Through The Fly's Eyes: PAREXEL

from contributing editor Larry Shutts, Vice-President of Stockwinners.com

PAREXEL smooths the medical development path

In the medical products world, it's a long trip from concept to commercialization. Firms making the journey can sometimes lose sight of the trail. When they do, though, they know there is an experienced guide in Waltham, Massachusetts.

PAREXEL International Corporation (PRXL) provides contract research, medical marketing, and consulting services to the pharmaceutical, biotechnology, and medical device industries. Its Clinical Research Services segment offers clinical trial and data management, clinical pharmacology and related medical advisory services. The Consulting and Marketing Services unit offers technical advice in new product development, marketing and regulatory affairs. Subsidiary Perceptive Informatics sells IT systems and services that help manage clinical trials.

The company pleased investors a week ago, when it reported fiscal Q2 earnings per share (EPS) of 32 cents and revenues of $180.5 million.

Analysts were looking for 28 cents and $177.2 million. Management also guided Q3 EPS to 31-34 cents (32 cent consensus), Q3 revenues to $185-$190 million ($185.89M consensus), FY07 EPS to $1.22-$1.28 ($1.20 consensus) and FY07 revenues to $722-$737 million ($723.29M consensus). The news boosted the shares past 50-day moving average resistance into a bullish "pennant" consolidation pattern. Stocks frequently exit pennants moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Brokers recommend the issue with two "strong buys", two "buys", five "holds" and a "sell". Analysts see a 26 percent growth rate, through the next year. The PRXL price to sales ratio (1.08), price to cash flow ratio (15.42), sales growth rate (20.49%) and earnings per share growth rate (68.42%) compare favorably with industry, sector and S&P 500 averages.

The stock is one of those used to calculate the S&P 600 SmallCap Index. Institutional investors hold about 94% of the outstanding shares. Over the past fifty-two weeks, PRXL has traded between $22.90 and $37.68. An interested investor in this stock might consider stop-loss of $29.40 when investing in this stock. Note that the firm is scheduled to present today, at the Wachovia Small and Mid-Cap Healthcare Conference (2:30 pm ET).

Through The Fly's Eyes: CheckFree Corp.

from Theflyonthewall.com










Momentum Appears To Be Picking Up

After a couple of quarters of weakening growth, it appears the seeds are now in place for growth to return at CheckFree (CKFR). The CSP business, CheckFree's bank channel business, jumped back to 7% sequential growth -- an important metric for this company.

The 7% CSP jump brings the business to a growth level that has attracted a lot of investor interest in the past and is a metric that led to strong stock performance. During the past six months that growth figure dropped to just 3%.

In addition to the jump in the CSP business, CheckFree is also beginning to sign up some huge customers. The company began discussing its new deal with American Express, which could be a big windfall for them. Also, CheckFree added Wal-Mart (WMT) for its walk-in pay product.

These new customers wins and the 7% sequential CSP growth mean investors will have to get back into CheckFree's stock. Go along for the ride.

Through The Fly's Eyes: Applied Micro Circuits

from Theflyonthewall.com






Use Price Weakness To Accumulate Stock

Applied Micro Circuits (AMCC) came up light on its communications component revenue in an otherwise pretty solid quarter. Use the price weakness to add to or initiate a position in this stock.

Applied Micro falls into one of our themes of focusing on fallen tech-telecom bubble stock that have survived the bust. The company has good management that has gotten costs under control and has, for the most part, returned the company to growth. In addition, on an adjusted basis, has returned the company back to profitability.

Applied Micro's CEO, Kambiz Hooshmand, has a successful track record of building tech companies and realizing good value for shareholders. Before taking on the top position at Applied Micro, Hoosmand sold his previous company to Cisco.

On the investor conference circuit, Applied Micro's management has not been shy about complaining that Wall Street has not reflected the good work this management team has done in its stock price. Translation: if the stock price does start moving, management may take this company private.

Use today's price weakness to get into this stock. Applied Micro has a healthy balance sheet, is profitable and will return to good growth when all of its end market customers' business picks up.

Through The Fly's Eyes: Citrix

from contributing editor Larry Shutts, Vice-President of Stockwinners.com

Citrix Systems promotes sharing

The degree to which an enterprise can be effective is a function of how easily and securely its employees can access and share stored information. There's an outfit in Fort Lauderdale, Florida that says it can facilitate those processes. Since its client list includes the entire Fortune 100, there is no reason to doubt the claim.

Citrix Systems (NASDAQ:CTXS) offers infrastructure software and services that enable enterprise-wide, on-demand access to information and applications. The company's software provides networked PCs and wireless devices with remote access to applications on a central server. Its programs also allow for load balancing, application development and resource management, in both Windows and UNIX environments. Citrix has more than 180,000 customers worldwide.

The firm surprised the Street last week, with Q4 EPS of 39 cents and revenues of $321 million. Analysts had been expecting 38 cents and $311.4 million. Management also guided Q1 EPS to 34-35 cents (35 cent consensus), Q1 revenues to $298-$308 million ($297.95M consensus), FY07 EPS to $1.51-$1.54 ($1.52 consensus) and FY07 revenues to $1.29-$1.31 billion ($1.28B consensus). Officers said the firm is entering 2007 with the strongest pipeline it has ever had. Microsoft's (NASDAQ:MSFT) Vista and Office 2007 are expected to be big catalysts. The news boosted the shares into a bullish "flag" consolidation pattern. Stocks frequently exit flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside. Note that the stock's 90-day moving average is currently supporting the flag.

Brokers recommend the issue with six "strong buys", seven "buys" and twelve "holds". The CTXS Price to Book ratio (3.83), Price to Free Cash Flow ratio (20.76), Sales Growth rate (19.33%), Operating Margin (18.91%), Net Profit Margin (17.31%), Return on Assets (10.62%) and Return on Investment (14.30%) compare favorably with sector and S&P 500 averages.

The stock is one of those used to calculate the S&P 500 Index and the Nasdaq 100 Index. Institutional investors hold about 83 percent of the outstanding shares. Over the past fifty-two weeks, CTXS has traded between $26.10 and $45.50. A stop-loss of $27.40 looks good here. Note that the Citrix Systems Board of Directors has instituted a voluntary review of the company's historical stock option granting practices.

Through The Fly's Eyes: Newell Rubbermaid

from Theflyonthewall.com





Another Very Solid Quarter

Newell Rubbermaid (NWL) reported another very solid quarter under the reign of CEO Mark Ketchum. Newell grew organic revenue 4.7% before the impact of the DYMO acquisition. Including the DYMO acquisition, revenue grew 8.5% -- very solid numbers for a company that has struggled with revenue growth for a long time.

Guidance Highlights:

• Ketchum expects organic growth to continue
• Resin costs, a big expense for Newell, should continue to moderate and begin benefiting the company
• Costs savings to continue which should lead to gross margin expansion
• Expects lower double digit operating income growth

Newell, who has been in the investors' doghouse for years, is beginning to perform well, both in terms of operating performance and share price. The stock has had a good run increasing from $22 to $30 during the past year. The stock might pull back due to Newell re-investing in its business at the SG&A line which might impact 1Q07 results. However, use any price weakness to get into this stock.

Through The Fly's Eyes: Savvis Communications

from Theflyonthewall.com






Data Center Business Continues To Improve

Savvis' (SVVS) business continues to improve and supports the view that the data center business is a real business. As we have blogged about Savvis and Equinix (EQIX) in the past, these are two pure-play data center companies that were able to restructure their balance sheets in the post-tech & telecom bubble of the late 1990s. Here are some of the numbers for Savvis:

• Savvis revenue jumped 15%, with adjusted EBITDA jumping 55% to $123 million
• Revenue continued to shift to higher-end product lines, moving up the value chain to managed VPN and hosting services
• EBITDA for the fourth quarter jumped 67%
• Savvis was able to sell a subsidiary for $125 million which can be used to expand its core hosting businesses

The power of Savvis' model is that it can move its customers up the value chain which allows the company to grow revenue and EBITDA for a number of years.

For example, managed hosting generates $4 versus every $1 dollar earned for a commodity hosting business. In addition, for new services that Savvis will be able to sell to customers in 2008 on its upgraded infrastructure, that number goes up to $8 for every dollar of commodity services.

Savvis said by increasing co-location space and moving up the value chain, it can easily drive hosting revenue above $ 1 billion. High-end hosting and managed services is a real growth business. Stay focused on both Savvis and Equinix.

Thrrough TheFLY's Eyes: Merrill Lynch

from Joseph Lazzaro of Theflyonthewall.com











Merrill Take The High Road, Buys First Republic For $1.8B

Merrill Lynch (NYSE:MER) announced Monday a deal to buy First Republic Bank (NYSE:FRC) for $1.8 billion or for about $55 per share.

Merrill said the deal would enhance its private client organization and grow its high net worth business. First Republic's clients have an average net worth of $20 million.

Typically, the acquirer's stock dips, and the acquired company's stock rises toward the offer price after a deal is announced, and that was the case Monday: Merrill's shares dipped $1.91 to $92.65 and First Republic's surged $15.32 to $53.62 in afternoon trading.

Analysts were generally pleased by the deal, and cited, among other factors, Merrill's seach for higher-return enterprises, and its preference for client acclimated to /experienced with investing.

Through The Fly's Eyes: Corn

from Theflyonthewall.com












To Invest In Corn Or Not To Invest In Corn, That Is The Question

President Bush in his State of the Union address called for the United States to become less dependent on foreign oil. The solution: corn-based Ethanol?

Every farmer in the US is going to be planting corn this season. Why? Because corn prices are approaching 10-year highs and there is money to be made. The higher prices will incent greater corn production which will be used in the production of more ethanol. Ergo, our reliance on foreign oil would materially diminish. MAYBE.

The first problem with this scenario is that higher prices lead to greater supply which at some point lowers corn prices.

Another problem, which was acutely pointed out in Bill Alpert's Follow-up article in Barron's, is that corn and soy framers would run out of arable land before they could produce the amount of corn or soy needed to provide a viable alternative to foreign energy. If the US did go all out to produce enough alternative fuels, the price of the commodity and underlying land would become so expensive, it would be cheaper to use imported oil or gas. The market will become aware of this reality at some point that corn is not the solution.

Another very important point is that in order to grow things you need a lot of fertilizer which contains nitrogen. Crops cannot grow without nitrogen. Where does nitrogen-based fertilizer come from -- natural gas. To grow all these alternative fuel crops, you would need a lot of natural gas to make the fertilizer. Somewhat of a vicious cycle.

My investment advice: Stay with buy low and sell high. Stay with what we blogged about last week. Invest in cotton whose price is bottoming and stay away from corn whose price is peaking. Alternative fuel crops have very tough economics.

Through The Fly's Eyes: Avis

from Theflyonthewall.com









Rental Car Market Ready For Better Profit

We blogged in November to invest in the Hertz (HTZ) IPO and those who suffered through the initial volatility are up close to 20%.

Avis Budget Group (CAR) is also a good play on the rental care business. Hertz was acquired by private equity from Ford (F) and recently came public. Avis was spun off from Cendant last year. Now the two largest rental car companies are publicly traded.

The mere fact that the two largest players are publicly traded should impose pricing discipline. This should translate into higher earnings and higher stock prices for both players over time.

According to Oscar Schafer in this weekend's Barron's round table, he expects the company to earn $3.00 this year. With the stock at $24, that is just 8x earnings.

This stock has rallied a bit most likely on Barron's whispers since the interview was held a few weeks ago and only published this weekend. Wait for a little pull back and jump into this stock.

Through TheFLY's Eyes: IPO & Syndicate Preview

from Joseph Lazzaro of Theflyonthewall.com
















IPO & Secondary Preview: Schedule For The Week Of Jan 29, 2007


Wall Street's equity market hits full-stride next week, with a full slate of offerings on its table: 15 deals in all, including 11 IPOs.



Those deals tentatively scheduled to price include:


IPOs:

*Animal Health International (AHII), an 11.8M-share IPO for this animal health company. AHII has a $10.00-$12.00 filing range.

*China Healthcare Acquisition (CHM), a 10M-share IPO for this blank check company formed for the purpose of acquiring similar business combinations in China. CHM has a $6 filing price.

*Dekania (DEK), a 9.7M-share IPO for this blank check business combination company. DEK has a $10 filing price.

*Duncan Energy Partners (DEP), a 13M-share IPO for this oil and gas storage/transportation company. DEP has a $19.00-$21.00 filing range.

*Employers Holdings (EIG), a 23M-share IPO for this specialty provider of workers' compensation insurance. EIG has a $14.00-$16.00 filing range.

*HFF (HF), a 14.3-share IPO for this commercial real estate and capital markets company. HF has a $15.00-$17.00 filing range.

*Information Services Group (III), an 18.750M-share IPO for this special purpose acquisition company. III has an $8.00 filing price.

*Molecular Insight Pharmaceuticals (MIPI), a 5M-share IPO for this biopharm company specializing in molecular medicine. MIPI has a $14.00-$16.00 filing range.

*Tortoise Capital Acquisitions (TTO), a 6.452M-share IPO for this corporation that invests primarily in privately-held and micro-cap public companies. TTO has a $15.00-$16.00 filing range.

*Union Street Acquisition (USQ), a 12.5M-share IPO for this special purpose acquistion company. USQ has an $8.00 filing price.

*Xtent (XTNT), a 4.7M-share IPO for this development stage medical device comapny. XTNT has a $16.00-$18.00 filing range.




Secondaries:


*Euroseas (EUSEF), a 5M-share Secondary to repay a portion of debt used to finance its acquistion of YM Xingang I.


*Mindray Medical International (MR), an 11.282M-share Secondary for this developer and manufacturer of medical devices in China.


*RAM Energy Resources (RAME), an 11.977M-share Secondary to repurchase all 11 1/2% senior notes and to reduce a revolving credit balance.

*Repros Therapeutics (RPRX), a 2.5M-share Secondary to fund preclinical studies, clinical trials and regulatory submission for its product candidates, and for general corporate purposes.



- -



For the latest market intelligence on IPOs, Syndicate, and after-market trades, check out TheFLY Syndicate at www.theflyonthewall.com. [Subscription required.]

Through The Fly's Eyes: Earnings Review

from Tedd Cohen of Theflyonthewall.com

Highlights from this Week's Releases

Numbers are Actual vs. Estimate

Excellent

Ameriprise Financial (AMP) $1.02 vs. 84c
Ameriprise had a strong fourth quarter and a successful first year as a public company.

AmeriSourceBergen (ABC) 65c vs. 56c
AmeriSourceBergen is also raising its 2007 diluted EPS estimates by 5c.

Consol Energy (CNX) 69c vs. 56c
Consol Energy has seen its shares soar, while some top competitors had mixed results.

On the Fence

Bank of America (BAC) $1.19 vs. $1.18
Bank of America announced a repurchase of up to 200M additional shares of common stock for about $14B over 12 to 18 months.

McDonald’s (MCD) 61c vs. 61c
McDonald's announced that it is selling the Boston Market chain to refocus on hamburgers.

Pfizer (PFE) 43c vs. 42c
Pfizer is cutting 7,800 jobs to save $1B by the end of 2008 to ensure positive growth.

Awful

Advanced Micro Devices (AMD) -4c vs.10c
AMD has been affected by lower microprocessor average selling prices.

Ford (F) -$1.10 vs. -$1.01
Ford expects market share and most earnings to be difficult for the next two to three quarters.

Through The Fly's Eyes: A Quick Look Ahead

from Eric Buscemi of Theflyonthewall.com












Highlights For Next Week

As the January earnings crunch rolls into February, more industry giants, including Verizon (VZ) and Google (GOOG), are reporting.

Monday January 29

* Verizon to report Q4 earnings; conference call at 8:30am. Wall Street will be paying particularly close attention to Verizon's comments on its broadband operations, including the company's progress with its version of the triple play package [phone/Internet/television].
* Extended review period for Genta's (GNTA) Genasense. Cancer drug Genasense was previously deemed unapprovable by the FDA on December 15, 2006.

Tuesday January 30

* US Steel (X) to report Q4 earnings; conference call at 2:00pm. Analysts will be focusing on overall refined and core steel prices and the company's international performance.

Wednesday January 31

* Boeing (BA) to report Q4 earnings; conference call at 10:30am. Analysts will evaluate the company's aerospace performance and its ability to maintain momentum in government service work.
* Google to report Q4 earnings; conference call at 4:30pm. Google, since they never give any guidance, is always a mystery come earnings season. Anyone that wants to take a guess at what they will report should check out the quarterly Google Earnings Sweepstakes at the Internet Outsider blog.
* PDUFA date for GlaxoSmithKline's (GSK) Arixtra for acute coronary syndromes.
* Broadcom (BRCM) and SafeNet (SFNT) must file 10Q by 1/31 for continued NASDAQ listing.

Thursday February 1

* Amazon (AMZN) to report Q4 earnings; conference call at 5pm. Note that Prudential, which rates Amazon as an Underperform, saw the company's holiday season as tepid, which could bode ill for the company's quarterly report.
* PDUFA date for Merck's (MRK) MK-0517, a new intravenous medication to prevent nausea and vomiting occuring after surgery.

Friday February 2

* British Airways (BAB) to report Q3 earnings; conference call at 9am. The company has been down recently due to a strike action by the cabin crew, and investors and analysts will be looking for clarity on the situation.

Through The Fly's Eyes: Rumor Mill

from Tedd Cohen of Theflyonthewall.com











Rumor Round-up

It has been an extremely busy week for rumors, with numerous companies’ names being floated about. Here’s a few of the more notable rumors:

Business Objects S.A. (BOBJ)

All week long there have been rumors that the global provider of business intelligence software solutions has been the target of a taker. The company’s shares are rallying today as Oracle (ORCL) could be making its move. Previously, Oracle has singled out Business Objects as a possible target. What’s different this time is that while Business Objects always says they’re not interested in selling, they’re not saying that now.


USG Corp. (USG)

Warren Buffett. Yes, him. If he shows an interest, a company’s stock goes up, and USG, the manufacturer and distributor of building materials, which counts U.S. Gypsum as a wholly owned subsidiary, is seeing its stock go up. Will Buffet raise his stake, or just out and out buy the company? Last report was that Buffett’s Berkshire Hathaway (BRK.A) owns about 19%. of the company. Stay alert.

Foot Locker (FL)

For months the global retailer of athletic footwear and apparel has been outdistancing the rumors of a company sale as its shares have continued to slip and fall. Even CEO Matthew Serra made a point of saying that there’s nothing to it. But it’s hardly news that sales and earnings have been flat for years. Last summer the company hired Evercore Partners as an advisor, and Pathenon Group to look them over. So whatever is up, is certainly can’t be very comforting to hear that Nike (NKE) is planning to open a series of mall-based specialty stores. Foot Locker is a major reseller of the Nike brand.

Through TheFLY's Eyes: Caterpillar

from Joseph Lazzaro of Theflyonthewall.com

















Caterpillar: The 'Rodney Dangerfield' Of Stocks

Just call Caterpillar (NYSE:CAT) the Rodney Dangerfield of stocks.

For those younger investors & readers who don't recognize the reference, the late Dangerfield [1921-2004] was a stand-up comedian who built a career by lamenting that, "I tell you I get no respect."

Likewise, Caterpillar gets no respect. Despite solid growth and impressive earnings for more than 3 years, Wall Street has pummeled the stock, taking shares down from about $82 in May 2006 to below $60, on the projection that the global economic slowdown will hurt CAT, maker of farm and construction machinery.

On Friday, however, CAT tried to reverse that sentiment by reporting Q4 EPS of $1.32, 2 cents below the Reuters consensus estimate of $1.34. CAT also posted Q4 revenue of $11.0B, well above the consensus estimate of $10.3B.

Prior to Friday, Wall Street had treated CAT the way Dangerfield felt he was treated: rudely - - taking CAT shares down despite repeated decent-to-good news reports and operational accomplishments.

However, on Friday, CAT started to receive a glimmer of warmth, as CAT shares rose $1.35 to $60.98 in mid-day trading.

Further, Prudential said Friday that CAT's November 2006 sales demonstrated robust overseas growth partially offset by continued moderation in the North American machinery market. Further, Prudential continues to believe that CAT's 2007 EPS guidance of $5.20-$5.70 is overly conservative.

An analyst's report underscoring CAT's robust overseas growth, and conservative EPS guidance? That sounds benign, even indicative of a tad of respect.

No doubt the late Mr. Dangerfield would be impressed.

Blog Update: Looking for Contributing Bloggers

from Theflyonthewall.com













Calling All Bloggers!

Theflyonthewall.com is looking for knowledgeable financial bloggers to help contribute to the content of our blog. Interested? Send an email to blog@theflyonthewall.com with a description of your background in finance and what it is that you focus on the markets.

Through The Fly's Eyes: Ford Motor

from Theflyonthewall.com













Mulally Begins Cleaning House

Ford Motor (F) reported a loss of $12.7 billion for 2006, with roughly half of that coming in the 4th quarter. Here's the breakdown:

• Ford Motor Credit has pretax full year earnings of $1.9 billion
• Ford's automobile business made money in Europe and Latin America
• North America and Asia are both losing money
• North America lost $6.1 billion in 2006
• Ford will have a cash outflow of $17 billion during the next three years to fix this sinking ship. It has $34 billion of cash on its balance sheet for newly hired Alan Mulally to fix this business.

The big positive for Ford is Mulally. Mulally ran Boeing, which during its long history, has had some tough times. Boeing also has some similar traits to Ford--a huge organization with a unionized work force.

It appears Mulally is attacking the cost structure first. And then will have to spend time revamping a dying product line. This is a stock you want to begin learning about again. If this ship can be put on the correct course, the upside is considerable. However, a lot of work needs to be done.

Through The Fly's Eyes: Microsoft

from Theflyonthewall.com





New Product Launch Will Re-accelerate Growth

Microsoft (MSFT) reported revenue growth of 6% , but if you include the big jump in deferred revenue, revenue increased 20%, according to the company. Bookings growth was also up over 20%.

Microsoft will be launching the consumer version of Vista in February. As a reminder, Microsoft has also launched a new Office and Exchange Server. This broad product launch is huge for Microsoft.

Chris Liddell, Microsoft's CFO, said he expects an excellent year. He also cited that hardware sales for the December quarter was strong, another positive data point for the sofware giant.

Going forward, Microsoft expects double digit revenue growth and for earnings per share to exceed revenue growth.

Microsoft's stock has had a good run anticipating the launch of Vista. However, it appears results are already exceeding most expectations. It appears Microsoft has its growth back and the stock has more to run. Investors have to ride the Vista launch.

Through The Fly's Eyes: SAP

from Theflyonthewall.com












SAP's Weak Results Point To Oracle's Success

SAP AG (SAP), which warned earlier in the month, made comments in yesterday's Q4 earnings conference call point to Larry Ellison's prognostication of SAP's demise being more and more correct.

Back in September, after reporting a blow-out quarter, Oracle's (ORCL) Ellison said SAP is a number of years behind. Ellison went as far to say that if Oracle doesn't screw up, SAP is in big trouble.

Since Ellison made those comments, more and more evidence is coming out supporting his view. Since late 2006, SAP has reported poor results and IBM has reported weak results in businesses that work closely with SAP.

SAP said it is going to spend an extra 300 to 400 million euros over the next eight quarters for new software development. This further supports Ellison's claim of SAP beginning behind the curve.

Oracle's stock had a good year in 2006 with industry spending in a lull. But now it appears the lull is over and Oracle could be off to the races again.

Through The Fly's Eyes: eBay Inc.

from Theflyonthewall.com








The Power Of 3 Is Powerful

The "Power of 3" is what Meg Whitman calls eBay's (EBAY) 3 primary businesses -- marketplaces, payments and communications. Any way you slice it, the Power of 3 is working.

• For 2006, $6 billion in revenue, up 31%
• Purchased $1.0 billion in stock and is upping it to $2.0 billion -- eBay has never repurchased its stock prior to July 2006
• eBay has 220 million users and Skype is now up to 171 million users, both growing nicely
• Other eBay names that it owns or has interest in or relationships with are doing well like Shopping.com, Craigslist and VeriSign

Of the many positive points for eBay, the most important to drive this stock higher is that growth is now re-accelerating. Historically, large growth companies perform best when the growth rate picks up. The company is guiding to 18% to 21% growth for 1Q07, which appears too conservative.

Sometimes it is best not to think -- just buy and put a stock away. That is what investors should do with eBay.

Through The Fly's Eyes: Sun Microsystems

from Theflyonthewall.com











Sun's Results solid, but KKR Convert Raises Questions

Sun (SUNW) reported a solid 7% increase in revenue for its second quarter, citing good demand for its SPARC chip multithreading (CMT) servers and x64-based servers as well as the increased acceptance of the Solaris 10 Operating System.

More importantly in the tech world, the company showed strong gross margins, coming in at 45%, up from 43% last year.

Sun generated cash from operations of $153 million and had cash and marketable securities at the end of the quarter of $4.8 billion, a lot of cash.

However, despite good cash generation, improved margins and a strong balance sheet, Sun decided to go forward with a $750 million convert with KKR. During the earnings conference call, analysts could not figure out why Sun did the deal.

Jonathan Schwartz, Sun's CEO, said the KKR transaction will allow it to better explore strategic opportunities. He added there could be some cross selling opportunities between KKR's portfolio companies and Sun. Analyst did not appear to believe him.

The reality is the only reason for Sun to need this extra cash is to make a sizable acquisition. Despite an improved operating performance, the growth metrics for Sun, especially within the US, are still weak.

Look for Sun to do another big transaction this year.

Through The Fly's Eyes: Yahoo!

from Theflyonthewall.com






Worth Chipping Away At: Good Risk-Reward Bet

Buying Yahoo’s (YHOO) stock is a bet on Project Panama, its new advertising platform. If it succeeds, the stock goes up. If it fails, Terry Semel gets fired and the stock goes up. Therefore, investors are almost in a win-win situation.

In addition, the downside risk is protected by the powerful cash flow machine that this company is. For 2006, Yahoo generated revenue of $6.4 billion, EBITDA of $1.9 billion and free cash flow of $1.27 billion. Any way you look at it, Yahoo's cash generating ability is not going away over night.

For the stock to take off, Project Panama needs to be able to better dynamically link search with advertisers, thereby driving growth again. However, investors will not see this growth until 2Q07. Yahoo stated that 1Q07 will be a transition period.

Waiting for Project Panama to show positive results could prove to be a big risk. If the new advertising platform takes hold the stock might have already discounted the success, making it too late to profit. With little downside risk, Yahoo is worth purchasing and putting away. If the new advertising platform begins to work, this stock will quickly come back into favor.

Through The Fly's Eyes: Texas Instruments

from Theflyonthewall.com









Weak Results at TI; Waiting For New Product Ramp

The handset market is maturing and Texas Instruments (TXN) results clearly showed this:

• 5% decline in semiconductor sales sequentially
• Wireless was the primary reason for the weakness, declining 10% sequentially. Handset growth is shifting to lower end products
• Orders down 10% -- weak
• Book to bill is at .89 -- weak
• Expect revenue to decline for 1Q07 of 5% to 13% -- weak
• Growth at TI is coming from a low-cost integrated chip for low-end phones sold in emerging markets. While this business is growing, it does not offset the weakness of the higher end 3-G business.

For TI to grow again, it needs a higher end product to take hold. Specifically, a mass market RIMM, Treo, or Q-type device. This most likely will not happen until the 2007 holiday season.

No need to rush into TI's stock. Wait for seasonally weak summer season to look at this stock again.

Through The Fly's Eyes: Lyondell Chemical

from Theflyonthewall.com







Lyondell's Got it All: Earnings, Cash Flow and a Huge Refinery

Lyondell Chemical (LYO) was mentioned twice as a stock to buy in this past weekend's Barron's roundtable, recommended by both Archie MacAllaster and John Neff.

At $25, the stock is selling for 6.25x earnings versus the S&P 500 selling for 15x to 16x earnings. What is particularly attractive about Lyondell is that it bought out its Venezuelan partner's 41% stake in the Citgo refinery and now fully owns this sizable refinery. This asset should generate a lot of cash flow for Lyondell's shareholders for years to come.

Lyondell put a good chunk of debt on its balance sheet to purchase the Citgo refinery stake, but has already reduced debt by $2 to $3 billion, according to MacAllaster, who put a $40 price target on the stock.

Through The Fly's Eyes: The U.S. Dollar

from Theflyonthewall.com










Dollar Weakness Is Not Necessarily Bad

Bill Gross, of Pimco fame, joined the chorus of Warren Buffett and others saying the U.S. dollar is "doomed." Gross made these comments in this weekend's Barron's Roundtable.

Gross repeats the same comments as many others: the twin deficits (federal and trade) will force the country to inflate its way out of the deficits. This is pure hogwash.

The U.S. dollar will go down relative to some currencies due to other countries becoming wealthier. This is a good, not a bad thing. Emerging economies will provide goods and services at competitive prices and the market will reward those countries with a stronger currency.

This is exactly what happened to Japan in the post-World War II era. Japan started off making low-end trinkets and then moved up the value chain, becoming a powerful global economic participant. Its currency appreciated relative to the dollar along the way.

The same will happen to other currencies. China was the prime example in 2006 as it began to manage the appreciation of the yuan.

When you hear all this negative babble that the U.S. currency is doomed, take it with a grain of salt. The dollar weakening because other economies are doing smart things is a good, not a bad thing. History has shown that as long as the U.S. keeps inflation between 2% to 2.5%, then a weaker dollar is manageable.

Through The Fly's Eyes: Pioneer Natural Resources

from Theflyonthewall.com






Start Looking At Select Commodity Stocks

TheFly blogged to avoid commodity stocks back in the spring. Our timing was quite good. However, a lot of these stocks have corrected significantly and they are beginning to represent good value.

Pioneer Natural Resource (PXD) was mentioned by Archie MacAllaster in this weekend's Barron's Roundtable. Pioneer is the third largest independent oil and gas producer in the U.S. and its stock has come down from a high of $54 to $38 -- a big correction.

According to MacAllaster, Pioneer had forward sold a lot of its output considerably below today's prices. Therefore, as these contracts come off, Pioneer can sell their gas at much high prices and earn greater profits, despite the recent natural gas price pullback. Pioneer's reserves are all domestic, so they will benefit from better prices due to the inevitable decline in U.S. reserves.

Also, Pioneer has shrunk it shares outstanding from 145 million to 125 million and is supposedly on its way to 100 million shares outstanding.

Through TheFLY's Eyes: IPO & Syndicate Preview

from Joseph Lazzaro of Theflyonthewall.com



















IPO & Secondary Preview: Schedule For The Week Of Jan 22, 2007



Wall Street's equity market has a full plate of offerings on its the table, with 16 deals on the ocket, including 5 IPOs.


Those deals tentatively scheduled to price include:



IPOS:


*AeroViroment (AVAV), a 6.7M-share IPO for ths unmanned aircraft manufacuturer. AVAV has a $14.00-$16.00 filing range

*Converted Organics (COIN), a 2M-share IPO for this fertilyzer company. COIN has a $5.00-$6.00 filing range.

*Meruelo Maddux Properties (MMPI), a 40M-share IPO to pay-off debt and for other corporate purposes. MMPI has a $12.00-$14.00 filing range.

*Oculus Innovative Sciences (OCLS), a 3.5M-share IPO for this developer of wound/infection treatments. OCLS has a $8.00-$10.00 filing range. This IPO was re-scheduled from December 2006.

*Oritani Financial (ORIT), a 10.575M-share IPO for this savings & loan holding company.



Secondaries:


*Alllis-Chambers Energy (ALY), a 4.5M-share Secondary. ALY is engaged in oilfield services.

*Baldor Electric (BEZ), a 6.25M-share Secondary. BEZ designs and manufactures electric motors.

*Covanta (CVA), a 5.77M-share Secondary for this diversified utility.

*Edge Petroelum (EPEX), a 9.2M-share Secondary to finance the pending acquisition of oil and gas properties from Smith Production Inc. and to refinance Edge's existing revolving credit facility.

*Inverness Medical Innovations (IMA), a 5M-share Secondary to repay outstanding debt and for orking capital and other general corporate purposes.

*J Crew Group (JCG), a 7.5M-share Secondary to fund the business growth/development.

*Kaiser Aluminum (KALU), a 2.52M-share Secondary for this aluminum products manufacturer to repay outstanding indebtedness and for working capital and other general corporate purposes.

*Medicines (MDCO), a 6M-share Secondary for this acute acre-oriented pharmaceutical company.

*RAM Energy Resources (RAME), an 11.98M-share Secondary to buy back senior notes and to reduce other revolving credit balances.

*Tower Group (TWGP), a 2.5M-share Secondary to fund a portion of its acquisition of Preserver, to redeem some preferred stock, and for general corporate purposes.

*Focus Media (FMCN), a 6.65M-share Secondary for general corporate purposes



- -

For the latest market intelligence on IPOs, Syndicate, and after-market trades, check out TheFLY Syndicate at www.theflyonthewall.com. [Subscription required.]

Through TheFLY's Eyes: General Electric

from Joseph Lazzaro of Theflyonthewall.com














GE's Q4 Earnings More Than Double

General Electric (NYSE:GE) said Friday Q4 earnings rose in every division but GE Industrial, which was weighed-down by sub-par plastics performance.

GE said Q4 EPS totaled 64 cents per share, up from 30 cents a year ago, while Q4 revenue totaled $44.6B, up 11% from a year ago. For 2006 GE earned $2 per share on revenue of $163.7B.

Nevertheless, GE's shares sold-off on the news and were down -86c to $37.16 in early afternoon trading. The overall consensus among analysts was that the poor plastics performance underscored the need for GE to divest the unit, which the company has been attempting to do. GE has confirmed that it plans to auction its plastics unit for about $10B.

The compelling question is whether GE's pull-back represents a buying opportunity, and the Wall Street consensus appears to be: yes. True, plastics will remain a drag until divested, but otherwise GE is levered to the global economy in the best sorts of ways [aerospace, overall industrial], with almost of the macroeconomic and sector-specific trends pointing in the positive direction.

Hence, counter to an adage, the future for GE probably is not in plastics, but in overall global growth.

Through The Fly's Eyes: A Quick Look Ahead

from Eric Buscemi of Theflyonthewall.com












Highlights For Next Week

January's earnings period continues, with Texas Instruments (TXN), Sun Microsystems (SUNW), eBay Inc (EBAY), AT&T (T) and Halliburton (HAL) all reporting this upcoming week.

Monday January 22

* Pfizer (PFE) to hold a strategic update meeting at 1pm. Deutsche Bank believes the meeting will focus on Exubera and will discuss the drug positively.
* Target (TGT) to hold its January mid-month sales call at 4pm. Investors will be looking at the strength of sales after the holiday season.
* Texas Instruments to report Q4 earnings; conference call at 5:30pm. The focus here will be on the company's product mix, cost controls, market penetration rates, and margins. Additionally, the Street will also be looking at Texas Instruments' comments on product development and the future role it sees for semiconductors, particularly in wireless devices.
* FDA PDUFA date for Wyeth's (WYE) Desvenlafaxine.

Tuesday January 23

* Sun Microsystems to report Q2 earnings; conference call at 4:30pm.
* FDA PDUFA Date for GlaxoSmithKline's (GSK) Coreg

Wednesday January 24

* eBay to report Q4 earnings. Investors will loks for comments on sales during the 2006 holiday season, the recent acquisition of Stubhub.com and the performance of Paypal.com against fledgling challenger Google Checkout.
* Atlantic City Council Meeting to hold vote on smoking ban at 5pm. If passed, this would be a negative for the casino sector, as it would ban smoking on the floors of Atlantic City casinos.

Thursday January 25

* AT&T to report Q4 earnings; conference call at 10am.
* Icos Corp (ICOS) to hold a special shareholder meeting at 2pm to vote on the revised merger agreement with Eli Lilly (LLY). Note that HealthCor Management, which holds a 5.24% stake in Icos, plans to vote against the proposed acquisition.

Friday January 26

* Halliburton to report Q4 earnings; conference call at 10am. Investors will be looking for comments on oil services, as well as new contracts relating to government services.

Through The Fly's Eyes: Tween Brands

from Eric Buscemi of Theflyonthewall.com





Tween Brands down -- Women's retail looking bleak

Tween Brands (TWB) is down almost 3% on the day on two pieces of news:

1. Competitor Coldwater Creek (CWTR) cut its fourth quarter EPS outlook citing slower-than-expected customer traffic throughout holiday season. Wachovia said this is "not" company specific and is indicative of the weaker women's retail environment.
2. Buckingham had cautious/negative comments on Tween Brands this morning. The firm advised remaining Neutral, citing a lack of clarity on the timing of improved apparel trend in the company's Limited TOO stores. January sales have not picked up as expected, prompting an unplanned "Buy 1 Get 1 at 50% off" markdown which could create additional downside to the firm's most recent 4Q06 EPS estimate.

Through The Fly's Eyes: IBM

from Theflyonthewall.com







CFO Attacked by Wall Street Analysts

International Business Machine's (IBM) headline earnings report looked strong but analysts tore CFO Mark Loughridge apart in last night's conference call.

Global Business Services, which reported good bookings for short-term contracts, missed big on long-term bookings. The long-term contract business has been viewed as a good indicator of IBM's future results. If these long-term bookings are weak, IBM's future revenue could be weak.

It was clear from the call that IBM is having trouble signing long-term services contracts for reasons not clearly stated during the call. One must suspect this business remains very competitive and they cannot sign profitable deals.

In addition, there were some concerns about potental margin compression. While IBM reported good gross margin improvement, SGA was up 10% and R&D was up 8% for the quarter; there is only so much cutting the company can do at the gross margin line. When ask about this trend, Loughridge was evasive.

Further, IBM provided little, if any, guidance.

Also, there are concerns about IBM's linkage to SAP AG (SAP), who missed big, as well as the success Oracle (ORCL) is having with its vertical acquisition and middleware strategy.

All told, Loughridge pitched the company, whether intentionally or not, as a company with a healthy balance sheet that generates a lot of cash. For now, IBM is a dividend play at best. Go with Oracle if you want to invest in the enterprise software space.

Through The Fly's Eyes: JDS Uniphase

from Theflyonthewall.com







Guidance Raised: A Sign Optical Is Coming Back

JDS Uniphase (JDSU) raised its revenue guidance last night. The company had seen Q2 revenue of $332M-$352M and now sees revenue at $360M-$365M; consensus is for $343.29M.

The company cited strong performance by its communications test and measurement segment, which has been an area of focus for JDSU CEO, Kevin Kennedy, a former top executive at Cisco (CSCO).

However, JDSU's test and measurement business is focused more on IP and optical traffic than the test and measure tools used in the semiconductor space. Two different businesses.

This is another data point that the optical business continues to improve. Ciena (CIEN) should also benefit from this news.

Through The Fly's Eyes: Star Scientific

from Eric Buscemi of Theflyonthewall.com








Star to Get Lawsuit Decisions Tomorrow

According to a Dow Jones report yesterday, the decisions to three pending Star Scientific (STSI) summary-judgment motions in the companies patent-infringement lawsuit against Reynolds American Inc. (RAI) R.J. Reynolds Tobacco Co. will be available on tomorrow.

The patent-infringement suit has been ongoing since 2001, when Star Scientific filed against Reynold's, alleging that Reynolds had violated the company's process to reduce the level of nitrosamines - a carcinogenic toxin - in tobacco.

Star Scientific's stock rose from $3.39 to $4.40 yesterday on the news the decisions had been reached, and could rise again significantly should those decisions go its way. Additionally, if Reynolds is ordered to pay a significant enough sum, the tobacco giant may decide to simply buy out Star Scientific rather than pay a hefty patent-infringement fine.

Through The Fly's Eyes: Netgear

from Eric Buscemi of Theflyonthewall.com











Today's Weakness Attributed to Apple TV

Netgear (NTGR) is weak today on no company specific news that we see. The "buzz" is that shares of Netgear are weak after Apple (AAPL) said on its Apple.com website that the Apple TV is its best selling product even though its not out yet, which if one were to speculate could mean that pre-orders are strong.

Netgear is expected to compete with Apple's iTV with their recently announced EVA8000 Digital Entertainer HD set-top box.

Through The Fly's Eyes: JP Morgan

from Theflyonthewall.com







Jamie Dimon Has House In Order

All six businesses are getting stronger, margins are improving and the company has good organic growth, said Dimon in yesterday's earnings conference call. In addition, JP Morgan (JPM) reported record quarterly earnings.

Dimon also declared victory over integrating its merger with Bank One. All the major financial and data platforms are now in place, he told investors.

Dimon said due to the better operating performance, the company will have more capital that can be retained and invested which should help improve returns over time.

JP Morgan will be hosting an analyst day on March 6th to review the company's recent successes and where it will be going from here.

This stock has had a great six months, being up over 40%. However, JP Morgan is a big company and becoming more and more profitable each quarter and year. For those who want decent capital appreciation and some nice dividends, JP Morgan is the place to be.

Through The Fly's Eyes: Apple Inc

from Theflyonthewall.com














Numbers Beat Expectation, But Are They Strong Enough To Drive Stock Higher?

Apple (AAPL) reported very solid numbers last night. Revenue hit $7.1 billion, up from $5.7 billion last year, or a 24% increase. Apple beat the consensus estimate of $6.4 billion. It appears Apple, once again, set the bar pretty low.

iPod sales jumped to 21 million units, up from 14 million units last year, for a 50% increase.

It appears a lot of the Apple-hype ran out last week at MacWorld and the next catalyst appears to be the launch of iPhone.

Apple's stock, historically, has waited to appreciate until data is available on the success of a new product. Obviously, iPhone is the next big push. Wait for data points on the iPhone launch before getting into this stock. iPod is entering a seasonally weaker period and Apple needs the next great product to drive this stock higher.

Through The Fly's Eyes: Consumer vs. Business

from Theflyonthewall.com















The Consumer Has Been Driving Technology This Decade:
Is It Time For A Change?

Last night in its conference call, Intel (INTC) said that the consumer will be driving the first ramp in demand for Microsoft's (MSFT) Vista operating system. Tonight, Apple (AAPL) reports results. The company's huge success has obviously been driven by the iPod, a consumer product.

However, beneath the headlines, Intel mentioned that its server business is doing quite well. Also, other large-volume high-end companies such as Sun Microsystems (SUNW), Level 3 (LVLT), IBM (IBM) and possibly EMC (EMC) are seeing improvement in their operating performances.

While investor attention is still focused on Apple, the iPod and the consumer, the revenue and operating performance of technology companies focused on the business customer appear to be improving nicely for the first time in a long time.

Through The Fly's Eyes: Intel

from Theflyonthewall.com














Not Too Horrific; 1Q 2007 Might Be Low Point


Intel (INTC) reported results which continue to reflect the impact of a stronger competitor in Advanced Micro Devices (AMD), which was seen primarily in the gross margin line.

However, despite having a viable competitor, Intel results were reasonably good. Revenue came in at the top end of analyst estimates and guidance provided by the company for the 4Q 2006. In addition, guidance for 1Q 2007 also appears OK.

Historically, Intel has traded on gross margins, which have been in decline for the past year. There is some evidence to suggest that 1Q 2007 could be the bottom for this metric.

What could drive gross margins higher is the huge demand increase for processors as notebooks continue to go to a dual processor and desktops go to a quad processor design. This means demand for processors will continue to grow, but more importantly, the manufacturing costs for processors are dropping fast.

Use any price weakness to start buying Intel. It appears from both Intel and AMD chipset designs that Windows Vista operating system is going to require a lot of processing power. This could drive solid second half of 2007 results for both Intel and AMD.

Through The Fly's Eyes: Apollo Group

from Theflyonthewall.com





Education Stocks Might Have Hit Bottom

After peaking at $98 per share on June of 2004, Apollo Group' s stock has headed straight downhill and now trades at $41.

After a great bull run that began in 1995, the industry began to mature and these stocks rolled over.

We blogged earlier today about how Pequot Capital's chief, Art Samberg, likes cotton. He also is looking for a turnaround in publicly traded education stocks. The stocks he likes are Apollo Group (APOL), Career Education (CECO) and Corinthian Colleges (COCO).

Apollo has been putting a lot of spending behind its on-line community college program called Axia College which it hopes can accelerate Apollo's growth rate. Management is hopeful Axia will be a feeding tube for its four-year on-line college, University of Phoenix.

Samberg also believes Career Education, which has been a real bloodbath, could be ripe for a turnaround under new management.

Publicly traded education stocks, as an industry, have stayed away from using leveraged balance sheets. Samberg notes that if current valuation persists and if fundamentals start improving, private equity firms could find these companies very attractive.

Through The Fly's Eyes: Cotton

from Theflyonthewall.com















Compelling Argument To Go Long Cotton

Art Samberg, of Pequot Capital fame, provided a compelling argument to go long cotton in this weekend's Barron's investor round table.

For you commodity traders out there, Samberg said go long the December '07 cotton contract. His reasoning is while cotton consumption in the US has been in decline, China consumption which has been growing nicely, is picking up more steam.

Cotton consumption in the US has fallen from 12 million to 5 million bales a year due to the growth of polyester and other materials. Conversely, Textile spending is on a big upswing in China - up 27% in '06, after jumping 36% in '05. Chinese consumption which had been growing 4% to 6% per year is now growing 15% per year.

According to Samberg, China's cotton consumption has increased from 25% to 39%-40% of world cotton consumption.

Because of strong prices of corn and soybeans--corn being used for ethanol production, US farmers are going to remove acreage from cotton to earn better profits in higher priced corn and soybeans. Supposedly, there have only been four times since 1913 when cotton was this cheap relative to grains like corn and wheat. The last time being 1974. From 1974 to 1976, cotton tripled in price.

Through The Fly's Eyes: A Quick Look Ahead

from Eric Buscemi of Theflyonthewall.com












Highlights For Next Week

January's earnings period is heating up, with Apple and Motorola reporting this upcoming week. Also there are two more interesting industry conferences coming on the heels of the CES and Macworld.

Monday January 15

* The 96th Annual National Retail Federation Conference will be held in N.Y.
* The North American International Auto Show 2007 will be held in Detroit.

Tuesday January 16

* US Bancorp (USB) will report Q4 earnings, conference call at 2pm. The bank is expected to report solid EPS but declining revenue. Wall Street will be looking to evaluate USB's comments on where it sees the U.S. economy heading in 2007.
* American Power Conversion (APCC) will hold a special shareholder meeting at 2pm to vote on the proposed merger with Schneider Electric.

Wednesday January 17

* Apple Inc (AAPL) will report Q1 2007 earnings, conference call at 5pm. Investors and analysts will be looking for further details and clarification on the iPhone, and will also be looking to see how much progress the company's Macs are making against rival PCs.
* Monsanto Company (MON) will hold its annual investor meeting at 3pm in St. Louis. Investors will be waiting to hear any news on the merger with Delta & Pine Land (DLP), which was announced last August, but has been delayed by antitrust concerns.

Thursday January 18

* Harley Davidson Inc (HOG) will report its Q4 2006 earnings, conference call at 9am. The focus of the report will be the company's inventory, order backlog and its ability to keep up with customer demand. Wall Street will also be looking at Harley Davidson's ability to reduce the time it takes to get new motorcycles to market.

Friday January 19

* Motorola, Inc (MOT) will report its Q4 2006 earnings, conference call at 7:30am. Investors will look to see if Motorola's earnings release does anything to ease concerns brought on by two recent downgrades, from Buy to Neutral/Hold, one which claimed "uncertainty over U.S. market share trends in 2007."

Through TheFLY's Eyes: IPO & Syndicate Preview

from Joseph Lazzaro of Theflyonthewall.com
















IPO & Secondary Preview: Schedule For The Week Of Jan 15, 2007


Wall Street’s equity offering season heats-up this week with 11 deals on the docket, including 2 IPOs. Those deals tentatively scheduled to price include:



IPOs:

*MV Oil Trust (MVO), a 7.5M-share IPO to fund the trust's oil & gas operations. MVO has a $19.00-$21.00 filing range.

*Oculus Innovative Sciences (OCLS), a developer of wound/infection treatments, has set a 3.5M-share IPO with a $8.00-$10.00 filing range. This IPO was re-scheduled from December 2006.




Secondaries:

*CoBiz (COBZ), 2.4M-share Secondary for general corporate purposes

*DiamondRock Hospitality (DRH), a 14.5M-share Secondary to help fund a portion of the purchase of the Boston Westin Hotel.

*InnerWorkings (INWK), an 8M-share Secondary to expand the company's sales force, to acquire/make strategic investments in complementary business, and for working capital.

*Kenexa (KNXA), a 3.75M-share Secondary to repay outstanding term loan obligations in connection with KNXA's acquisition of BrassRing LLC in November 2006.

*NaviSite (NAVI), a 7.66M-share Secondary. NAVI provides application management, professional services, and secure content delivery solutions for enterprises.

*RAIT Financial Trust (RAS), an 8.25M-share Secondary to repay debt and for general trust purposes.

*RAM Energy Resources (RAME), a 11.98M-share Secondary to repurchase all outstanding 11 1/2% senior notes, and to reduce other debt.

*SAVVI (SVVS), a 6.63M-share Secondary. SVVS provides infrastructure services for business applications.

*SMART (SMOD), a 12.5M-share Secondary. SMOD is a designer, manufacturer and supplier to original equipment manufacturers.


--


For the latest market intelligence on IPOs, Syndicate, and after-market trades, check out TheFLY Syndicate at www.theflyonthewall.com. [Subscription required.]

Through The Fly's Eyes: The Internet

from Theflyonthewall.com














Internet Stocks Starting Year Off Strong

A good leading indicator of stock market performance is looking at the leading Internet companies. So far in 2007, the leading Internet companies are doing quite well:

• Yahoo (YHOO): +13.0%
• Google (GOOG): +7.2%
• Level 3 (LVLT): +14.0%
• Sun Microsystems (SUNW): +10.2%
• Ebay (EBAY): -2.5%
• Amazon (AMZN): -3.3%

Search is doing well (Yahoo and Google), the physical network of the Internet is also doing well (Level 3 and Sun), but Internet retailing is having a tough time early on (Ebay and Amazon).

Overall, the strong performance of the leading companies is a good sign for the market. Often, the best of the best take off way before the market does. This strong start in 2007 bodes well for tech in 2007.

Through The Fly's Eyes: SAP

from Theflyonthewall.com












SAP Misses Big

Before the US market closed yesterday, SAP AG (SAP), the German-based software giant, reported a big miss with the stock dropping over $5 in the last hour of trading.

Oracle's (ORCL) revenue also came up soft in its last quarter, but not as soft as SAP's. Advice: stay with Oracle; avoid SAP. Oracle's numbers were better, but more importantly, it appears its strategy of bringing together high-end vertical software applications through acquisition is right on target.

In a September earnings conference call, Ellison all but said good bye to SAP. Ellison said that SAP is at least two years behind Oracle and suggested that if Oracle did not make some big missteps, it would be tough for SAP to catch up. It appears from SAP's results, that Ellison's comments might have some truth to them.

Price weakness in Oracle's stock might be a good buying opportunity. While Oracle reported a weak quarter, it appears the economy and corporate spending are fine. That means spending should pick up for Oracle's products during the year.

Through TheFLY's Eyes: global monetary policy

from Joseph Lazzaro of Theflyonthewall.com
















The BOE's Surpise: A Mid-Winter Rate Rise

The Bank of England didn't pull a fast one on international markets Thursday, but it was close.

The Bank of England unexpectedly increased its benchmark interest rate - called the repurchase rate - by one-quarter point, or 25 basis points, to 5.25%, its third increase since August 2006.

The BOE said "CPI pressure was 2.7% in November. It is likely that inflation will rise further above the target in the near-term, but then fall back as energy and import price inflation abate."

While an argument can be made that CPI pressure in the U.K. is elevated, the BOE's move nevertheless took economists, traders, and analysts by surprise.

While central banks must set monetary policy to meet national economic objectives, the world's four major central banks [The U.S. Federal Reserve, European Central Bank, Bank of England, and the Bank of Japan] also are aware of each bank's impact on the global economy. Further, in general, unless the global ecomomy is experiencing runaway growth, the four banks do not generally raise interest rates in unison, as the policy is considered too restrictive and could slow the global economy to a crawl, even cause a recession.

The Fed has recently paused after a rate-rise cycle designed to slow the U.S. economy [and by impact, the global economy], and that has resulted in a 5.25% Fed target rate. And, not surprisingly, the U.S. and global economies slowed. Meanwhile, the ECB and Bank of Japan have also been in rate-increasing mode. However, prior to Thursday's surprise BOE decision, most analysts thought the BOE would remain on hold.

But the BOE did not, and as a consequence the global economy now has all major central banks either in rate-increasing mode or having paused from a recent rate-increasing cycle.

And if you thought economists will now even more closely monitor the global economy for signs of anemic GDP growth, you're right.

Through The Fly's Eyes: Yahoo!

from Theflyonthewall.com






Stock Is Trading Like An Acquisition Candidate

Yahoo!'s (YHOO) stock has been rallying nicely in 2007, up over 10%. There has not been too much news to drive the stock and most news that came in late 2006 was simply awful. It almost is trading as though an offer is about to be made for the company.

Who could buy Yahoo!? Possibly Interactive Corp. (IACI). The stock has been on a huge rally so it has both the stock and a lot of cash on its balance sheet to finance a deal. Interactive also owns Ask.com, so Barry Diller has been learning about the search business. Further, Diller has a long history of making smart acquisitions in growth areas.

With investors not pleased with Yahoo management and failed attempts to revamp its business, the action in 2007 has to make you wonder why is this stock rallying.

Through The Fly's Eyes: Satellite Radio

from Theflyonthewall.com











Satellite Stocks Rally Big

Both Sirius (SIRI) and XM Satellite Radio (XMSR) rallied big yesterday. Momentum in both of these stocks is picking up as analysts publish reports on the merits on these two companies combining.

Even more attractive is news that Sirius is saying it expects advertising revenue to hit $60 million. Advertising revenue is almost all free cash flow for Sirius.

Also, Sirius expects to have its service pre-installed with a bunch of new car models this year. Add to this that Sirius should be free cash flow positive this year and is on target for $1 billion in free cash flow by the end of this decade, meaning this rally could have legs and last for a while.

Through The Fly's Eyes: Crude Oil

from Theflyonthewall.com

A Technical View

Given the bearish sentiment in crude it's time to look both at how the crude chart looks (in this case Light Sweet Crude) and how the broader markets (the S&P 500 in this case) have performed while oil rises and falls in value.

Its clear the Crude chart is in technical trouble and has been since September when the curved uptrend line was broken. There is a probable bearish flag in progress as well, a bearish pattern (downside pole shown in red) that has a downside objective to $44 area. In addition the next major probable downside target is at $49.77 (200-week moving average) if the bearish trend continues.

Since Crude started its downtrend the markets have generally outperformed. Perhaps this is due to the belief that as Crude falls, consumers will be under less pressure (more money available for other goods and services) or that Crude as an input for inflation will cease to be such a worry for the Federal Reserve. In the short-run all of that may very well be true.

Over time however it is less clear that falling Crude prices are good for the economy. Our second chart shows Crude with the S&P 500 index below. As we can see, the correlation is not 100%. There is enough of one though to suggest the general market does poorly or declines when Crude declines (an indicator of lower demand and a weaker overall economy) and rises just as sharply when Crude is rising in price (as the economy accelerates). It will be especially important to watch Crude in the coming months as it enters the stronger seasonal period (Spring/Summer) where gasoline is in demand and home heating fuel's (adversely impacted by warm weather in the Northeast) impact on price declines.

Charts created with Equis MetaStock

Through The Fly's Eyes: Lions Gate Entertainment

from Eric Buscemi of Theflyonthewall.com











Lions Gate Targeting Kids with Latest Movies

Lions Gate Entertainment (LGF), which has been a bright light in the otherwise dim movie industry recently, has found success making low budget movies aimed at the 20-30 year-old audience. Here is a list of some of their more notable recent releases, sorted by their estimated budgets. None of the movies has a rating milder than PG-13.

• Hostel ($4.5M est. budget / $47.3M gross)
• Diary of a Mad Black Woman ($5.5M est. budget / $50.3M gross)
• Crash ($6.5M est. budget / $54.5M gross, won Best Picture Oscar)
• Crank ($12M est. budget / $27.8M gross)
• Employee of the Month ($12M est. budget / $28.4M gross)
• Saw III ($12M est. budget / $80.1M gross)
• Hotel Rwanda ($17.5M est. budget / $23.4M gross, nominated for 3 Oscars)
• Lord of War ($42M est. budget / $24.1M gross)

(All figures above taken from IMDB.com)

From the above list, you can see Lions Gate's winning formula. All their successes have budgets under $20 million dollars, and most fit into three categories: Movies that push the limits of violence and gore (Hostel, Crank, Saw); low-brow adult-themed comedies (Diary of a Mad Black Woman, Employee of the Month); and edgy dramatic works that gain critical appreciation (Crash, Hotel Rwanda).

Now, here is the problem -- neither the movie the just released, Happily N'Ever After, nor the movie that is making noise today with its addition of Paula Abdul to its cast, Bratz, fit this formula.

Happily N'Ever After, a computer-animated film that cost Lions Gate an estimated $47 million to make, only grossed $6.6 million in its opening weekend. Why did it cost Lions Gate so much to make a movie so similar to Hoodwinked, which only cost $15 million to make? And why is Lions Gate trying to make CGI childrens movies in the first place? Pixar isn't making Hostel knock-offs, after all.

The other movie, Bratz, is in pre-production. It is described by IMDB as a "live-action adventure based on the popular line of dolls." There is no budget information available, so I won't comment on that, but even if this is a low budget movie, why is Lions Gate continuing to pursue the pre-pubescent market with a movie about a line of children's dolls?

These recent decisions on Lions Gate's part would lead me to watch the stock from a distance for the near future, but all hope for Lions Gate is not lost -- Hostel: Part II is in post-production and The Punisher 2 is in pre-production.