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Thursday, May 31, 2007

Through The Fly's Eyes: Varian Semiconductor

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.













Making the Equipment that Makes Your Chips

Society's ballooning appetite for devices controlled by semiconductor-integrated circuits emphasizes the need for high-quality chip processing equipment. One of the world's best known makers of such equipment is headquartered in Gloucester, Massachusetts.

Varian Semiconductor Equipment Associates (VSEA) is engaged in the design, manufacture, marketing, and servicing of semiconductor processing equipment used in the fabrication of integrated circuits. The firm is the world's top manufacturer of ion implantation systems, which are used to build the transistors that are the basis of integrated circuits. The company also offers consumables, product upgrades, services, spare parts, and support. Varian Semiconductor has sold systems to each of the twenty largest chip makers in the world and has won first place on the prestigious VLSI Research 10 BEST list, in eight of the last nine years. Applied Materials (AMAT) is a major competitor.

The firm pleased shareholders late last month, when it reported Q2 EPS of $0.69 and revenues of $241.8 million. Analysts had been expecting $0.66 and $239.1 million. Management also guided Q3 EPS to $0.89-98 ($0.68 consensus) and Q3 revenues to $271-$286 million ($240.75M consensus). AG Edwards, Needham and Stifel Nicolaus subsequently declared the stock a "buy." VSEA shares popped on the news and then moved into a bullish "flag" consolidation pattern. Prices frequently exit flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Altogether, brokers recommend the issue with two "strong buys," five "buys," four "holds" and two "sells." Analysts see an 18% average annual growth rate through the next five years. The stock's Sales Growth rate (41.81%), EPS Growth rate (165.38%), Operating Margin (19.76%), Net Profit Margin (15.35%), Return on Assets (14.31%) and Return on Investment (17.46%) compare favorably with industry, sector and S&P 500 averages.

Institutional investors hold about 95% of the outstanding shares. The stock is one of those used to calculate the S&P 600 SmallCap Index. Over the past 52 weeks, it has traded between $17.25 to $46.92. A stop-loss of $36.50 looks good here.

Through The Fly's Eyes: Stock Pickers

from Theflyonthewall.com







Happy Days Are Here Again


Each bull market has its unique way of demonstrating enthusiasm for stocks. In the late 1920s, it was stock market chatter at the local barbershop that was an indication of stock market excesses. In the 1990s, The Beardstown Ladies, an Illinois-based investment club filled with seniors, graced the covers of news publications.

What about this bull market? It appears it is jock stock pickers. Lenny Dykstra, of the 1986 New York Mets World Series championship team, writes for the TheStreet.com in its News & Analysis section. What does Lenny write about? The buying and selling of options on semiconductor and related stocks. Wow! That's not too risky.

It is time to take all those MBA diplomas and throw them out the window. Forget Graham & Dodd and the Efficient Market Hypothesis, go out and sell naked puts with Lenny Dykstra.

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

from Joseph Lazzaro of Theflyonthewall.com














For Investors, Bad News On U.S. GDP Could Be Good News

On Wall Street, sometimes bad news is good news

Case in point: Thursday's revised GDP stat. The U.S. Commerce Department Thursday reported, in a revised stat, that the U.S. economy grew at an annual pace of 0.6% in Q1 -- well below the preliminary estimate of 1.3%. Further, had the economy exceeded the original stat and registered, say, 1.5% growth, many economists would still consider that level of expansion "anemic growth" -- not strong enough to keep corporate earnings, economic activity and job creation expanding at a healthy pace.

"It's below-trend GDP growth, no-question, and the risk that the U.S. economy will fall into a recession has increased," economist David Wang told The Fly Thursday morning.


However, the markets took the bad news in stride: the Dow, Nasdaq and S&P 500 were all slightly higher in early Thursday afternoon trading. The Dow was up about 30 points to 13,662.

An anemic GDP stat, a rising risk of recession in the quarters ahead...and the Dow rises 30 points. What's going on here? It seems contradictory. Not quite, Wang said.

The 0.6% Q1 GDP growth, "provides substantial evidence that the U.S. economy has slowed below the U.S. Federal Reserve's targeted growth range" which makes it more likely that the Fed will cut short-term interest rates "if the slow growth persists. The Fed can no longer say that inflation is their greater concern, from a facts-on-the-ground, macroeconomic standpoint."

And as investors/readers know, lower interest rates are bullish for most stocks, which sparked Thursday's mild upside. Or, in other words, bad news on GDP short-term, could be good news for stocks, long-term, and help perpetuate 2007's market rally.


However, Wang and other analysts caution that the tepid GDP stat not does guarantee that the Fed will cut rates: Wang said one could make a strong argument that the Fed should keep rates the same at its next meeting, and await further data on business spending and job creation, before concluding that the U.S. economy has approached the stall-level.

Through The Fly's Eyes: Ann Taylor Stores

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.













Help For the Fashion Conscious Professional Woman

Despite the flood of women's fashion stores across the country, there are relatively few that cater to the busy professional in need of a coordinated wardrobe. One of them is headquartered on Times Square.

Ann Taylor Stores (ANN) is a national specialty women's apparel retailer. The firm operates 878 stores across the United States, targeting fashion conscious customers with clothes designed exclusively for its own outlets. Most signature Ann Taylor stores are located in malls and upscale retail centers. The chain's Ann Taylor Loft stores offer their own label of mid-priced apparel and Ann Taylor Factory stores offer clearance merchandise. The company also operates a pair of Web sites. Competitors include Jones Apparel Group (JNY), Limited Brands (LTD) and Liz Claiborne (LIZ).

The firm pleased investors last week, when it reported Q1 EPS of 46 cents, a result in-line with the average Street estimate. Revenues of $580.3 million had been previously announced. Management also guided FY08 EPS to $2.15-$2.25, versus consensus of $2.17. The CEO noted that the company had become more efficient, having made significant progress in the areas of sourcing and systems. The ANN share price popped through 30-day, 50-day and 200-day moving average resistance on the news and has since begun to define 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.

Brokers recommend the issue with two "strong buys," four "buys," ten "holds" and two "sells." Analysts expect a 15% average annual growth rate, through the next five years. The ANN P/E ratio (20.40), PEG ratio (1.36), Price to Sales ratio (1.08) and Price to Book ratio (2.75) compare favorably with industry, sector and S&P 500 averages.

Institutional investors hold about 95% of the outstanding shares. The stock is one of those used to calculate the S&P 400 MidCap Index. Over the past 52 weeks, it has traded between $32.25 and $45.15. A stop-loss of $33.75 looks good here.

Through The Fly's Eyes: AES Corp

from Theflyonthewall.com








Massive Investment; Massive Cash Flow Generator


Last Friday, AES Corp (AES) held its quarterly conference call, where, for the first time, it provided guidance out to 2011. Earnings guidance proved a bit light but also very conservative.

AES identified 14,000 MW+ of projects in construction but only 4,000 MW are assumed in 2011 guidance. The power generator provided 2011 EPS guidance of $1.95, but if you add profits due to the completion of the bulk of these projects, investors should add $0.50 to to $1.00.

Apply a 15x P/E on $3.00 EPS, that is a $45 stock. Not too bad. The cash flow generation and the ability to finance the construction on new power generation projects around the globe is impressive. This is a must-own stock for those who want to profit from power generation projects being constructed in the world's emerging markets.

Wednesday, May 30, 2007

Through The Fly's Eyes: Charles River Labs

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.












Charles River Labs: Old Hands At Developing New Drugs

Outsourcing helps biomedical firms initiate more drug candidates and move them through the pipeline faster, while controlling development costs. A recognized source of the assistance needed to smooth the process is headquartered in Wilmington, Massachusetts.

Charles River Laboratories International (CRL) offers products and services required by pharmaceutical and biotechnical research organizations. Its Research Models and Services unit provides the purpose-bred rodents used in the development of new drugs, devices and therapies. The unit also offers vaccine support and in vitro technology products for testing of medical devices and injectable drugs. The Preclinical Services segment conducts a variety of research programs, including Phase I trials. The company operates from facilities in the United States, France, Germany, Italy, Japan and the United Kingdom. It is in the final stages of establishing a preclinical services joint venture in China.

The firm surprised the Street earlier in the month, when it reported Q1 EPS of $0.64 and revenues of $291.2 million. Analysts had been expecting $0.61 and $279.8 million. Management also guided FY07 EPS to $2.43-$2.53 ($2.49 consensus) and FY07 revenues to $1.16-$1.19 billion ($1.17B consensus). CRL shares popped on the news and have since been defining a bullish "pennant" consolidation pattern. Equities 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 three "Strong Buys," two "Buys" and seven "Holds." Analysts see a 14% average annual growth rate through the next five years. The CRL Price to Book ratio (2.10), Price to Cash Flow ratio (16.06), EPS Growth rate (38.03%), Operating Margin (18.18%) and Net Profit Margin (12.36%) compare favorably with industry, sector and S&P 500 averages.

The stock is one of those used to calculate the S&P 400 MidCap Index. Institutional investors hold about 95% of the outstanding shares. Over the past 52 weeks, CRL has traded between $33.73 and $52.30. A stop-loss of $45.50 looks good here.

Through The Fly's Eyes: IBM

from Joseph Lazzaro of Theflyonthewall.com












IBM: From Big Blue To Nimble Blue

The initial consensus on Wall Street regarding IBM's (IBM) announcement Wednesday that it would eliminate another 1,570 positions is that the effort represents another prudent action in its `reorganizational tripod' of fewer positions, cheaper positions, and reinvented positions.

Further, the reorganization effort represents nothing less than wholesale transformation of the company as it confronts the multi-directional competitive winds of the globalization era. Job eliminations bring Big Blue more in-line with today's continual-right-sizing, temperature-taking business environment. Wholesale shifts of jobs to lower-cost markets -- IBM's India workforce surged to 52,000 in 2006 from a scant 9,000 in 2003 -- helps IBM make up for lost time vis-a-vis lower-cost competitors. And, perhaps most significant, IBM's operational shifts -- including rethinking how it delivers services-- create a more-nimble, higher-value company and can respond to clients' needs quicker and more productively. IBM's shares closed Wednesday up $1.03 to $106.93.

Further, more position "rebalancing" may be up ahead: IBM, which with Wednesday's cuts has now eliminated 3,700 positions in 2007, still has about 356,000 employees, with an eye-opening 128,000 based in the United States. And as part of those cuts, many analysts in the quarters ahead see a continued trimming of global services in favor of software, whose revenue is growing faster.

However, the above is not to state that Big Blue will not add positions, where warranted: if software and other operations continue to show sustainable growth, employee additions in those operations are likely to follow.

That would seem to contradict the tenet of fewer positions, but in fact it doesn't: most analysts still envision an IBM with fewer positions overall in 2008 than in 2007, and in 2009 than in 2008.

Investment Category: IBM is a moderate-risk stock not suitable for low-risk investors. Further, those investors seeking a quick 30%-40% equity gain should pass on IBM. However, assuming continued above-trend global GDP growth, IBM is positioning itself to reward investors with a minimum 2-3 year investment horizon.

Through The Fly's Eyes: Men's Wearhouse

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.













Fashion Reliability at Stores Throughout North America


While new fashion trends may tempt them, most men prefer to depend on the equilibrium of a good suit. There is a Houston-based firm that maintains reliability and quality along that line.

Men's Wearhouse (MW) is a specialty retailer of men's clothing and accessories. The company's U.S. chain consists of 1,151 stores, operating under the names Men's Wearhouse, K&G and After Hours. The firm's Canadian chain includes 116 stores, operating under the Moores banner. The stores offer a broad selection of designer, brand name and private label men's businesswear, including a consistent stock of core offerings. The K&G subsidiary caters to more price sensitive customers and sells ladies' career apparel in about half the stores.

The firm pleased shareholders last week, when it reported Q1 EPS of 67 cents and revenues of $496.1 million. Analysts had been expecting $0.64 and $464 million. Management also guided Q2 EPS to $0.71-77 ($0.70 consensus) and FY07 EPS to $2.79-$2.91 ($2.85 consensus). The news popped the shares out of a late April/early May "cup" into the late May "handle" of a Cup & Handle formation. The price is now showing signs of completing the pattern with a bullish rise from the right-hand side of the "handle."

Brokers recommend the issue with five "strong buys," two "buys" and two "holds." Recent price targets are in the $55-$60 range. Analysts see a 15% average annual growth rate through the next five years. The stock's P/E ratio (17.12), PEG ratio (1.15), Price to Sales ratio (1.40), Price to Book ratio (3.48), Price to Cash Flow ratio (12.12), Price to Free Cash Flow ratio (25.42), EPS Growth rate (26.42%) Return on Assets (13.55%), Return on Investment (17.38%) and Return on Equity (22.20%) compare favorably with industry, sector and S&P 500 averages.

Institutional investors hold about 95% of the outstanding shares. The stock is one of those used to calculate the S&P 600 SmallCap Index. Over the past 52 weeks, it has traded between $29.81 and $51.55. A stop-loss of $44.25 looks good here.

Through The Fly's Eyes: Bad Trade

from Theflyonthewall.com











Shockingly BAD Data


According to the Bureau of Economic Analysis, a subsection of the Commerce Department, after peaking at $321 billion in 2000 it then began a precipitous decline, dropping to $167 billion in 2001 then to $84 billion in 2002 and $64 billion in 2003. This figure has since recovered jumping to $184 billion in 2006; however, it is still meaningfully below the 2000 peak, with the upswing being very erratic from year-to-year, suggesting many countries are still hesitant to invest in the U.S.

The decline in foreign direct investment has had an impact on U.S. employment data as well. The number of Americans employed by foreign companies within the U.S. from 2000 to 2005 is down, declining from 5.7 million to 5.1 million. This is not a good number when considering the US economy has had four solid years of growth. Even with a downturn in foreign direct investment one would expect, purely from inertia, employment to have gone up.

Treasury Secretary Paulson is attempting to put the foreign direct investment tide on a sustainable uptrend, albeit doing so with a political touch. Paulson needs to soften the blow many foreigners felt following the Bush Administration’s unilateral withdrawal from the Kyoto agreement, the Dubai Ports World debacle and the tough scrutiny of the Alcatel-Lucent (ALU) transaction which all left foreigners with a bad taste in their mouths.

Historically, even during good times, foreigners like to allocate a good portion of their new-found wealth into the U.S. Despite cheaper labor costs in emerging-market economies like China and India, the U.S. has a highly productive labor force, a society which produces millions of college educated students each year, a very solid currency and a flexible real estate market to construct buildings or plants in rural or urban areas. These are all attributes that can be found in few other major cosmopolitan cities.

Paulson’s actions suggest the U.S. has a lot of fences that need mending. Forget the trade deficit, focus on foreign direct investment numbers to get a real sense of what the world thinks of the U.S.

Through The Fly's Eyes: Wendy's International

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.













Reviewing Strategic Options


Few companies anywhere can claim to have had a more popular spokeman than the founder of a Dublin, Ohio restaurant chain noted for its made-to-order square hamburgers. One just wonders what Dave Thomas would have had to say about the industry's move to trans-fat free oil!

Wendy's International (WEN) is one of the world's largest restaurant operators, with more than 9,900 Wendy's Old Fashioned Hamburgers and Baja Fresh Mexican Grill outlets. One in five of the stores is operated by the company. The rest are run by franchisees. The firm also has investments in the Tim Hortons, Cafe Express and Pasta Pomodoro brands. Major competitors include Burger King (BKC), McDonald's (MCD) and Yum! Brands (YUM).

The stock popped into a bullish "flag" consolidation formation late last month, on word of a solid quarterly report and an announcement that the board was reviewing strategic options to enhance shareholder value. Shares jumped again early this month, on chatter that the company might be receiving a formal takeover bid. The price has since been consolidating in a second flag and is ultimately expected to rise from that one as well.

Brokers recommend the issue with one "strong buy," 12 "holds" and two "sells." Analysts see a 32% growth rate through the next year. The WEN Price to Sales ratio (1.42) and Price to Free Cash Flow ratio (14.68) compare favorably with industry, sector and S&P 500 averages.

Institutional investors hold about 95% of the outstanding shares. The stock is one of those used to calculate the S&P 500 Index. Over the past 52 weeks, it has traded between $30.29 and $67.19. A stop-loss of $34.35 looks good here.

Through The Fly's Eyes: Chinese Markets

from Bryan McCormick of Theflyonthewall.com
















What You See, May Not Be What’s Ahead


Chinese market regulators yesterday surprised investors with a 300% increase in the "stamp tax" on shares trading which has had the desired effect overnight of cooling speculation in Chinese stocks. As reported in Bloomberg, the CSI 300 index dropped 6.8% last night, with over half of the shares listed dropping the daily limit down (-10%).

The drop last night was not as severe as the one on February 27th when the CSI 300 dropped 9.2% on the last attempt to curb speculation. That action sparked a global asset sell-off. Most of those losses were recovered, leading to new market highs. Once again with regulators acting, Asian and European shares are down with U.S. futures showing losses.

If this sounds eerily reminiscent of the U.S. stock market bubble of 1999-2000, it probably should. Local stock values in China breached the $2.47T mark this year, with over 100M brokerage accounts reported open. The fund flows into Chinese stocks have been head-turning both on the local level and from overseas, especially from the U.S. The search for returns has led to speculation in a host of emerging markets, and Asia Ex-Japan and China in particular have been major beneficiaries. The iShares Trust FTSE/Xinhua China 25 Fund (FXI) which represents the 25 largest companies in China returned an astounding 76% over the course of trade in 2006.

From our own study of ETF fund flows it is clear that a large-scale momentum process has been under way now for at least 18 months. Trading volumes in the first quarter of this year in some cases equaled the total volumes traded in all of the prior year (see the iShares MSCI Singapore Index (EWS) for an example).

What's wrong with that? Positive money flows, with price and volume rising, are a thing of beauty to investors. However, when momentum breaks in situations where there have been little supporting prices other than excess demand, it becomes problematic. We use the analogy of the "tent folding", a sharp rise in volume and price, sharp drop in volume and price, leaving investors wondering what happened. In China shares in particular, we can look at this issue concretely by looking at trading float volumes.

The number of shares actually available to trade is called the "float." In the case of the iShares Trust FTSE/Xinhua China 25 Fund (FXI), the number of shares traded in a month is over 127% of all the shares available to trade. This is called a "float turn". What high float turns often suggest is that the limited supply of shares is a major factor in shares making dramatic moves upward--or sometimes downward as well when momentum is negative. When investors and traders stop bidding for shares, volumes tend to drop or worse, stay as high on the float turn side, but with prices declining. Eventually, volume interest dries up and prices continue to decline.

The chart of the FXI shown here does not yet have those hallmarks of failed momentum, but we may very well see that if selling continues again overnight. Since there are downside limits in the Chinese markets, there may be more selling pressure to come. Once that is done, we may very well see share volumes decline along with price. The exact degree of spillover into other markets is hard to quantify. But we can say this: Never before have global markets been so closely inter-linked. It’s best to stay defensive in such environments which is something investors have not been doing of late.

Through The Fly's Eyes: Johnson & Johnson

from Theflyonthewall.com







Overlooked Large Cap Pharma Stock


Johnson & Johnson (JNJ), the massive pharmaceutical company, is being mentioned more and more by well-respected fund managers as a stock to own.

Most notably, J&J showed up in Berkshire Hathway’s (BRK.A) recent holdings. As usual there has been little-to-no commentary from the Omaha-based investor as to why he picked up shares in the pharms company.

However, legendary investor, Joe Rosenberg of Loews Corp (LTR), has been more vocal supporting this stock even going as far to say J&J could become a private-equity candidate. J&J is trading at 15.8x 2007 estimated earnings, below that of the S&P 500. Rosenberg believes J&J has a decade of earnings growth ahead and a stock buy back program should drive the stock higher.

J&J’s lower valuation may be punishment by investors for overpaying for recent acquisitions. However, J&J management could be pressured from the mere presences of its well-respected new shareholders’ to be more disciplined with its acquisition strategy.

With smart investors piling into J&J shares, it is time to start buying this stock.

Tuesday, May 29, 2007

Through The Fly's Eyes: Cola-Cola

from Joseph Lazzaro of Theflyonthewall.com















Coke's Catching Up In The Health Drink Segment

Coca-Cola's (KO) $4.1B purchase of Glaceau, a producer of vitamin-enhanced water, may be just the right 'tonic' to propel it shares to a new 52-week high.

In recent years, the iconic U.S. company has had to confront a triple threat, of sorts: the need to lower costs, fend-off relentless competition from rival PepsiCo ( PEP), and address a secular trend away from carbonated beverages and toward non-carbonated / more nutrition-oriented drinks.

Coke had fallen behind its major competitor -- as well as several niche drink companies -- regarding the incorporation of newer-category drinks that appeal to a more-health conscious clientele. That fact, combined with an above-average cost structure, weighed on KO's performance, and Wall Street did not respond favorably: the stock dropped below $40 in the second half of 2004.

But now Coke's acquisition of Glaceau provides another solid data point for Wall Street that KO is making the transition to the non-carbonated drink era.

Investment Category: Coca Cola, which closed Tuesday up 29 cents to $52.18, is a moderate-risk stock not suitable for low-risk investors. KO has the distribution network and products to produce impressive results, but costs must be contained moving forward, for the stock to shine.

Through The Fly's Eyes: Focus Media

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.













Cutting Edge Advertising in China

Success in business is very often a function of innovation. There is a Shanghai firm that understands that principle very well indeed. It has established itself as an advertising powerhouse, with the aid of 200,000 flat panel TVs.

Focus Media Holding (FMCN) operates an advertising network of television displays throughout China. The devices are placed in high-traffic areas, such as office buildings, hotels, airports, retail chain stores and the public areas of residential complexes. The company also operates an advertising network for the Chinese mobile telecommunications market and recently acquired China's largest Internet advertising agency. Clients include Alcatel-Lucent (ALU), Nokia (NOK), Motorola (MOT), Coca-Cola (KO), Yum! Brands (YUM), Procter & Gamble (PG) and General Motors (GM).

The company surprised the Street earlier in the month, when it announced Q1 EPS of 21 cents and revenues of $58.1 million. Analysts had been looking for 19 cents and $55.4 million. Management also guided Q2 EPS to 34-35 cents (34 cent consensus) and Q2 revenues to $103-$107 million ($90.3M consensus). The CEO noted a solid rebound in sales into the second quarter.

The news popped the shares out of a late April/early May "cup" into the late May "handle" of a Cup & Handle formation. The price is now showing signs of completing the pattern with a bullish rise from the right-hand side of the "handle".

Brokers recommend the shares with two "strong buys" and eight "buys". Analysts expect a 42% average annual growth rate, through the next five years. The FMCN Sales Growth rate (75.33%), EPS Growth rate (90.91%), Operating Margin (34.91%), Net Profit Margin (37.84%) and Return on Assets (9.81%) compare favorably with industry, sector and S&P 500 averages.

Institutional investors hold about 44% of the outstanding shares. Over the past 52 weeks, FMCN has traded between $25.42 and $45.45. A stop-loss of $37.25 looks good here.

Through The Fly's Eyes: Stocks (Part 2)

from Theflyonthewall.com










A Plethora of Stock Ideas

Investment ideas were aplenty, following up on our Ira W. Sohn Investment Research Conference blog earlier. Some ideas worth noting are:

  • Bill Miller, despite being wrong on this investment since 1999, believes Eastman Kodak (EK) will turnaround and is worth $45 per. As we have blogged in the past, the new CEO is very close to getting this business model to work, meaning this company could turn into a free cash flow machine.
  • Steve Mandel, formerly of Tiger Management and now running a fund at Lone Pine Capital, likes EMC (EMC), which was up big last week. In addition, he likes other large cap stocks such as General Electric (GE) and Goldman Sachs (GS). He also has has postive comments on Google (GOOG).
  • Wilbur Ross is still pushing his commodities turnaround plays, in particular International Coal Group (ICO). Ross's thinking is as follows: Coal pricing should reach healthy levels as excess inventory is burned off. Coal will account for 57% of U.S. electricity generation, up from 50% today, in the next twenty five years. Appalachian coal, in which ICO is rich, has considerable pricing power since East Coast supply is limited and demand is strong.
The ideas were aplenty with some negative views on MBIA (MBI), betting against subprime mortgage exposure, and St. Joe (JOE), the northwestern Florida real estate company, which is running into some difficulty as the housing market slowdown continues.

Through The Fly's Eyes: Stocks (Part 1)

from Theflyonthewall.com











Top Fund Mangers Congregate

The crème de la crème of portfolio managers met up in New York to exchange investment ideas at the Ira W. Sohn Investment Research Conference last week. Presenters included turnaround expert Wilbur Ross, Joe Rosenberg who has managed money at Loews (LTR) forever, Bill Miller of Legg Mason (LM) and Mason Hawkins, Chairman of Southeastern Asset Management.

Some of the highlights:

  • General theme was favoring large cap over small cap
  • Technology is coming back into favor in addition to healthcare
  • Investors should avoid Asia
Mason Hawkins ended the conference not recommending individual stocks but focusing more on investment advisory prose: have the discipline to say no, be patient and wait for the right opportunity, be willing to stand on your own when no one agrees with you, and take advantage of other peoples fear and greed. That investment advice pretty much follows the thoughts of many of the presenters.

Monday, May 28, 2007

Through The Fly's Eyes: IPO & Syndicate Preview

from Joseph Lazzaro of Theflyonthewall.com













IPO & Syndicate Preview - Week of May 28, 2007

Wall Street's equity market shifts into summer mode - historically a lighter season - with just 3 IPOs on the docket this week.

Those deals tentatively scheduled to price include:


IPOs:

Thursday

Amicus Therapeutics (FOLD), a 5M-share IPO for this gene-based medicine company. Morgan Stanley and Merrill Lynch are the lead managers. Filing range: $14.00-$16.00.

Friday

Jazz Pharmaceuticals (JAZZ), 6M-share IPO for this phamaceutical company. Morgan Stanley and Lehman Brothers are the lead managers. Filing range: $24.00-$26.00.

LDK Solar (LDK), a 17.384M-share IPO for this solar cells company. Morgan Stanley and UBS Investment are the lead managers. Filing range: $25.00-$27.00.

- -

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

Friday, May 25, 2007

Through The Fly's Eyes: Salesforce.com

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.














Saleforce.com: An Alternate Path To Successful Sales

One of the more innovative experiments underway in the software industry involves the rental of online access to business applications. In this regard, there is an outfit in San Francisco that is expanding sales horizons.

Salesforce.com (CRM) provides business clients with on-demand customer relationship management services. Its hosted applications offer a rapidly deployable alternative to buying and maintaining enterprise software. Subscribers use the firm's suite of nearly 600 programs to systematically record business data, manage customer accounts, track sales leads, evaluate marketing campaigns and provide post-sale services. The company's applications are offered in 14 languages and can be accessed from PCs, cellular phones and personal digital assistants. Clients include Electronic Arts (ERTS), Juniper Networks (JNPR), Sprint Nextel (S), Staples (SPLS), Symantec (SYMC) and Time Warner (TWX).

The stock popped recently, on reasonably sanguine analyst responses to last week's quarterly report and on talk that Salesforce.com and Google (GOOG) are discussing an alliance that could help them compete more effectively with Microsoft ( MSFT). Shares popped on the news and then moved into a bullish "flag" consolidation pattern. Prices frequently exit flags 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 eight "strong buys," seven "buys," 12 "holds" and four "sells." Analysts see a 250% growth rate through the next year. The most recent CRM quarterly sales growth rate (55.14%) compares favorably with industry, sector and S&P 500 averages. Institutional investors hold about 66% of the outstanding shares. Over the past 52 weeks, the stock has traded between $21.64 and $50.43. A stop-loss of $38.50 looks good here.

Through The Fly's Eyes: Intuit Inc

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.













Financial Programs We Can All Handle

One of the most satisfying aspects of the computer age is the way it has provided easy and inexpensive access to formerly arcane methods of personal and business finance. One of the oldest providers of the software packages that allow just about anyone to tackle these matters successfully is headquartered in Mountain View, California.

Intuit Inc (INTU) offers tax preparation (TurboTax), finance (Quicken) and accounting (QuickBooks) software for individuals, small businesses and accountants. The firm also sells online banking systems and accounting/management programs specifically applicable to the real estate, tax, construction, healthcare and wholesale industries. Among Intuit's business partnerships are alliances with Microsoft (MSFT), Cigna Corp (CI) and Google (GOOG).

The firm pleased investors last week, when it reported fiscal Q3 EPS of $1.13 and revenues of $1.15 billion. Analysts had been expecting $1.07 and $1.12 billion. Management also guided FY07 EPS to $1.38-$1.40 ($1.35 consensus) and FY07 revenues to $2.685-$2.700 billion ($2.66B consensus). Further, it announced a new stock repurchase program involving up to $800 million over the next three years.

The INTU price popped on the news and then moved into a bullish "flag" consolidation pattern. Prices frequently exit flags 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 six "strong buys," three "buys," four "holds" and two "sells." Analysts see a 15% average annual growth rate, through the next five years. The INTU Price to Free Cash Flow ratio (17.41), Operating Margin (24.20%) and Return on Equity (24.11%) compare favorably with industry, sector and S&P 500 averages.

Institutional investors hold about 87% of the outstanding shares. The stock is one of those used to calculate the S&P 500 Index. Over the past 52 weeks, it has traded between $25.50 and $35.98. A stop-loss of $26.75 looks good here.

Through The Fly's Eyes: Rumor Mill

from Tedd Cohen of Theflyonthewall.com











Rumor Round-up

Heading to Memorial Day, there’s certainly no moratorium on the number of talked about potential deals. Receiving a fair amount of attention over the last few days include the companies below. There’s more, of course, but hey, it’s a three-day weekend.

LAM RESEARCH (LRCX)

This supplier of tools that makes microchips keeps seeing its stock move up. Up about 13% over the last few months. And it may be more than speculation that it will soon be acquired. Investors looking for a deal are snapping up equity calls, some are then selling them, and keeping both eyes on the stock price. Others are looking out to see which private equity firms or “strategic” buyers come calling.

AMDOCS (DOX)

As Alltel (AT) goes, so goes Amdocs? Well, not quite. Yes the Alltel sale has pushed Amdocs’ stock upward. Some say this maker of software products for telecom services firms may want to continue to go forward by themselves. But that hasn’t stopped that list of potential buyers from being passed around. Best bet: IBM (IBM).

CIRCUIT CITY (CC)

Again, here we go: Is it going to take a buyout? (Read: private equity buyer.) Or a miracle? (Read: new management) There are profit warnings. (Read: red flags everywhere) The stock is in miserable shape. (Read: cheap) Tough competition. (Read: Wal-Mart (WMT)). Think there’s a book to be written about all of this? (Read: who’d want to?).

APPLEBEE'S (APPB)

Food for thought. Kangaroo Holdings wants to buy OSI Restaurant Partners (OSI). Not surprisingly, Applebee’s stock goes up. Are they cooking up a sale price for themselves as they “evaluate” offers? You betcha.

PALM (PALM)


Going, going…almost gone. Even we’re beginning to tire of this one. But it never gets old if you like to watch. Now, they’re canceling conferences. The CEO is selling shares. The CFO has a bad back. Come on! The latest product review - Palm Treo 755p - is terrible. Market share is going down the tubes. R&D? Forgetaboutit. Sound like a company on the go? Right. Right into someone else’s lap. And to think what they once were. Great job all around, everybody.

Through The Fly's Eyes: A Quick Look Ahead

from Eric Buscemi of Theflyonthewall.com












Highlights For Next Week

Here is a quick look at this upcoming holiday shortened week.

Monday May 28

* Markets closed for Memorial Day holiday.

Tuesday May 29

* Cisco (CSCO) to hold webcast at 4:30pm to discuss newly announced Mobility Solutions.
* Verifone Holdings (PAY) to report Q2 earnings; conference call at 4:30pm.
* BMC Software (BMC) to report Q4 earnings; conference call at 5pm.

Wednesday May 30

* Polo Ralph Lauren Corporation (RL) to report Q4 earnings; conference call at 9am.
* ExxonMobil (XOM) to hold shareholders meeting at 10am.

Thursday May 31

* Tiffany & Co. (TIF) to report Q1 earnings; conference call at 8:30am.
* Costco (COST) to report Q3 earnings; conference call at 11am.
* Dell Inc (DELL) to report Q1 earnings after market close.
* Novellus (NVLS) to hold mid-quarter update conference call at 4:30pm.

Friday June 1

* Weyerhauser (WY) to hold analyst meeting at 9am.

Thursday, May 24, 2007

Through The Fly's Eyes: AES Corp

from Theflyonthewall.com







Solid Results; Long-term Guidance Update Tomorrow


Last night, The AES Corporation (AES) released 2006 adjusted EPS results of $1.14 and provided 2007 guidance roughly in-line with expectations.

AES owns power plants in many of the emerging markets around the world. The AES story is somewhat simple: If an emerging market wants to participate in the global economy, it needs power plants. AES' expertise is in building, owning, financing and operating these facilities for these high-growth markets.

Tomorrow, AES will host a conference call and provide guidance through 2011, so this will be a big area of focus. This stock tends to move with long-term guidance and announcements of large power projects. It is required listening for those interested in making money in the global power producing business.

Through The Fly's Eyes: Unum Group

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.













The Disability Insurance Specialists

Comprehensive insurance coverage involves disability income protection, as well as life and hospitalization considerations. There is a Chattanooga firm that is a particular specialist in that vital disability arena.

Unum Group (UNM) is the largest provider of group and individual disability income protection insurance in the United States and the United Kingdom. The firm also has a portfolio of other products, including long-term care insurance, life insurance, employer and employee-paid group benefits, and disability management services. Unum helps protect more than 25 million working people and their families. Competitors include Aetna (AET), Aflac (AFL), American International Group (AIG) and Cigna (CI).

The firm pleased investors earlier in the month, when it reported Q1 EPS of 50 cents (ex-items). Analysts had been expecting 45 cents. Management also guided FY07 EPS to $1.91-$1.95, versus consensus of $1.86. The CEO noted that he was particularly encouraged by continued improvement in the group income protection line of business. Shares popped on the news and subsequently moved into a bullish "pennant" consolidation pattern. Prices 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," six "holds" and five "sells." The UNM Price to Sales ratio (0.89), Price to Book ratio (1.27), Price to Free Cash Flow ratio (6.94), EPS Growth rate (21.95%) and Revenue per Employee ($949.17k) compare favorably with industry, sector and S&P 500 averages.

Institutional investors hold about 95% of the outstanding shares. The stock is one of those used to calculate the S&P 500 Index. Over the past 52 weeks, it has traded between $16.15 and $28.20. A stop-loss of $23.60 looks good here.

Through The Fly's Eyes: Global Crossing

from Theflyonthewall.com





Mixed Signals

Global Crossing (GLBC), the international telecommunications company, has gotten hit recently due to weak results reported earlier this month. The stock has dropped from a recent high of $30 to $22.47.

The recent quarterly results raise a number of concerns. Global's organic revenue growth is tough to measure since it is being masked by acquisitions. Also, it appears to be going after lower margin business from governments, historically not a good sign for a stock in this industry. Further, expenses are higher than expected and the company appears to be getting into a habit of continually reporting one-time charges, also not a good sign for investors.

The positive: the company owns and continues to buy quality assets in a high-growth industry. At some point in time, they will be in high demand by a larger acquirer. Supposedly, there is an easy $100 to $200 million in annual cost synergies that can be found especially around access costs. A service provider with a broadly installed access base, could substantially lower costs.

A recent analyst report said Global could be worth $30 to as much as $40 per share in a take out. It is worth a shot. The stock has gotten hit hard and the collection of an international asset base consisting of an IP network and data centers would be an attractive take out target in the next two to three years.

Through The Fly's Eyes: Manitowoc Corp.

Andrew Corn is a contributing editor for Theflyonthewall.com and the CEO of Clear Asset Management.










Multifaceted Growth –- The Long Case for MTW

Today we are looking at another interesting stock in the Clear Mid Cap Growth Index which is licensed for the Claymore issued ETF (MCG). The Wisconsin-based Manitowoc Corp. (MTW) is also a holding in the Clear Mid Cap Growth portfolio which is active managed. MTW operates in three unique business segments. It is a manufacturer of cranes and related products, equipment for the food services industry and marine vessels.

Founded in 1902, the company has been able to grow to a market capitalization of over $4.5 billion. Its growth expanded from its original operations of ship building, extending to building cranes in 1925, and foodservice equipment after WWII. A part of American history, MTW was a pioneer in the steel industry and contributed to the boom of the last century. It has since been focusing on growing as a global corporation, with current operations in over 20 countries. The company builds a variety of different crane products that are used in applications that include petrochemical projects, infrastructure development, and commercial and high-rise residential construction. The food service division concentrates on ice-making machines as well as a variety of commercial refrigerators and freezers. Not dismissing its original business, the marine division, has grown to construct commercial and government vessels through three shipyards.

With the growth in demand of both steel and building equipment particularly in the Middle East and the Asia-Pacific Rim, MTW is set on expanding its business. Aside from growing globally, it has been also focused on developing its domestic contracts. Last year, it was awarded a multi-year contract with the U.S. Coast Guard for the construction and delivery of up to 250 vessels for a total contract value of up to $600 million. Earlier this year, the company acquired a line of mobile industrial cranes, strengthening its position in industrial building.

MTW fundamentals have benefited from its successful history and recent expansion, with a quarterly year-over-year revenue growth of 36.20% compared to the industry average of 14.20%. At the same time, the company was able to amass a trailing twelve month net income of over $200 million. Profitability has also kept slightly above pace, with MTW operating margins of 10.99% which is above the 9.61% industry average. More impressive is its 28.20% return on equity (ROE), outperforming its peer group average of 13.10%.

For many investors MTW may seem at first glance to be slightly overvalued based on its price to earnings (P/E) ratio of 23.73 compared to an industry average of 21.60. With closer examination and by factoring the additional calculation of earnings growth produces a price to earnings to growth (PEG) ratio of 0.87, far besting the industry average of 1.43. Its sound business performance, as evidenced in recent news and fundamental data, indicates room for further positive price movement.

Disclosure: Mr. Corn is CEO of Clear Indexes LLC and Clear Asset Management LLC. Manitowoc Corp. (MTW) is a constituent in the Clear Mid Cap Growth Index licensed for the ETF (MCG). It is also a holding in the Clear Mid Cap Growth portfolio. Mr. Corn owns shares of the ETF MCG and shares of MTW directly through his participation in the portfolio.

Recognition: this along with many other company researched posts has been accomplished with the tireless aid and focused research of Arthur Getman.

Through The Fly's Eyes: Macrovision Corporation

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.













Guarding Your Digital Content

The profits of many firms are increasingly dependent on the security of proprietary digital content. An outfit in Santa Clara, California is among the better known providers of digital life-cycle management solutions.

Macrovision Corporation (MVSN) provides anti-piracy and content protection technologies, digital rights management products and embedded licensing technologies that enable firms to protect, enhance and distribute digital content. The company's copyright protection and video scrambling methods are used by commercial videocassette duplicators, music labels, software companies, set-top decoder manufacturers and the major motion picture studios. Clients include 3M Corporation (MMM), Broadcom (BRCM), Cisco Systems (CSCO), Eastman Kodak (EK), Electronic Arts (ERTS), Motorola (MOT) and Nokia (NOK).

The firm pleased investors earlier in the month, when it announced Q1 EPS of 27 cents and revenues of $65.2 million. Analysts had been looking for 23 cents and $65.1 million. Management also guided Q2 EPS to 24-27 cents (26 cent consensus), Q2 revenues to $65-$68 million ($67.3M consensus), FY07 EPS to $1.25-$1.35 ($1.27 consensus) and FY07 revenues to $280-$290 million ($287.8M consensus). Jefferies subsequently upgraded the shares to "buy" and boosted its price target to $31. The MVSN price popped on the news and then moved into a bullish "pennant" consolidation pattern. Prices 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 five "strong buys" and six "buys." Analysts see a 21% growth rate, through the next year. The MVSN Price to Book ratio (2.84), Price to Free Cash Flow ratio (18.18) and EPS Growth rate (127.72%) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 95% of the outstanding shares. The stock is one of those used to calculate the S&P 400 MidCap Index. Over the past 52 weeks, it has traded between $18.84 and $29.20. A stop-loss of $23.60 looks good here.

Wednesday, May 23, 2007

Through The Fly's Eyes: Toll Brothers

from Joseph Lazzaro of Theflyonthewall.com




















Toll Brothers' Q2 Seen Confirming Continued Housing Sluggishness

Wall Street will receive another data point on the housing sector when Toll Brothers (TOL) reports Thursday May 24.

In Wall Street's Concrete Canyon, the vortex for the world's capital, the phrase used when an earnings report is expected to show poor or otherwise unpleasant results is: "Not for the squeamish."

Therefore, forewarned is forearmed: Toll Brothers' report is expected to be "not for the squeamish" -- TOL is expected to report a substantial Q2 revenue decline to $1.19 billion and a substantial Q2 EPS decline to 14 cents, according to analysts surveyed by Reuters.

Wall Street has lowered the bar for TOL this quarter as, in general, analysts expect TOL's report to show signs of continued sluggishness in new home sales. The Street is divided regarding the housing sector's recovery timetable, with some seeing recovery late in 2007, and others not seeing an upturn until well into 2008.

Don't worry: If the report comes in to the contrary, we'll be here at the
The Fly to hear your comments and/or criticisms.

Analysts will pay particular attention to TOL's new housing demand in Florida, Arizona, California, and Texas, including write-downs, and inventory levels.



Through The Fly's Eyes: Stanley Inc

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.













Government IT Specialists

When you want to be a successful government consultant, you have to understand the government's ways. There is an information technology outfit in Arlington, Virginia that has the inside track that way. It was founded by an admiral and works for the Departments of Defense, Transportation, Homeland Security, Justice and State.

Stanley Inc. (SXE) provides information technology services and solutions to U.S. defense and federal civilian government agencies. The firm offers its customers systems integration solutions and expertise in support of their needs at any stage of program, product development or business lifecycle. Services involve systems engineering, enterprise integration, operational logistics, business process outsourcing and advanced engineering. The company employs more than 2,700 and operates at over 100 locations worldwide.

Stanley pleased investors last week, when it announced fiscal Q4 EPS of 20 cents and revenues of $116.6 million. Analysts had been expecting 18 cents and $102.55 million. Management also guided Q1 EPS to 19-21 cents (18 cent consensus), Q1 revenues to $120-$125 million ($107.19M consensus), FY08 EPS to 79-85 cents (83 cent consensus) and FY08 revenues to $480-$500 million ($450.50M consensus). Wachovia and Stifel Nicolaus subsequently declared the stock a "buy" and the later boosted its price target to $22.


SXE shares popped on the news and then moved into the initial stages of a bullish "flag" consolidation pattern. Prices frequently exit flags 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 eight "strong buys" and one "buy". Analysts see a 21 percent growth rate, through the next year. The SXE Price to Sales ratio (0.98), Price to Book ratio (2.76), Price to Free Cash Flow ratio (25.20), Sales Growth rate (38.48%) and EPS Growth rate (0.20 vs 0.00 yr/yr) compare favorably with industry, sector and S&P 500 averages.

Institutional investors hold about 65% of the outstanding shares. Since going public last October, the stock has traded between $13.41 and $18.24. A stop-loss of $14.85 looks good here.

Through The Fly's Eyes: Buyout Bubble?

from Theflyonthewall.com











Buyout Bubble: Getting There, But Not Yet

Defining periods of irrational exuberance, can be difficult. However, one method to do so might simply be to look at the headlines. Here are this morning's:

  • Crescent Real Estate Equities to be purchased by Morgan Stanley Real Estate
  • Payless ShoeSource to acquire Stride Rite
  • Dow Jones controlling shareholders, the Bancroft family, meeting to review News Corp offer
  • Sallie Mae making management changes for its take-private transaction
  • Alcan rejects Alcoa's $27 billion offer as inadequate
  • MGM Mirage approach by Kirk Kerkorian's Tracinda Corp requires delicate strategy
The headlines are not too different from the 1980's LBO boom when virtually every headline would be associated with a hostile buyout of some sort. Are we approaching the end of the buyout binge? Most likely not. These periods can last for years.

This buyout boom has been fueled by a number of factors with the most important being stocks were and, in many cases remain, too cheap. In the post tech-telecom bubble of the 1990s, investors went into a cocoon while US company management continued to grow earnings and increase returns on investment.

What will end this buyout boom? My bet is a massive bull market which pushes valuations out of the radar screen for private equity.

Tuesday, May 22, 2007

Through The Fly's Eyes: Perini

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.













Perini: Handling Big Construction

When you want to build a house, you look in the phone book for a local contractor. When you want to build a stylish facility, the list of firms that can help you is a short one. There is a 113-year old outfit in Framingham, Massachusetts that invariably occupies a position near the top of the list.

Perini Corporation (PCR) is a leading construction services company offering diversified general contracting, construction management and design/build services to private clients and public agencies worldwide. The firm is well known for its casino and hotel projects, but is also active in the design and construction of schools, health care facilities, entertainment facilities and sports complexes. Its civil division builds and maintains highways, subways, and airports. Clients
include Harrah's Entertainment (HET), Hilton Hotels (HLT), Marriott International (MAR), Sears Holdings (SHLD), Honeywell International (HON), American Express (AXP) and Alcatel-Lucent (ALU).

The company surprised the Street earlier in the month, when it reported Q1 EPS of 84 cents and revenues of $987.4 million. Analysts had been expecting 58 cents and $947.2 million. Management also guided FY07 EPS to $2.40-2.60 ($2.17 consensus) and FY07 revenues to $4.0-4.2 billion ($3.98B consensus). The COO cited a near-record backlog of $8.6 billion for the favorable outlook.

Shares popped on the news and subsequently moved into a bullish "pennant" consolidation pattern. Prices 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 one "strong buy" and three "holds". Analysts see a 70 percent growth rate this year. The PCR PEG ratio (1.65), Price to Sales ratio (0.39), Price to Free Cash Flow ratio (8.10), Sales Growth rate (61.13%), EPS Growth rate (180.00%), Return on Investment (19.02%) and Return on Equity (24.12%) compare favorably with industry, sector and S&P 500 averages.

Institutional investors hold about 85% of the outstanding shares. Over the past 52 weeks, the stock has traded between $19.80 and $51.97. A stop-loss of $43.65 looks good here.

Through The Fly's Eyes: Intel Corp

from Theflyonthewall.com











Aggressive Buying Required

In April, we blogged twice that investors should start chipping away at the chip giant. However, it appears investors should become more aggressive as both sentiment and fundamentals are changing for the positive at Intel (INTC).

According to a report released by Citigroup’s Glen Yeung, Intel is "likely to substantially accelerate” its share repurchase program in coming months. Historically, Intel has picked up its share repurchase program when earnings are about to re-accelerate.

Intel repurchased a measly $400 million worth of stock in 1Q, but has $16.9 billion to go on its current repurchase program, according to Yeung.

We blogged in April that Intel was washed out, with not too many sellers remaining. In addition, it appeared gross margin expansion was on the horizon, another bullish sign for the stock. It is time to go from chipping away at Intel's stock and loading the truck up with the Santa Clara-based company. Intel has seriously wounded its nearest competitor AMD, once again, which means Intel has room to increase prices, margins and profits.

Through The Fly's Eyes: Equifax

from Joseph Lazzaro of Theflyonthewall.com





















Equifax: Credit Score Nation, Credit Score World

The dawn of the globalization era has witnessed dozens of new sectors of growth, due to the robust growth in emerging market economies in China, India, Eastern Europe and Russia, among other locales.

And one sector that is almost certain to benefit from this growth -- due to the accompanying expansion of the middle class -- is credit reporting/credit information, which is why investors who can tolerate moderate risk may want to consider investing in Equifax (EFX).

(Note: In a future article on The Fly, we'll examine in more detail the expanding universe of credit score and credit report functions.)

Equifax, which was down 10 cents to $41.40 in Tuesday afternoon trading, is one of the main providers of consumer and commercial credit information, the others being TransUnion and Experian. The three form a "credit-worthy troica" that calculates, arguably, the most important score/number for each U.S. citizen, after his/her Social Security number and benefit tabulation.


Credit scores from the three, or the "tri-merged" score, have long been used in mortgage decisions to help determine a candidate's credit worthiness and payment reliability, but in recent years employers have increasingly used them to evaluate a candidate's employment history, and other information that may help fill-out the profile of a job applicant.

More recently, a micro market has developed for the three credit agencies in identity theft protection.Further, Equifax is well-positioned to benefit from growth in the above business lines. In addition, EFX should be able to leverage its current presence in the U.K., Spain, Portugal, Brazil, Argentina, and Chile to establish a footprint in the embryonic markets of Eastern Europe and Latin America. Also, as noted credit scores are important barometers in the U.S., and there's evidence to suggest that as emerging markets develop, the scores are attaining that category of importance in these new economies, as well.

One operational concern moving forward: slowing growth from EFX's North American market, its most important. However, as the housing sector slowly recovers, so should this revenue stream. The Reuters Q2 consensus estimate for EFX is revenue $421.8M and EPS 54 cents.

Through The Fly's Eyes: CommVault Systems

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.













Maximizing the Efficiency of Database Management

As firms become increasingly dependent on efficient and secure access to enterprise data, the advantages of a unified architectural approach to database management become increasingly apparent. There is an outfit in Oceanport, New Jersey noted for the degree to which its systems employ that approach.

CommVault Systems (CVLT) provides data management software and related services. Its unified suite of applications is used for enterprise-wide data migration, backup, archiving, data replication and disaster recovery. The firm serves customers in manufacturing, financial services, health care, transportation and the public sector. It has strategic partnerships with Dell (DELL), Hewlett-Packard (HPQ), Hitachi (HIT), Microsoft (MSFT), Network Appliance (NTAP), Novell (NOVL) and Oracle (ORCL).

The firm pleased investors last week, when it announced fiscal Q4 EPS of 14 cents and revenues of $42.6 million. Analysts had been expecting 12 cents and $42.0 million. Management also guided FY08 EPS to 55-57 cents (56 cent consensus) and FY08 revenues to $191-$193 million ($191.19M consensus). In discussing the solid quarterly results and favorable outlook, the CEO noted that the company is seeing broader deployment of its full suite of products across a broader spectrum of deal sizes. CVLT shares popped on the news and subsequently moved into the initial stages of a bullish "flag" consolidation pattern. Prices frequently exit flags 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 three "strong buys," four "buys" and two "holds." Analysts see a 27% growth rate, through the next year. The CVLT Sales Growth rate (31.48%), Return on Assets (18.77%) and Return on Investment (55.11%) compare favorably with industry, sector and S&P 500 averages.

Institutional investors hold about 73% of the outstanding shares. Since going public last September, the stock has traded between $14.74 and $20.85. A stop-loss of $14.80 looks good here.

Through The Fly's Eyes: Vocus Inc

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.













Web-style Public Relations

In an age of real-time communications, some traditional public relations methods are being put aside in favor of internet-enabled approaches. A Lanham, Maryland outfit is among those expanding the frontiers along that line.

Vocus Inc. (VOCS) provides on-demand software for public relations management. The company's programs address such functions as media relations, news distribution, news monitoring and analysis. Its government relations software offers state and federal legislative contact lists and lobbying analysis tools. The service is delivered as an annual subscription, with no need for internal hardware, software or IT support. Vocus is used by over 1,800 not-for-profit, corporate, government and public relations organizations worldwide and is available in five languages. Clients include Southwest Airlines (LUV), Goodwill Industries and the Humane Society of the United States. The firm has established partnerships with Google (GOOG) and Microsoft (MSFT).

Vocus had good news for investors earlier in the month, when it reported EPS of 11 cents and revenues of $12.6 million. Analysts had been looking for 7 cents and $12.3 million. Management also guided Q2 EPS to 8-9 cents (8 cent consensus), Q2 revenues to $13.3-13.5 million ($13.24M consensus), FY07 EPS to 41-43 cents (39 cent consensus) and FY07 revenues to $55.3-55.9 million ($55.42M consensus).

The news kept VOCS shares cycling through a positive seven-week trading channel. The price is currently consolidating at the base of that channel, where oversold Stochastic, Momentum, MACD and CCI technical parameters suggest the potential for a rise back toward the top. The approximate correspondence of the stock's 50-day moving average to the base of the channel backs the rebound notion.

Brokers recommend the shares with three "strong buys", three "buys" and one "hold". Analysts see a 33% growth rate, through the next year. The VOCS Sales Growth rate (52.47%) and EPS Growth rate (100.99%) compare favorably with industry, sector and S&P 500 averages.

Institutional investors hold about 55% of the outstanding shares. Over the past 52 weeks, the stock has traded between $12.01 and $27.07. A stop-loss of $20.80 looks good here.

Through The Fly's Eyes: Lowe's Companies

from Theflyonthewall.com









Quality Company; Good Valuation

Lowe's Companies (LOW), the number two home improvement retailer, yesterday reported weak results, as one would expect considering the downturn in new construction and home remodeling markets. However, it appears year-over-year comparisons will begin to improve in the second half of the year, as the most difficult results anniversary.

Despite growth difficulties at its larger competitor, Home Depot (HD), Lowe's continues to grow EPS and is now selling for only 13.2x next year's earnings. In addition, its return on assets is 11%, ranking it in the top quartile of the S&P 500.

Same stores sales were down 6.3 versus a 5.7 gain last year. Lowe's is guiding towards a better second half of 2007, which should lead to some support for the stock.

When all is said, Lowe's is strong a company that is becoming quite cheap. As economic data continues to accumulate showing the US economy is weakening, the Fed will drop rates and both Lowe's and Home Depot's stocks will be off to the races. Get into home improvement stocks, they are set to improve your portfolio's performance.

Monday, May 21, 2007

Through The Fly's Eyes: China

from Theflyonthewall.com














Hikes Interest Rates, Higher Reserve Requirements, Stronger Currency

China is now taking a sledgehammer to its economy in an attempt to slowdown growth. On Friday, China officials announced it was hiking short-term rates, increasing the required reserves banks maintain on loans and increasing the band on its currency to let it further appreciate. All powerful tools to halt money supply growth.

These steps follow news reports this week that one of China's more respected entrepreneurs said the Chinese stock market is a bubble. We blogged a few weeks back that Chinese retail investors opened more than one million stock trading accounts in one week and over 10 million the last four months —- greater than the previous four years combined.

Currency appreciation during the short-term always adds more fuel to the fire. As Chinese investors expect the yuan to appreciate, they will convert their massive hoard of US dollars to yuan and then most likely look for additional profits in the stock market. This always ends ugly when the central back finally succeeds at sucking enough money out of the economy and then the market will have a serious correction.

Stay away from Chinese stocks. China hosts the Olympics in 2008 and does not want a bubble economy when the world shows up. Stick with the mature economies for now.

Through The Fly's Eyes: Drug Stocks

from Theflyonthewall.com











Down-and-Out Drug Stocks

Two down-and-out pharmaceutical stocks deserve some attention according to Dreman Asset Management's Cliff Hoover, the heir apparent to the firm's founder David Dreman.

In Barron's portfolio manager interview this weekend, Hoover mentioned Amgen (AMGN) is transforming itself into a Big Pharma company. Amgen should be able to grow 8% to 10% per year and its R&D is double that of other Big Pharma companies. However, the stock has gotten hit due to anticipated slower growth and concerns that its anti-anemia drug reimbursement rates may be somewhat restricted by Medicare. However, the company has five years before biogenerics could come to market and by then the company should be able to bring some quality new products to market with its massive R&D budget.

Hoover also likes Pfizer (PFE) with his argument being not too different than his bullish stance on Amgen -- the company is cheap and should be able to come up with new drugs with its massive R&D budget. However, many of it big blockbuster drugs are just coming off patent.

Hoover has a price target of $34 for Pfizer up from $27 currently, not a bad return. His target on Amgen is $70 versus its $54 trading price. Dreman Asset Management has an excellent track record at picking up big-name companies when their businesses are in dire straits. These two stocks are having a difficult time but could make some good money on a turn around.

Through The Fly's Eyes: The Markets

Andrew Corn is a contributing editor for Theflyonthewall.com and the CEO of Clear Asset Management.












Gloom and Doom, or the Usual Bumpy Ride?

There are a few things we can be certain about in the markets. They do not go straight in any direction and we will experience good and bad markets in each decade. How high and low the markets will fluctuate are just some of the things that we do not know.

According to the press, the subprime lending market is in shambles. Their question: will it destroy the banking industry or just the mortgage industry? The press also questions if the hedge funds will ride in and save the industry while pocketing all of the winnings for themselves. The answer is probably any of these scenarios could take place at one place and time or another. Its influence on the overall equity market has been minimal to date.

Two of the common predictions made in the press earlier this year were: 2007 is the year that large cap stocks will dominate market gains, and corporate earnings increases are now going to be only two to three percent. Despite the surge in the Dow, mid cap stocks have strongly outperformed large caps. Part of the issue of the common misconception is the way the Dow is calculated which I covered last week in a blog post available at http://www.clearamideas.com/clearam_ideas/2007/05/indexes_is_the_.html.

The second myth that is not holding true is that corporate earnings are in the lower single digits. True they are not growing at the record pace set last year, but they are very far from disappointing, especially after the far lower expectations that Wall Street analysts set up for us. In retrospect, it seems that a surprise to the upside was almost inevitable. Companies in the S&P 500 Index through May 11 reported an average earnings gain of 13% in the quarter, according to data compiled by Bloomberg making it the 19th straight quarter in the period ended March 31 of double digit gains. The last time growth was less than 10% was the second quarter of 2002. Jeff Sommer published a piece in the NY Times last week with some other great statistics.

The numbers tell the story. By the end of this week the vast majority of the companies in the Standard & Poor's 500-stock index will have reported their earnings. And so far, overall results have been terrific - especially when compared with the consensus expectations on Wall Street.

With 89 percent of S.& P. 500 reports in hand, Thomson Financial calculated that earnings in the first quarter were running 10 percent higher than in the same period a year earlier - a number in line with the kind of double-digit increases investors have taken as their birthright during this long bull market.

What's more, about two-thirds of companies have treated investors to positive earnings surprises for the first quarter.
For now the prospects of companies in the U.S. markets continues to look good. Last week China opened it doors on the outbound lane allowing investments by banks overseas. Yesterday, the Chinese government announced a $3 billion investment in The Blackstone Group, its first investment from the massive war cheat of foreign exchange reserves into a company. It is willing to do this huge investment with no voting rights. This investment is right smack in the heart of the US investment world. We look at that as a vote of confidence and stability in the United States. Despite the lack of confidence in the current administration, our continued occupation of Iraq, rising energy prices, trade imbalance and the falling dollar, the Chinese government is making its first, and a material investment here.

There are always many reasons to see the glass half empty. It is good to see some real verified numbers here and investment coming from abroad. Taken together, they demonstrate that the glass just may be half full.