Daily Archives: December 15, 2006

US Stock Market Wrap (DEC 15, 2006)

DJIA    12,445.52; Up 28.76 (0.23%)
NASDAQ    2,457.20; Up 3.35 (0.14%)
S&P500    1,427.08; Up 1.59 (0.11%)
10YR-Bond    4.597%; Up 0.002
NYSE Volume    3,125,581,000
NASD Volume    2,279,242,000

Investors who were worried that inflation would derail the rally got to rest easy today after CPI came out FLAT.

Time Warner (TWX) rose again up 0.2% to $21.70 after the company made 2 seprarate media purchases, although it had been up over 1% earlier.

Home Depot (HD) fell 0.2% to $39.89 despite announcing a rapid $3 Billion share buyback plan.

Oracle (ORCL) fell 1.9% to $17.68 after it was cut to Neutral at First Albany.

Sirius (SIRI) rose 2.9% to $3.90 at the end of the day on hopes of a merger but no news was on teh tape.

International Fight League (IFLI) rose a shocking  after CNBC featured the "Fight Club" stock after it already ran up on a 60 Minutes tout.

GE (GE) rose 3% to $37.36 to new year highs ahead of its ex-dividend date and on hopes it would get an LBO for its plastics unit.

Black & Decker (BDK) fell almost 10% to $78.26 after an earnings warning.

Illinois Tool (ITW) fell 2.3% to $46.80 after disappointed guidance.

Adobe (ADBE) rose 4.9% to $42.81 after beating earnings and giving strong guidance; it rose to a new high close for recent years, proving it isn’t stucco.

E*Trade (ET) rose 1.9% to $23.19 after announcing it was going to delist from the NYSE to go back to NASDAQ listing.

Dell (DELL) fell 1.25% to $26.53 after delaying its quarterly filing over its SEC inquiry.

Jon C. Ogg
December 15, 2006

Posted on: December 15, 2006 – 4:11 pm in Market Close

This Week on StockHouse December 11 to 15

A week on StockHouse in five minutes or less

Everyone wants their 60 seconds (or more) of fame. StockHouse users seeking the adulation of their peers should check out the Publisher’s Notebook for a list of dos and don’ts (http://www.stockhouse.ca/shfn/editorial.asp?edtID=19090).

Investments in junior mining companies can be akin to speculation, according to Danny Deadlock, but the recent E. coli (http://www.stockhouse.ca/shfn/article.asp?edtID=19085) outbreak traced to green onions served at Taco Bell could put a certain biotech firm on more sure footing. To remove a portion of the speculation from your junior resource investments, Resourcex editor Doug Hadfield suggests investors spend their holidays cozying up with a stack of company technical reports (http://www.stockhouse.ca/shfn/article.asp?edtID=19094).

Another red flag (http://www.stockhouse.ca/shfn/article.asp?edtID=19098 ) for investors is when a company is forced to de-list from an exchange, says the Securities Sleuth.

Make an investment in your children’s futures (http://www.stockhouse.ca/shfn/editorial.asp?edtID=19108), says Financially Fit columnist Nancy Zambell, by giving them a start in stock investing.

And John De Goey takes on advisor advice (http://www.stockhouse.ca/shfn/editorial.asp?edtID=19109) in his weekly STANDUP Advice feature.

In the third installment of a new series, James Young of the Canadian Society of Technical Analysis, offers instruction about how to choose entry and exit points using two simple moving averages (http://www.stockhouse.ca/shfn/article.asp?edtID=19105 ).

David Galland at the Casey Files warns that entitlement programs are unsustainable as 78 million baby boomers head toward retirement. http://www.stockhouse.ca/shfn/editorial.asp?edtID=19087

The hot money always finds a source of low-cost financing somewhere on the globe, said Steven Saville. And much of this global liquidity (http://www.stockhouse.ca/shfn/article.asp?edtID=19096 ) rests on moves by the Bank of Japan.

From our friends at

24/7 Wall Street

, the IPO Digest (http://www.stockhouse.ca/shfn/editorial.asp?edtID=19097 ) is a rapid-fire rundown listing the long line of companies chomping at the bit to get to market before 2006 is history.

Shares of Medivation (AMEX: MDV) have moved so quickly that investors might want to ease off the gas. Micro-cap Spotlight details the spectacular rise of this biotech company (http://www.stockhouse.ca/shfn/editorial.asp?edtID=19091).

Takeover rumours (http://www.stockhouse.ca/shfn/editorial.asp?edtID=19111) have pushed the UBS (TSX: V.UBS) and Look Communications (TSX: V.LOK) shares sharply higher. Venture Friday columnist Don Whiteley looks for fire underneath all the smoke.

The granddaddy of all

Saudi Arabia

’s oilfields may be running dry (http://www.stockhouse.ca/shfn/article.asp?edtID=19104) says Luke Burgess. The Pure Energy columnist forecasts much higher energy costs and some thing “much worse” than a recession.

Want a quick look at what’s hot at StockHouse? Check out the Top Five (http://www.stockhouse.ca/shfn/article.asp?edtID=19092) assembled by Sean Mason and Keri Korteling.

Posted on: December 15, 2006 – 3:39 pm in International Markets

Newpark Resources (NR) – Read the Article Not the Chart

Submitted by CrossProfit

It is amazing how many investors glance at charts in articles and don’t bother to read the text. What at first glance appeared to be a Motley Fool pump for NR in the chart of this article(http://www.fool.com/news/commentary/2006/commentary06120723.htm) is actually a due diligence advisory.

Read the text: “And Robert Olstein owns shares of Newpark Resources. While these are things to like about each of these stocks, it should be said, and so I’m saying it, that these are not recommendations. Instead, they’re ideas that CAPS has generated, which I’m offering up in the name of further research.”

NR is trading at a PE of 36+ compared with 19 for the rest of its peer group. Even if somehow NR manages spectacular Q4 earnings of $0.20 per share (instead of $0.09) this would still yield a PE of 23. In other words if NR beats the street consensus by 110% it is still trading at a premium to its peers! The Yahoo Finance forward PE of 14.5 is a typo.

NR is up – not down – over 15% since the Fool article appeared! You would think that investors would know how to read.

Disclosure: CrossProfit associates have profited from short positions in NR in the recent past and may open new positions today.

http://www.crossprofit.com

Posted on: December 15, 2006 – 3:11 pm in Technical Analysis

Cramer Keys in on Altria & AIG

Cramer was out saying earlier today that Altria (MO) and AIG (AIG) are both buys here.
Equity investors have forgotten the power of the bond market, and they need to note that companies who win in bonds have been good stocks.

AIG was noted as a cheap stock and it is his favorite stock that tends to act "like one giant bond" and it has gone from $65 to $72 and even though Hank Greenberg has been selling, it has the most going for it out of insurers and it is the cheapest in the group.  Altria (MO) is only up 13% this year and it is a buy according to Cramer, going higher.

He still likes oils on pullbacks and he is buying Transocean (RIG) in oil drilling and services.

Black & Decker (BDK) has had no overall real impact on the group of stocks that are housing related, same went for Best Buy (BBY).  Cramer end by saying that technology is terriffic and oil you should buy on pullbacks.

Jon C. Ogg
December 15, 2006

Posted on: December 15, 2006 – 1:33 pm in Cramer

Why Oh YRC?

By William Trent, CFA of Stock Market Beat

YRC Worldwide Updates Earnings Guidance: Financial News – Yahoo! Finance

The company now expects fourth quarter 2006 diluted earnings per share (”EPS”) to be in the range of $0.95 to $1.05 and full year 2006 earnings to be $5.00 to $5.10 per share. The company’s previous guidance was $1.40 to $1.50 per share for the fourth quarter and $5.45 to $5.55 per share for the year.

You’ll remember, of course, that the previous guidance had already been through a round of revisions. We warned investors in October to expect further cuts:

For the full year, YRC projects a profit of $5.45 to $5.55 per share on revenue of about $10 billion. In July the company had projected year earnings of $5.65 to $5.85 per share on revenue of $10 billion.

That is a $0.20 per share guidance reduction with just one quarter left in the year. Next year’s EPS could be $1.00 or more less than current estimates bake in. As we said before, trucks cost money even when they aren’t being used. As the economy slows, those companies like CH Robinson (CHRW) and Landstar (LSTR) that get their capacity from independent contractors on an as-needed basis have lower overhead expenses and remain profitable. If the economy slows much further, Yellow’s guidance reductions will be even larger.

So you can add this to the growing list of signs the consumer is out of gas.

Disclosure: Author owns put options on FedEx

The author may hold a position in the securities discussed. The author’s current holdings are as follows: Long: FedEx (FDX) put options; Intuit (INTU) put options; Nasdaq 100 (QQQQ) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Lion’s Gate (LGF); Three Five Systems (TFS); Adobe Systems (ADBE) call options; IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Ceradyne (CRDN) put options; Lion’s Gate (LGF) call options; Dell (DELL) put options; Plantronics (PLT) put options

http://stockmarketbeat.com/blog1/

Posted on: December 15, 2006 – 12:35 pm in WiMAX

CEO’s Who Need to Leave: Home Depot’s Bob Nardelli

Home Depot’s (HD) Bob Nardelli…….He’ll probably survive, but there are reasons he should go.

Shareholder groups are becoming more activist and this trend will continue in 2007.  Private Equity and LBO Groups can only acquire so many companies, and there are only so many candidates that can run behemoths.  The best way to see change is right at the top in many cases and there is a slew of US public companies that would do far better if they could replace current management.  These aren’t in any ranked order, so the first isn’t the worst and the last isn’t the best of the worst.  The problem in stating this is that it is very easy to come in and criticize, yet finding replacements for companies this size is not exactly an easy feat.  Private Equity as a sector has taken all the talented guys, and they haven’t stopped with the age limits that many public companies live by.  There just aren’t too many Lou Gerstner and Jack Welch carbon copies out there.

If Home Depot (HD) doesn’t get rid of Nardelli or if they don’t send him to for a PR Makeover, then they are even more and more out of touch with reality.  The problem is that he isn’t just the CEO, buthe is the Chairman too.  A hope and a prayer for a private equity bid in what would be the largest and most extended deal in global history has been keeping a floor under the deal, yet almost everyone knows it is close to impossible. Not only is it impossible or highly difficult, but the company is doing everything it can to shun the idea that it would want to get bought. Nardelli’s pay package made him hated by investors, and that is even after the incentivization plan for the top brass was altered.  The buyback plan announced last night is another effective floor depending on how the company handles it, AND it makes the company less attractive to a potential buyer because it is $3 Billion less cash on the books that could have been used for dividends.  That is even more evident when you consider that it is essentially financed by the recent $5 Billion debt offering.  Home Depot has lost ground to a growing Lowe’s (LOW), which is deemed more attractive to shoppers and more nimble as a company.  Home Depot has also reached the point that most of the investment community believes it will be very hard to grow from here.  A manager that is just in a "hold the fort"mode instead of trying to catch up to your bigger competitor also doesn’t need a pay package as large as he has received.  He wasn’t present at the annual meeting and he didn’t give a regular speech nor allow audience questions.  The company also wants to avoid monthly updates "so it can focus on longer-term issues for shareholders instead of getting caught up in daily minutia."  He joined in 2000 after not winning the helm position at GE (GE), and the stock price hasn’t seen the light of day since.  It is up almost 100% off the lows, but performance was so bad from 2002 to 2003 that the stock is still in negative territory over the last 5-years. The problem is that Nardelli is not even 60, so he knows he has another 5 to 10 years left in him in Corporate America and extremely high pay packages.  The company could do a forced buyout package to get him out and Wall Street would probably be ok with it.  While the street would love to see him gone, he is rather entrenched there.  Even if they post a weak 2007, a lot will be able to blamed on a slower economy and a slow housing market.  The company would be better off without him, but he will probably survive. 

Jon C. Ogg
December 14, 2006

This is part of "THE 10 CEO’s THAT NEED TO GO" series coming out today and tomorrow.  Jon Ogg can be reached at jonogg@247wallst.com; he does not hold securities in the companies he covers.

Posted on: December 15, 2006 – 11:00 am in Management Change

International Fight League (IFLI) Stock Launches Again

Ifl_logo_1To say a 40%+ gain is an up day would be an understatement.  Traders always look for new stocks that are moving, and this one is a real head scratcher.  International Fight League (IFLI-OTC/NASDAQ)  has everything the "microcap stock trader" would want: recent press, hype, adrenaline, men beating the tar out of each other, a hot product…….but what about a history?

International Fight League (IFLI-OTC/NASDAQ) has seen shares jump 40% this morning after a brief CNBC feature.  The stock has been as low as $3.00 since its recent debut, but now shares sit over $12.00.  Why?  Well it seems that America loves watching big guys do bare knuckle martial arts fighting in cages is why.  The exact term is Mixed Martial Arts (MMA) in team vs. team and man vs. man.

You can take a look at the chart from the company itself if you wish.  Based on 34.1 million shares "indicated" you have an implied market cap in excess of $400 million.  As a comparison World Wrestling Entertainment (WWE-NYSE) has a fairly long history, has a market cap of $1.19 Billion, and has a profitable history.  "IFLI" was a shell company called Paligent prior to November 29, 2006, so you are on your own on determining the real balance sheet here.

IFLI was featured recently on 60 MINUTES, and then again on CNBC just this morning.  The formula has been there before for high hype, big fad, cult stocks.  So the question looks to be "Is the house of cards already weak, or can it be built higher before it crumbles?"

Jon C. Ogg
December 15, 2006

Posted on: December 15, 2006 – 10:55 am in Uncategorized

CEO’s Who Need to Leave: Citigroup’s Chuck Prince

Chuck Prince at Citigroup (C)…….

Shareholder groups are becoming more activist and this trend will continue in 2007.  Private Equity and LBO Groups can only acquire so many companies, and there are only so many candidates that can run behemoths.  The best way to see change is right at the top in many cases and there is a slew of US public companies that would do far better if they could replace current management.  These aren’t in any ranked order, so the first isn’t the worst and the last isn’t the best of the worst.  The problem in stating this is that it is very easy to come in and criticize, yet finding replacements for companies this size is not exactly an easy feat.  Private Equity as a sector has taken all the talented guys, and they haven’t stopped with the age limits that many public companies live by.  There just aren’t too many Lou Gerstner and Jack Welch carbon copies out there.

Citigroup’s (C) CEO Chuck Prince needs to leave first AND its CFO Sallie Krawcheck may need to go if the current path continues.  She isn’t really the blame here for no growth like the CEO, but if he doesn’t get forced out she will not be able to avoid then hangman either.  At the current pace, Mr. Prince probably has another 6 to 9 months to hold on, but if the stock falls (even if it is just the market) then the board is going to need to send him packing.  Earlier this year Prince Alwaleed bin Talal has already called for "draconian measures" to be taken, and it wouldn’t get more draconian than booting Prince (Mr. Prince, not the Prince).  The fact that Citigroup shares are within 1% of the 52-week highs of $52.88 isn’t the issue here.  The issue is that the shares are this way in hopes that Prince will do the right thing and the other issue is that the stock has been dead money for 5 years.  Because of the laws of large numbers, the company will not be able to mirror its exponential growth of the 1990’s; but returning to at least SOME growth might not be too much to ask.  The company lost the pole position to Bank of America as the largest bank by investor value in market capitalization, and Bank of America cannot make any more real traditional bank "deposit base acquisitions" in the US because it is up against the 10% deposit cap. Yesterday the CEO himself noted frustration over the share price, but his spending cuts and the like may not be what the street was looking for.  A Reuters article noted some diconnection from the investment community, and here is a link to that. Citigroup has a 3.7% dividend, but that lags the 4.15% paid by rival Bank of America (BAC).

Jon C. Ogg
December 14, 2006

This is part of "THE 10 CEO’s THAT NEED TO GO" series coming out today and tomorrow.  Jon Ogg can be reached at jonogg@247wallst.com; he does not hold securities in the companies he covers.

Posted on: December 15, 2006 – 10:10 am in Management Change

CEO’s Who Need to Leave: Terry Semel of Yahoo! (YHOO)

Yahoo! (YHOO) Needs to Show Semel the Door

Shareholder groups are becoming more activist and this trend will continue in 2007.  Private Equity and LBO Groups can only acquire so many companies, and there are only so many candidates that can run behemoths.  The best way to see change is right at the top in many cases and there is a slew of US public companies that would do far better if they could replace current management.  These aren’t in any ranked order, so the first isn’t the worst and the last isn’t the best of the worst.  The problem in stating this is that it is very easy to come in and criticize, yet finding replacements for companies this size is not exactly an easy feat.  Private Equity as a sector has taken all the talented guys, and they haven’t stopped with the age limits that many public companies live by.  There just aren’t too many Lou Gerstner and Jack Welch carbon copies out there.

Yahoo! (YHOO) would be doing itself a favor to just go ahead and get rid of Terry Semel.  The company probably isn’t in as bad of shape as the media keeps swinging around, but the truth is that Wall Street wants him to go.  Even if they just eliminated him and replaced him with Sue Decker and nothing else the street would react positively.  We already saw that signaled back in the last management shuffle, and the board just needs to bite the bullet here and call it a day.  Maybe a movie guy running a content and search king wasn’t the greatest idea.  Since he took the helm Yahoo! has managed to hang on to its number 1 status, but on a property-to-property comparison the company has not been able to command its wide lead.  Google has managed to suck up much of the talent out there, and the verdict on Panama versus Google is not yet known.  He has a few more months, but if Panama is deemed too-little and too-late then Mr. Semel will be the one to bare the brunt of the blame.

Jon C. Ogg
December 14, 2006

This is part of "THE 10 CEO’s THAT NEED TO GO" series coming out today and tomorrow.  Jon Ogg can be reached at jonogg@247wallst.com; he does not hold securities in the companies he covers.

Posted on: December 15, 2006 – 8:46 am in Management Change

Pre-Market Stocks in the News (DEC 15, 2006)

(AAPL) Apple delayed its 10-K filing over options review.
(ADBE) Adobe trading up 6% after beating earnings estimates.
(AEZ) American )&G positive in Business Week.
(AFFY) Affymax 3.7M underwriting priced at $25.00.
(AFFX) Affymetrix CFO resigned to join another company.
(AIMC) Altra Holdings 10M share IPO priced at $13.50, under the range.
(APN) Applica has a cash tender starting at $6.50 per share from NACCO Industries.
(AVNC) Advancis Pharma filed NDA for Amoxicillin Pulsys.
(AXTI) AXT Inc. 5.75M share secondary priced at $4.50.
(BDK) Black & Decker lowered quarterly guidance.
(BPUR) BioPure notified by FDA with recommendation against proceeding to Phase III studies.
(BSC) Bear Stearns increased share buyback plan by $500M to $2B.
(CBS) CBS is launching a records unit.
(CCJ) Cameco noted cautously in Barron’s online article.
(CDR) Cedar Shopping Centers 7.5M share secondary priced at $16.00.
(CPC) Central Parking $0.28 EPS vs $0.24e.
(CTCI) CT Communications t be added to the S&P Small Cap 600 Index.
(DBTK) Double-Take 7.5M share IPO priced at $11.00, top of range.
(DELL) Dell delayed a quarterly filing over its SEC review.
(ECHO) Electronic Clearing House being acquired for $18.75 by Intuit.
(ENCY) Encysive trading up 2% after responding to FDA over its Thelin review.
(FEIC) FEI Corp 8.4M share secondary priced at $25.00.
(FO) Fortune positive in Business Week.
(FRH) Freedom Acquisition 30M share IPO priced at $10.00.
(GSIC) GSI Commerce noted positively on Cramer’s MAD MONEY as the e-commerce winner.
(HD) Home Depot announced accelerated $3B repurchase plan.
(ICLR) ICON Plc raised guidance.
(ISLN) Isilon Systems 8.3M share IPO priced at $13.00.
(ITT) ITT raised its dividend, but 2006 target looks a tad shy of street estimates.
(JCG) J.Crew touted as positive on pullbacks last night on Cramer’s MAD MONEY.
(JCOM) J2 completed option investigation and found errors, but none were by misconduct.
(LSCC) Lattice Semi lowered guidance.
(MKSI) MKS Instruments to be added to S&P Small Cap 600 Index.
(OHI) Omega Health $0.32 EPS vs $0.29e.
(OMRI) Omrix has 2.25M share secondary pricing at $32.00.
(PRAI) PRA lowered guidance and announced its CEO is resigning.
(PYCO) Pure Cycle filed to sell 1.6M shares.
(RTN) Raytheon gets $1.4B radar contract from Army.
(SNDA) Shanda Interactive positive in Business Week.
(TAST) Carrolls Restaurant group 10M share IPO priced at $13.00, lower shares and lower price.
(USBE) US BioEnergy 10M share IPO priced at $14.00, under the range.
(YRCW) YRC Worldwide lowered guidance.
(ZIPR) ZipRealty announced its President/CFO leaving to pursue other business interests.

Jon C. Ogg
December 15, 2006

Posted on: December 15, 2006 – 8:36 am in Pre-Market Activity

Select Analyst Calls (DEC 15, 2006)

ARRY started as Buy at Oppenheimer.
ATEC raised to Buy at First Albany.
AVY cut to Neutral at JPMorgan.
BAS started as Buy at Jefferies.
BEAS raised to Outperform at Piper Jaffray.
BG cut to Underweight at HSBC.
CHKP started as Hold at Citigroup.
CIEN raised to Buy at Deutsche Bank.
COH started as Buy at Oppenheimer.
DIET started as Sell at First Albany.
ECL cut to Neutral at Goldman Sachs.
ECA cut to Sell at Citigroup.
FWRD cut to Neutral at Baird.
IRF cut to Neutral at UBS.
LEND raised to Outperform at Bear Stearns.
LOW raised to Outperform at Bear Stearns.
MFE started as Neutral at Citigroup.
MON raised to Buy at Goldman Sachs.
MRX started as Hold at Citigroup.
MYL started as Equal Weight at Morgan Stanley.
NFLX started as Neutral at First Albany.
NRP raised to Buy at Citigroup.
ORCL cut to Neutral at First Albany.
ORH started as Outperform at Wachovia.
PDC cut to Hold at Deutsche Bank.
PEET started as Neutral at Baird.
PFWD started as Buy at Jefferies.
PRAI cut to Neutral at Goldman Sachs, cut to Neutral at Baird..
PTEN cut to Sell at Deutsche Bank.
SNV started as Buy at Stifel Nicolaus.
STI cut to Underperform at FBR.
SWKS reitr Buy at Stifel Nicolaus (maybe yesterday call).
SWX started as Overweight at JPMorgan.
TIF started as Neutral at Oppenheimer.
TIN raised to Buy at Deutsche Bank.
WY raised to Buy at Deutsche Bank.

Energy Goldman Sachs raised estimates on CHK, FTO, VLO, PEIX, TSO, UGP, XTO.

Jon C. Ogg
December 15, 2006

Posted on: December 15, 2006 – 8:19 am in Analyst Calls

Intuit Bulking Up, But Seasonality Prevails

By William Trent, CFA of Stock Market Beat

Last week Intuit (INTU) offered about $1.35 billion for online banking services provider Digital Insight (DGIN), based in Calabasas, Calif. The deal, expected to close in the first quarter of 2007, will bring Digital Insight’s operations into Intuit as a new financial institutions business unit.

This week they are upping it to an even $1.5 billion or so. Intuit to buy Electronic Clearing House for $142M: Financial News – Yahoo! Finance

Mountain View-based Intuit and Camarillo-based Electronic Clearing House Inc. (ECHO) said Intuit will pay $18.75 per share in cash in exchange for each share of Echo common stock. That’s about 15 percent above Echo’s closing price Thursday of $15.Echo provides end-to-end payment processing products, including check and bank card processing as well as check verification, collection, and guarantee services and automatic clearing house capabilities.

Whether or not Intuit makes a splash in online banking services, we continue to believe Intuit’s stock price will follow a seasonal pattern. If anything, the acquisitions will give traders an extra excuse to sell in the short term.

Disclosure: At the time of publication, author owns Intuit put options.

The author may hold a position in the securities discussed. The author’s current holdings are as follows: Long: FedEx (FDX) put options; Intuit (INTU) put options; Nasdaq 100 (QQQQ) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Lion’s Gate (LGF); Three Five Systems (TFS); Adobe Systems (ADBE) call options; IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Ceradyne (CRDN) put options; Lion’s Gate (LGF) call options; Dell (DELL) put options; Plantronics (PLT) put options

http://stockmarketbeat.com/blog1/

Posted on: December 15, 2006 – 8:18 am in Software

More Dell-ays (CELL)

From Willaim Trent, CFA of Stock Market Beat

We recently outlined the somewhat cloudy case for whether DELL is cooking the books. We came away unconvinced, at least with regard to warranty reserve issues. Still, what we think is of little significance with the SEC breathing down the company’s neck. Dell Delays 3rd-Quarter Filing: Financial News – Yahoo! Finance:

Computer and server maker Dell Inc. said Thursday it is delaying the filing of its full third-quarter results as it continues to investigate some of its accounting practices.In a document filed with the Securities and Exchange Commission, Dell said it was delaying its quarterly report for the period ended Nov. 3 because of questions raised during investigations by the SEC and the U.S. Attorney for the Southern District of New York.

The investigation covers reserves and other balance sheet items that could affect previous results.

The delay leaves investors with little hard data to go on other than a very stale January quarter financial statement that appears likely to be revised. And that is a very flimsy basis indeed.

Disclosure: Author is short DELL put options.

The author may hold a position in the securities discussed. The author’s current holdings are as follows: Long: FedEx (FDX) put options; Intuit (INTU) put options; Nasdaq 100 (QQQQ) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Lion’s Gate (LGF); Three Five Systems (TFS); Adobe Systems (ADBE) call options; IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Ceradyne (CRDN) put options; Lion’s Gate (LGF) call options; Dell (DELL) put options; Plantronics (PLT) put options

http://stockmarketbeat.com/blog1/

Posted on: December 15, 2006 – 8:10 am in Hardware

Time to Fade Out of Adobe?

By William Trent, CFA of Stock Market Beat

Adobe (ADBE) reported revenue and earnings ahead of consensus expectations and guided for slightly better than expected performance in the January quarter. This is rather impressive, as it is fairly well known that the company’s flagship Creative Suite (Photoshop and other graphic design programs) is due for a major overhaul. That there is not a dropoff in demand as customers hold out for the new version is impressive. On the conference call, management said:

Creative Solutions segment revenue was $359.9 million, compared to $328.1 million last quarter. This sequential increase was driven by our new hobbyist products and our Creative Suite products.

On the other hand, back in October we said:

The funny thing about this is that a bigger dip could be the most bullish scenario, as it would indicate a higher level of demand building up in anticipation of the CS3 launch. Of course, that wouldn’t be the first time Adobe’s stock reacted in unexpected ways to news.

So what to do now? First we will recap the history of our position for context.

On March 19, we said:

Adobe is one of our favorite long-term holdings. Its Acrobat, Photoshop and Illustrator are industry leading applications, InDesign is quickly becoming the standard, and Dreamweaver and Flash from the Macromedia acquisition round out a great product portfolio. Add zero debt and strong cash flow to the mix, plus a dash of being in the right place at the right time as the vast consumer photo market goes digital and you have a recipe for long-term outperformance.

Near-term, however, expect the smart money on Wall Street to fret over how they are late in the product cycle, with no major upgrades yet announced. If this causes a drop in the stock price, it is worth taking the time to figure out if you want to hold a position.

Sure enough, the stock dropped fairly sharply. By June we were ready to jump in, and took a long position on the January 30 call options. Our logic then:

So the company may lower guidance, but since investors already expect it the shares may not go down or could even rise. It lends way to several potential scenarios for next week’s earnings call (from worst case to best):

  1. Adobe lowers guidance, and either the reduction or the size of the reduction is unexpected. Shares fall.
  2. Adobe lowers guidance, and the reduction is in line with expectations even though those expectations are not reflected in consensus estimates. The shares do nothing.
  3. Adobe lowers guidance, but the reduction is less than expected. The shares rise.
  4. Adobe leaves guidance unchanged or even raises it. The shares rise by a lot.

We noted in past posts that before the bubble, and since it burst, ADBE’s trailing P/E multiple tends to vary between the low 20’s and high 30’s. Currently we are just above a 27x multiple.

If Adobe earns the $0.30 analysts expect, the trailing P/E would fall to 26.5x, quite close to the low end of the range we described. Further, given that three of the four potential scenarios next week would result in either a neutral or positive response we recently purchased call options on Adobe. We were a bit early, but we still like our odds.

Now the company has posted very solid earnings but with the new product cycle clearly in view, we expect Wall Street will decide it is time to move on. We’ll probably try to beat the rush.

Disclosure: Author is long Adobe call options at the time of writing but the position may is likely to change at any time.

The author may hold a position in the securities discussed. The author’s current holdings are as follows: Long: FedEx (FDX) put options; Intuit (INTU) put options; Nasdaq 100 (QQQQ) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Lion’s Gate (LGF); Three Five Systems (TFS); Adobe Systems (ADBE) call options; IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Ceradyne (CRDN) put options; Lion’s Gate (LGF) call options; Dell (DELL) put options; Plantronics (PLT) put options

http://stockmarketbeat.com/blog1/

Posted on: December 15, 2006 – 7:55 am in Software

Is Ford Better Off With More Debt? (F)

"The sight of the gallows focuses the mind." So said Samuel Johnson.

With Ford taking on $25 billion in debt, almost doubling its cash and liquid assets, Wall St. has to wonder if the company got too much money too fast. Merrill Lynch liked the move, upping Ford from a "sell" rating to "neutral".

Part of Merrill’s argument is that Ford will have a better time with the UAW in the spring if it has the reserves to negotiate from a position of strength. Or, is the extra cash a weakness?

The UAW will be on its way out of business as a large, storied American labor union if it cannot hold the line on jobs and benefits in its 2007 negotiations with the Big Three. If Ford is cash rich, the unions may believe that it is in better shape to keep more of their workers. A cash-poor Ford makes a better beggar.

By taking on the additional debt, Ford sends a message to the entire company that its US market share is likely to stay at 14% or lower and that raising money and cutting costs are the only way out fo the tunnel.

If Ford built cars that consumers wanted to buy, the extra money would be unnecessary.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

Posted on: December 15, 2006 – 6:41 am in Autos

Will Chrysler’s Headquarters Move From Germany To China (DCX)

If Chinese car companies are having trouble breaking into the US market, perhaps that could just buy one of the Big Three. As inventories grow and profits disappear at Chrysler, there is more talk that DaimlerChrysler, the German parent, may want to part ways with its US unit.

DaimlerChrysler has said it cannot build a small car at a profit in the US. Period. Labor costs are too high. A Chinese car company could provide inexpensive small cars in the US. The move would open the world’s largest car market to Chinese products for the first time and give them a dealer and adminstrative infrastructure.

With Chrysler’s US market share dropping to the 10% range, well behind Toyota, Daimler may well be a seller.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

Posted on: December 15, 2006 – 6:24 am in Autos

Last One Into The Pool: Google Offers Web Site Registration (GOOG)

For reasons that would be unclear to almost any observer, Google is entering the business of web site addresses. The company says that it is motivated by its ability to offer customers web-mail, calendar, and instant messaging software. Google will offer the service in partnership with GoDaddy and another registration firm. In other words, the core feature of registering domain names will not even come from Google.

Google may not be the last company to enter the domain business, but it will be close. The idea that the program will help Google distribute its other software products may make a vague kind of sense, but it is difficult to see how the company will pick up many new customers in such a crowded market.

Maybe the new domain registrations can come with access to Google Earth.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

Posted on: December 15, 2006 – 6:15 am in Internet

Search Company Baidu Central To US Web Company Plans

Stocks:  (VIA)(GOOG)(MSFT)(BIDU)

As the largest search engine in China, Baidu is beginning to play a larger and larger roll in the fortunes of US web companies in China. The Chinese search company will begin to place its text ads on Microsoft Chinese websites including MSN. Microsoft competitor Google owns part of Baidu which has 64% of the search market in the world’s most populated country.

According to Reuters, Google and Baidu are independently looking for partners to build their video businesses in China.  Google would like a local version of its YouTube service but Baidu does not was Google to dominate the key online category in Baidu’s home market. Baidu set up a deal with Viacom’s MTV to offer content in China and share revenue from the partnership.

With a market cap of $4 billion and companies like Microsoft and Google pushing for position in the Chinese online market, Baidu may not be independent for long.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

Posted on: December 15, 2006 – 6:06 am in International Markets

Europe Markets December 15, 2006 France Telecom, BEA, Prudential Rise

Markets in Europe were up at 5.50 AM New York time.

The FTSE rose .4% to 6,254, its highest level since 2001 Barclays was up .7% to 727. BEA Systems was up 5.7% to 420. BP was up 1.2% to 583.5. BT rose .2% to 306. GlaxoSmithKline dropped .1% to 1345. Prudential was up 2.7% to 714.5  Reuters was up .4% to 454.25. Unilver was down .4% to 1393. Vodafone was down .9% to 143.5.

The DAXX was up .4% to 6,572. Bayer was flat at 40.49. Daimler was up .5% to 46.14. DeutscheBank was up .3% to 101.08. Deutsche Telekom was down .1% to 13.92. Siemens was down .1% to 73.91.

The CAC 40 was up .5% to 5,535. Alcatel was up 2.2% to 10.93. AXA was down .3% to 30.64. France Telecom was up 1.9% to 21.03. ST Micro was up .5% to 14.17. Vivendi was flat at 29.44.

Data from Reuters

Douglas A. McIntre

Posted on: December 15, 2006 – 5:54 am in International Markets

Media Digest December 15, 2006 Reuters, NYTimes, WSJ, FT

Stocks:  (GAL)(F)(GOOG)(GM)(DCX)(HD)(NOK)(SI)(AMD)

According to Reuters, Japan Tobacco agreed to buy UK cigarette company Gallaher for $14.7 billion.

Reuters writes that Ford shoke up its top management naming a single global product chief.

The Wall Street Journal writes that GM could have an agreement with bankrupt car parts maker Delphi by early 2007 on how much of the liability of worker’s pensions GM will assume.

Reuters writes that Google and search engine Baidu are both working on expanding their online video operations in China.

Reuters writes that Home Depot is buying back $3 billion more in its own shares.

The Wall Street Journal reports that Nokia and Siemens are delaying the merger of their telecommunications businesses due to a corruption investigation at Siemens.

The Wall Street Journal also reports that the net at Costco rose nearly 10% last quarter.

The Wall Street Journal also writes that shares in AMD rose as it said its ATI acquisition integration was going well and that the company should grow faster than the chip market as a whole next year.

The New York Times reports that the government is looking into the failure of the Interior Department to collect oil and gas drillng rights for inventory brought out of US owned land.

The New York Times writes that large inventories at Chrysler will probably hurt results at the company for several more months. There is speculation that the company could be sold to Chinese interests.

The FT reports that OPEC will begin to cut output further in February.

Douglas A. McIntyre

Posted on: December 15, 2006 – 5:42 am in International Markets