market, it was Disney's (DIS) Mobile ESPN, and they are shutting it down at the end of the year because it was such a colossal failure.

This Fly cannot see Steve Jobs blundering down this road. His company is product focused, not service focused. Yes, Apple has the iTunes service, but there the company created a new market with an innovative idea, they did not barge into an already crowded market with an abundance of dominant players and set up shop.

The UBS report said Apple's MVNO service "could take a small but meaningful share of the domestic wireless market in 2007" and that Sprint Nextel (S) would be "most impacted" by its entry into the market. This Fly says ignore the rumors; Apple knows their business, and business is good.

Through The Fly's Eyes: Cisco Systems

from Theflyonthewall.com











Cisco in China: Approaching Cautiously

Venturebeat.com wrote a good piece this morning summarizing Cisco's (CSCO) activities in China. Cisco, which generates about $1 billion in free cash flow per month, is definitely not putting its balance sheet at risk learning about this huge market.


Venturebeat wrote that Cisco has already returned a profit on its first $400M batch of venture investments in China beginning in 2001, according to Cisco VP Ned Hooper, and Cisco has now started investing from a second batch of funds, although it's too early to tell how these investments are doing. In total, Cisco has invested over $700 million into almost 30 Chinese start-ups, including online gaming company Shanda (SNDA).


Cisco's most recent investment is $50 million in China Communications Services, a new spin-off from China’s state-run telecom. For Cisco, $50 million is purely putting a toe in the water before jumping in.


Expect Cisco to keep a low cost approach to this potentially huge market.

Through The Fly's Eyes: Skype

from Theflyonthewall.com








2007: The Year of VoIP?

Skype, now owned by eBay (EBAY), announced SkypeOut yesterday, which offers 12 months of unlimited Skype calls to any phone within the US and Canada for a flat annual rate.


The plan will work as follows:


People who sign up for the new plan before January 31, 2007 will receive a special discounted introductory rate of $14.95 per year, 50% off the regular price. While Skype to Skype calls will remain free, the new Skype Unlimited Calling plan is an easier and cheaper way for growing numbers of SkypeOut users to stay in touch with friends and family over any phone line. Consumers can also choose SkypeOut as a pay-per-minute offering.


According to Skype's press release, it is the leading Internet voice calling solution in North America, with 11.9 million registered users, as of the end of September.


Supposedly, as measured in November, Skype is the most popular residential VoIP service (29%) among the more than one-in-five (21%) U.S. telecommunications consumers already using VoIP at home. Also, another 13% of U.S. telecommunications consumers plan to adopt VoIP technology within the next 12 months, which means that by the end of 2007, 1 out of 3 consumers will be using VoIP.


From an investment perspective, a big beneficiary of the movement to VoIP will be Level 3 Communications (LVLT), since it provides the infrastructure to Skype. Another beneficiary could be eBay, Skype's owner.

Wednesday, December 13, 2006

Through TheFLY's Eyes: Bank of America

from Joseph Lazzaro of Theflyonthewall.com











Bank of America: Acting Locally, Thinking Globally

The Bank of America (BAC) may still be `courting’ Barclays Plc (BCS), but it’s doing an awful good impression that it’s not an urgent, pressing agenda item for the banking giant.

BAC CEO Kenneth Lewis underscored Wednesday that the bank is in no hurry to start shopping in Europe. Lewis said the Bank of America “never says never” but a European buy “is not a strategic imperative.” The Bank of America’s shares moved slightly higher Wednesday on the news, up 40 cents to $53.70 in early afternoon trading. Barclays (BCS) U.S. shares rose 40c to $57.04.

The banking sector, which seemingly has been in a perpetual restructuring, is now poised to see that restructuring reach global proportions.

Barclays, the United Kingdom’s third-largest bank in terms of market capitalization, would provide BAC with a significant international presence and a major retail footprint in the U.K. The Bank of America is the second largest bank in the U.S., behind Citigroup [C].

Further, analysts have generally viewed the banking sector as ripe for further mergers / consolidation, given the abundance of providers at the national and international levels. These analysts argue that substantial gains from overhead elimination and economies of scale, among other benefits, could be realized by international-level deals.

Through The Fly's Eyes: Boone Pickens

from Eric Buscemi of Theflyonthewall.com











Boone Pickens Interviewed by Playboy

January's issue of Playboy features a lengthy interview with Boone Pickens, the legendary oil tycoon and corporate raider. In it he makes a number of interesting observations. Here are a few:

  • Pickens said he does not think we will ever see $50-a-barrel oil again, and believes at some point we will see $100 oil
  • He is not invested in ethanol, despite his fondness for alternative energy plays, because he does not think it can operate without being heavily subsidized
  • He is invested in natural gas, which he believes is the most feasible alternative to oil
  • He gave two stock picks - Suncor Energy (SU) and Canadian Oil Sands Trust (Toronto: COS.UN) - both of which he is heavily invested in
  • He discussed his investment in water, and although he said it was a worthwhile long-term investment, he clarified that he does not see water as the next oil, as water is a renewable resource and oil is not

Through The Fly's Eyes: Dynegy

from Theflyonthewall.com







Dynegy Will Generate Free Cash Flow In 2007

This is from Dynegy's (DYN) press release this morning. The company also held a call with investors at 8:00am to discuss its outlook for 2007. It looks pretty good.


The combined company - Dynegy and LS Power Group - is expected to produce:

  • Free cash flow of $415 million to $515 million
  • EBITDA of more than $1 billion
  • Net income between $190 million to $255 million
  • Combination on track for completion at the end of the first quarter 2007
Dynegy was burning huge amounts of cash a few years ago due to bad tolling agreements. The company is now on the growth path again and is up over 40% since we recommended getting into the stock in May.

Enron is gone, but Dynegy is alive and well. Too many good things are about to happen at this company.

Through The Fly's Eyes:UAL Corp.

from Theflyonthewall.com












Stay With UAL Corp

UAL Corp (UAUA) and Continental Airlines (CAL) are in merger talks.

We pounded the table on UAL and how cheap the stock was at $24 per share, and the stock is now at $42, up 68%.
Stay with this stock. It appears there will be little premium paid as the deal gets worked out and will be an exchange of stock, which would be a positive for the airline industry. There is no reason to take on additional debt in this business.

Investors have been skittish about investing in the airline sector, and justifiably so. But now almost every legacy airline has gone through bankruptcy during the past ten to fifteen years and has a much improved cost structure.


With the Fed expected to drop rates in 2007 and a prolonged economic recovery anticipated, the combination of UAL and Continental could generate huge profits and cash flow for investors. Investors in UAL should not dump the stock on this news, but stay with it. This airline bull market has a few more years to run.

Tuesday, December 12, 2006

Through TheFLY's Eyes: Best Buy

from Joseph Lazzaro of Theflyonthewall.com

















Best Buy May End Up Singing The Price-Cutting Blues

Wall Street received a “retail data point of caution” Tuesday when Best Buy (BBY) reported Q3 EPS of 31 cents, 4 cents below the Reuters consensus estimate of 35c.

Best Buy also reported Q3 revenue of $8.47B compared to the Reuters consensus estimate of $8.45B.

Wall Street quickly punished the stock Tuesday, sending shares down 4% or $2.20 lower to $51.70 in early afternoon trading.

On the surface the sell-off may seem like a harsh reaction from the Street – total sales did exceed the consensus estimate – but two data points no-doubt contributed to Tuesday’s BBY sell-off.


First, analysts are concerned that Best Buy’s “match Wal-Mart on price” ( WMT) strategy may not generate the traffic necessary to compensate for the price cuts. Second, BBY's barely-above consensus Q3 sales stat leads some on Wall Street to conclude that the retail sector is, indeed, slowing: it will take strong earnings reports by one or two other retailers to start to reverse that current retail sentiment on Wall Street.

Through The Fly's Eyes: Annual Predictions

from Eric Buscemi of Theflyonthewall.com















Beware the Crystal Ball!

As 2006 winds down and C-level executives begin their month long ski vacations, journalists begin to struggle to come up with interesting finance articles to write, and will turn to the annual tradition of forecasting what will take place next year. It has already started: Barron's (subscription required) cover article this past weekend was titled "
Outlook 2007."

Although these articles can be, and often are, quite interesting, their value for investors in null. To illustrate this point, I dug up an article from well respected M&A website TheDeal.com (subscription required) which was written February 1, 2006. Here is a quick look at its predictions for 2006.

Giving credit where it is due, here are the correct predictions the article made:

* Liberty Media's (LCAPA) John Malone will sell his stake in News Corp (NWS) to Rupert Murdoch [OK, I'm giving them this one, because it seems that from where discussions are now, this will happen in the very near future]
* Actional would be acquired [The article cited Sun Microsystems (SUNW) and Hewlett-Packard (HPQ) as suitors, Actional was actually bought by Progress Software (PRGS)]

Here are some of the incorrect predictions the article made:

* Yahoo (YHOO) would buy Lions Gate Films (LGF) [Lions Gate stayed independent and rose 43% YTD]
* Verisign (VRSN) would buy Neustar (NSR) [Neustar did the acquiring this year, buying Followop in November]
* A number of companies would be acquired or sold, including InfoSpace (INSP), LookSmart (LOOK), Mamma.com (MAMA), Miva (MIVA), Rackable (RACK), aQuantive (AQNT) and ValueClick (VCLK). [None were acquired, and some of these targets were acquirers themselves]

And last but not least, here is a prediction the article made that couldn't be anymore absurd looking back at it now:

* Vonage (VG) would complete a "respectable" IPO [Yes, Vonage did complete its IPO, but it is generally viewed as one of the worst of all time]

The moral of this is to read these articles with a grain of salt, and not to base any investment decisions on them. Even expert speculation is exactly that - speculation.

Through The Fly's Eyes: Ciena Corp.

from Theflyonthewall.com






A Must-Listen Earnings Conference Call

Ciena (CIEN) releases its Q4 results on Thursday morning. Ciena's call is important because it appears it has truly survived the tech-telecom bust, making it one of the few remaining players. Furthermore, the company has been signing some big customers.


Most start-up telecom equipment companies that came to being in the late 1990s do not exist anymore, and legacy companies such as Alcatel-Lucent (ALU) and Nortel (NT) are in rapid decline.


Ciena, on the other hand, has been signing new customers such as Verizon (VZ) and British Telecom, a sign that there must be something of value the company is producing.


Pure IP companies such as Level 3 (LVLT), Time Warner Telecom (TWTC), Broadwing (BWNG), and Global Crossing (GLBC) are improving, and Ciena sells equipment that works well on these newer networks.


Investors have forgotten Ciena because of the serious bruises it took during its stock price decline. However, over the past two years,
the company has been getting some big-time customers. Sooner or later Ciena is going to have a big up-tick in revenue which will drive investors back into this stock. Maybe it will be this Thursday.

Through The Fly's Eyes: Texas Instruments

from Theflyonthewall.com









Avoid Semis Until Summer Of 2007

Texas Instruments (TXN) warned of weak results last night after the market closed. This follows warnings by National Semi (NSM), Xilinx (XLNX) and Fairchild Semi (FCS) last week. This does not bode well for handset makers Motorola (MOT), Nokia (NOK) and Samsung.


The two big quarters in the semiconductor business are the fourth quarter and the first quarter. The fourth quarter is driven by the consumer; the first quarter by corporate spending. If the consumer is cutting back on spending that most likely means corporations will also begin to hold back on their spending.


Semi spending seasonally drops off a cliff in the second calendar quarter. Therefore, from looking at seasonal patterns, the bottom in semis might not be reached until the summer of 2007.


The one caveat with semis is interest rates. If the Fed begins dropping rates fast, semis might become attractive again.


No rush to bottom fish in this sector. These stock will be a lot cheaper by mid-2007.

Monday, December 11, 2006

Through TheFLY's Eyes: Phelps Dodge & Freeport

from Joseph Lazzaro of Theflyonthewall.com















SAC Capital Says It Will Oppose Freeport's Current Bid for Phelps

The plot thickens regarding potential takeover target Phelps Dodge (PD).

Hedge fund SAC Capital, which owns a 5% stake in miner Phelps Dodge, indicated in an SEC filing that it wants to block Freeport McMoRan’s (FCX) $26.4 billion offer to buy PD, saying the price is too low. The offer, about $88 in cash and 0.67 shares of FCX stock for each PD stock, amounts to about $129 per share based on Monday’s share prices. The deal would create the world’s largest, publicly-traded copper company. In Monday afternoon trading, shares of PD dipped 70 cents to $122.97, while FCX declined 40 cents to $61.35.

Other deal watchers concurred, for most part, on Monday that Freeport’s offer may be on the low side. These analysts cited Phelps Dodge’s top 5 miner status, the strong demand for copper, particularly in China and in emerging markets (copper is used in pipes and wires, among other applications), and the overall health of the global economy.

Thus far, there have been no confirmed counter offers for PD, but The New York Post reported that SAC Capital was seeking a $150-per-share price for its PD shares; a spokesperson for SAC would not comment beyond the hedge fund’s filing.

Through The Fly's Eyes: China

from Theflyonthewall.com














Democrats Changing Tune On China?

Having won the election, Democrats appear to be lowering their political rhetoric as Treasury Secretary Henry Paulson & Company head off to China to begin trade talks.


In prior trips to China, Democrats have been quite vocal about China's trade deficit, suggesting negative implications for the US economy. However, since winning the November election, Democrats appear to have become tight-lipped.


It appears the trip will focus more on increasing China's consumption than drastic currency changes or threats of retaliatory trade sanctions.


Power brings responsibility. Messing up the relationship between the US and China could lead to ramifications that are impossible to quantify. It appears the Democrats are going to stay away from fighting this battle for now.

Through The Fly's Eyes: Hedge Fund Bonds

from Theflyonthewall.com







Citadal Raises $500 Million In Bonds

Citadel Investment Group sold the first ever unsecured bond offering last week issued by a hedge fund, according to Barron's magazine. Citadel raised $500 million.


Supposedly, Citadel will offer a total of $ 2.0 billion in unsecured bonds. A co-founder of Hennessee Group, a professional hedge-fund cheerleader, called the move "brilliant." The cheerleader further commented that it is cheaper than raising capital from limited partners.


The issue got a triple-B rating from Fitch and the deal was two times oversubscribed.


According to this Fly, this has all the warning signs of a disaster waiting to happen. Does Citadel now take all that leverage and borrow more from its prime broker, borrowing more against its already leveraged balance sheet?


This sounds similar to the mortgage and housing bubble which is currently unwinding. The housing bubble hit peak valuations when lenders were willing to lend at full value or in excess of the full value of the underlying real estate, requiring no equity investment.


In Citadel's case, why raise equity capital from limited partners when you can go out and borrow it? Who needs equity? Good luck bondholders.

Friday, December 08, 2006

Through The Fly's Eyes: A Quick Look Ahead

from Eric Buscemi of Theflyonthewall.com













Highlights For Next Week


Monday December 11


* Hartford Financial (HIG) to hold 10am conference call regarding 2007 earnings guidance

* FCC to hold a hearing on Media Ownership at 1pm

* Texas Instruments (TXN) to hold Q4 mid-quarter update at 5pm


Tuesday December 12


* Six Flags (SIX) to hold mid-quarter update at 8:30am

* Goldman Sachs (GS) to hold Q4 earnings conference call at 11am

* General Electric (GE) to hold financial update conference call at 3pm


Wednesday December 13


* Dynegy (DYN) to hold 2007 earnings and cash flow estimates webcast at 8am

* Pennsylvania Gaming Control Board to hold public hearing at 9am


Thursday December 14


* Bear Stearns (BSC) to hold Q4 earnings conference call at 10am

* PDUFA Date for Novartis's (NVS) Rasilez


Friday December 15


* PDUFA Date for Oscient Pharmaceutical's (OSCI) Factive

Through TheFLY's Eyes: Rumor Mill

from Tedd Cohen of Theflyonthewall.com











Rumor Round-up


Apple Computer (AAPL)

“Great entertainment” was how one wag described it this week. The “it”, of course, is the never-ending speculation surrounding Apple’s (AAPL) iPhone. For the record, Apple, which was up $1.80 to $88.84 in early Friday afternoon trading, doesn’t even acknowledge “its” existence. But the questions keep coming: When will it be released? Has it been delayed yet again? How many different versions of phones will they come out with? To the best of our ability, here’s what we know:

There is an iPhone. It will probably be released at the end of the first quarter of 2007. But there could be a January surprise at Macworld. It could have a sliding case, include two batteries - one for music, the other for the phone - have storage capacities of 4GB and 8GB, and cost anywhere from $250 to $500. And, it could work with GSM and CDMA networks .Then there’s this: Apple is also working on a smart phone integrated with Mac OS. Now, have we raised more questions than we’ve answered?


International Coal Group (ICO)

Every day brings a new set of takeover rumors. Denials don’t seem to help much, as investors wait and speculate about a bid. Consider International Coal Group (ICO), for example. This week the company denied rumors that it was the target of a management buy-out. It didn’t matter; the shares rose 5%, gaining almost 7% by Thursday evening. The company, like most, is loath to comment on rumors, but the stock movement forced its hand, issuing a denial statement. On Friday, ICO’s shares were up 10c to $5.52.




Through TheFLY's Eyes: National Semiconductor

from Theflyonthewall.com














The Handset Food Chain Is Looking Weak

National Semiconductor (NSM) reported weak results Thursday night and guided for weaker results. Quarterly revenue fell 8% to $501.6 million from $544 million last year. On Friday, NSM was unchanged at $23.94 in early afternoon trading.

Brian Halla, National Semi's CEO, said there was no season uptick for the holiday season. This is not good for the handset industry. National Semi makes system-on-a-chip semiconductors that go into many wireless phones. If National Semi's demand is down, that means demand is most likely down for Motorola (MOT), Samsung and Nokia (NOK).

Halla expects revenue to drop another 8% to 11% in this quarter. However, there is no reason for investors to bottom fish semiconductor stocks yet. It appears it will take a few quarters for the industry to bottom.

Also, Thursday night Xilinx (XLNX) missed and Fairchild Semi (FCS) said revenue will be flat on slightly lower gross margins.

Through TheFLY's Eyes: Liberty Media & DirecTV

from Theflyonthewall.com















CEO Malone Is Setting Up A Master Trade

It appears John Malone, once again, is setting up for one of the largest trades in media history. The Liberty Media (LCAPA) CEO indicates that he would rather own a stake in DirecTV (DTV), a mature and highly competitive media distribution platform, than News Corp. (NWS) with its massive global programming and infrastructure platform--which now includes myspace.com. All three were trading higher on Friday at mid-day: LCAPA was up $1.03 to $91.31, DTY climbed 21c to $23.81, and NWS rose 5c to $22.45.

Why would master deal maker Malone want to do this? Most likely to then turn around and sell DirecTV to the likes of Verizon (VZ) and AT&T (T). Why? The fiber network that the Baby Bells have constructed is not getting much of an uptake. Market share gains are anemic and they are getting killed by the cable companies.

One reason the Bells' effort is not getting traction is they have no experience signing deals with programmers. To get competitively priced content, you need scale in the form of a big audience. The Bells do not have this. DirecTV would provide this.

This Fly's prediction is Malone gets control of DirecTV and then auctions it off with bidders being Verizon and AT&T. The Bells will lose too much face if they have to admit their fiber build-out was a bust. Malone will convince them to pay a nice premium to his purchase price.

Through TheFLY's Eyes: Weyerhaeuser, Temple Inland

from Theflyonthewall.com












Weyerhaeuser, Temple Could Be Hurt, If Timber Tax Break Remains Nixed By House

Wyerhaeuser (WY) and Temple Inland (TIN) whose stocks have both surged recently on expectations that the U.S. Congress would approve a 60% deduction on capital gains for the timber industry, could see their stocks move lower, if the provisions remains excluded from a $45.1B tax-and-trade bill expected to be voted by the House and Senate soon. The U.S. Congress is currently meeting in a lame-duck session.

When senators objected to the timber measure’s cost, about $477M, the House dropped the measure Thursday, along with a proposal to fund a rail connection between Manhattan and the World Trade Center, in a tit-for-tat exchange between House Democrats and Republicans, The Wall Street Journal reported Friday.

Wyerhaeuser’s (WY) has risen to $66.75 from $59.00 and Temple (TIN) has increased to about $43 from $39 recently, on expectations the timber provision would gain Congressional approval. In early trading Friday WY was up 1c to $66.76 and TIN was up 61c to $43.27.

Further, although Capitol Hill sources described the situation as fluid, as of mid-morning Friday it appeared the timber provision would not be re-instated to either of the two omnibus bills current working through the House and the bills are expected to be merged into one bill in the Senate.

Thursday, December 07, 2006

Through TheFLY's Eyes: General Motors

from Joseph Lazzaro of Theflyonthewall.com











For GM, There’s Light, But It’s Still A Long Tunnel

General Motors (GM) concluded Thursday that its share of the U.S. retail vehicle sector had bottomed, and that its improved fleet will boost both market share and sales in the quarters ahead. Currently, GM’s share of the U.S. retail market is 22%

Is GM right?

“They may very well be,” said economist David H. Wang, who has followed the auto sector. “But GM has many other issues to deal with, as well – issues that will have just as much to say about the company’s success or failure.”

Those factors include negotiations with auto parts supplier Delphi, as well talks with the United Auto Workers and efforts to deal with what is likely to be a substantial increase in steel prices.

Analysts and economists are counting on progress in the aforementioned areas, as well as GM’s introduction of crossover vehicles - vehicles that combine car/SUV features - as data points that demonstrate that the GM turnaround is on-track. GM was down 19c to $29.18 in afternoon trading Thursday.

“Take away any one of those data points, and the GM turnaround becomes an open question,” Wang said. “A very open question.”

Through The Fly's Eyes: Video Game Companies

from Eric Buscemi of Theflyonthewall.com














Time to Get in on Video Game Stocks

The video game industry is predictably cyclical - it rises with the release of new consoles and tapers off as the aging technology loses its luster. Here are the results on the industry from the last cycle:

On October 26, 2000, Sony (SNE) released the PlayStation 2. The following year, on November 15, 2001, Microsoft (MSFT) released the original Xbox.


During the two-year period following the release of the PS2 [Nov. 3, 2000 to Nov. 1, 2002], the major video game developers all skyrocketed. Electronic Arts (ERTS) rose 32.48%. Activision (ATVI) rose 112.07%. Take-Two Interactive (TTWO) rose 113.27%. Only THQ Inc (THQI) did not see significant gains over the two-year period, losing 10.56%. But the stock was not dead money over that time - it had risen 143% before it came crashing back down.

The major players in console video game development, Electronic Arts, the maker of the annual Madden football installments; Activision, the maker of the Call of Duty and Tony Hawk games; Take-Two, the maker of the Grand Theft Auto series; and THQ, the maker of cartoon themed Scooby Doo and Spongebob Squarepants games, are primed for another bullish cycle.

Microsoft's Xbox 360 was released last holiday season. Sony's PlayStation 3 and Nintendo's Wii followed up with their own consoles last month, and retailers can't keep the shelves stocked with them.

Electronic Arts, Activision and THQ all released quarterly financials in early November [Take-Two has not released a financial report since August, and that was preliminary, but that is a different discussion for a different blog article]. The time to get into these stocks is before any more momentum builds, and definitely before these companies report their financials again in February, which will include data from after the launches of the PS3 and the Wii.

Through The Fly's Eyes: Level 3 Communications

from Theflyonthewall.com








Cramer Pounds The Table On Level 3

On Tuesday, Theflyonthewall blogged about the merits of Level 3 Communications (LVLT). Last night, Jim Cramer made Level 3 one of his top picks for 2007, for many of the reasons we listed on Tuesday.


Why could 2007 be a big year? Because Level 3 should be able to generate free cash flow by the end of the year. Most institutions will not touch a stock until it is profitable or generates free cash flow. Once that happens and a company shows it can maintain a high growth rate, watch out - it is off to the races.


Cramer even interviewed Level 3's CEO Jim Crowe on his show last night. Crowe said Level 3's network is about "the eye and video" - like YouTube, which Level 3 recently signed a big deal with.


Cramer rated Level 3 a "Triple Buy" and said it was "the best under $10 stock."

Through The Fly's Eyes: Sally Beauty

from Theflyonthewall.com











Sally Beauty - A New Stock To Watch

Sally Beauty (SBH) is a newly traded stock which was spun off from Alberto Culver (ACV). Sally is an international specialty retailer and distributor of professional beauty supplies.


Sally sells and distributes through over 3,100 stores, mostly in the U.S. What could be attractive about Sally is that its growth might have been held back by its former ownership structure. Alberto Culver often competed against many of the products that Sally distributes in the hair and beauty care business.


Being separate from Alberto will allow Sally to more aggressively target new business and grow faster. As part of the Alberto and Sally break-up, Clayton Dubiller & Rice purchased just below half of Sally's stock.


The company will webcast a lunch meeting tomorrow at 12:30pm with the investment community. It is worth listening to see what management has to say.