Monthly Archives: June 2007

VeraSun (VSE), BioFuel Energy (BIOF): More Corn To The Rescue

Several recent ethanol IPOs have had a tough time as concerns mount that a lack of corn supply could drive their cost of revenue up. The four companies the represent most of the money taken in from the capital markets recently are BioFuel Energy (BIOF), U.S. BioEnergy (USBE), VeraSun (VSE), and Aventine Renewable Energy (AVR). They may be about to get a hand.

According to CNNMoney, American farmers are ready to grow their biggest corn crop ever, an astonishing 12.8 billion bushels. The ethanol industry will need it. CNN figures say "ethanol production is forecast to double by the end of 2008 to more than 13 billion gallons."

Fear of lack of corn has hammered stock prices. VeraSun hit $30 a bit over a year ago. It now trades at about $14. Shares of the company and its peers have recovered slightly. Part of this is due to a the House of Representatives beginning to amending an energy bill expected to call for greater use of alternative fuels. But, that is could comfort if the cost or materials stays high.

VeraSun’s revenue has been fairly flat for the last three reported quarters, at around about $145 million. But cost of revenue has gone up from $88 million in the September 2006 quarter to $135 million in the March 2007 quarter.

That trend may finally move into reverse.

Douglas A. McIntyre

Posted on: June 30, 2007 – 6:33 pm in Uncategorized, , , , , , ,

Apple (AAPL) iPhone: Five Reasons It Won’t Sell

Now that the Apple (AAPL) iPhone has been out 24 hours and the reviews have been fairly good, the question is whether it will sell the ten million units in 2008.

It may well not make it.

Why?

1. Customers will wait for the 3G model. Tech lovers want the most advanced products and service. A phone running on a 2.5G system may be a great handset, but it is pulled down by the network.

2. People will wait for the next version. This is the "don’t buy the first model of a new car" syndrome. But, ti’s true. A lot of consumers won’t buy the first version of anything.

3. It’s too expensive for people 16 to 22 years old. Young adults usually don’t have the money it would take to buy a $500 phone plus a service plan. Teenagers have to rely on their parents. A 45-year old adult with a $49 Nokia is not going to spring for an ultra-expensive phone.

4. Nokia (NOK), Motorola (MOT), Samsung, and Sony-Ericsson will defend their turf. None of these companies will come up with an "iPhone killer", but the largest handset companies in aggregate will come out with some impressive handsets of their own.

5. Customer service is more important for $500. Reports of complaints about activation problems with the iPhone are already surfacing. AT&T (T) is not in a position to give concierge service for these customers.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com.

Posted on: June 30, 2007 – 1:43 pm in Uncategorized, , , , , ,

BCE (BCE) Gets Bought

Canadian phone giant BCE (BCE) is being taken private by an investor group led by Teachers Private Capital, the private investment arm of the Ontario Teachers Pension Plan, Providence Equity Partners Inc. and Madison Dearborn Partners, LLC . The price is $48.5 million.

The deal has virtually no premium. Shares currently trade at $38, up about 40%. this year. The purchasers want shareholders to believe that the run-up to the current share price was none of their doing, so why should they pay extra. Major shareholders, which include Franklin Resources and Toronto Dominion Bank will probably not see it that way.

And, why should they? It is not their fault that the shares jumped up either.

There will be a fight over the price of this deal.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com.

Posted on: June 30, 2007 – 9:08 am in Uncategorized,

Blackstone (BX) Leads The 52-Week Low Club

Blackstone (BX) Investors still worry about slowing private equity and tax issues. Shares fall to $28.75 from post-IPO high of $38.

American Home Mtg (AHM) Forecasts second quarter loss on delinquent mortagages. Also downgrade by Friedman Billings Ramsey. Drops to $17.40 from 52-week high of $36.40.

Beazer Homes (BZH) More fall-out in home building markets. Drops to $24.02 from 52-week high of $48.50.

Lennar (LEN) Another home builder. Down to $36.37 from 52-week high of $56.54.

Office Depot (ODP) Projects Q2 earnings decline and falling same-store sales. Drops to $30.10 from 52-week high of $44.69.

Circuit City Stores (CC) Continuing concerns about slow sales at electronics firm. Down to $15.04 from 52-week high of $29.31.

Wachovia (WB) One of nation’s largest banks, research firm Punk, Ziegel & Co says that "The poor performance is not due to poor performance by the company. It is due to the poor positioning of the stock by management." Interesting theory. Shares down to $50.84 from 52-week high of $58.80.

Peregrine Pharmaceuticals (PPHM) Company to sell $22.5 million worth of shares. Drops to $.72 from 52-week high of $1.49.

Spreadtrum Communications (SPRD)  Chinese designer and marketer of semiconductor for mobile phones just had IPO. Down to $14 from $17.

Panacos Pharmaceuticals (PANC) HIV drug research firms raises $20 million in debt. Shares down to $3.11 from 52-week high of $7.23.

The Finish Line (FINL) Athletic shoe retailer says same-store sales look bad. Drops to $8.98 from 52-week high of $14.97.

Douglas A. McIntyre

Posted on: June 29, 2007 – 3:17 pm in Uncategorized, , , , , , , , , , ,

Sanofi-Aventis (SNY) Withdraws Drug Which Can Cause Suicidal Thinking

Sanofi-Aventis (SNY) is withdrawing its application to sell its drug rimonabant in the US as a treatment for obesity. The drug has been found to have psychiatric sides effects. This may include suicidal thinking.

According to The Wall Street Journal: "By withdrawing its application, Sanofi is hoping to avoid an outright rejection of the drug by the FDA, which was set to rule by the end of July, analysts said." If the drug does cause thinking it is difficult to see why the company would mind a rejection.

But, Big Pharma’s work is never done. The WSJ adds: "Ben Yeoh, a pharmaceutical analyst with Dresdner Kleinwort in London, said the company may be thinking of resubmitting rimonabant as a diabetes treatment."

Perhaps people with diabetes are less likely than those who are corpulent to think about killing themselves.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. 

Posted on: June 29, 2007 – 1:59 pm in Uncategorized,

Dell (DELL) Makes A 52-Week High

Dell (DELL) hit $28.86, a 52-week high, which also puts the stock up 20% during the last year, a better performance than the S&P.

Some of the increase comes indirectly from upgrades of companies like Intel (INTC). Lehman jacked up its rating on the shares partly due to an anticipation that Dell’s new push into retail would drive a demand for chips.

Dell continues to delay its financial filings due to an investigation into its accounting practices, but the market seems to take that in stride. It is certainly not hurting the shares.

IDC slightly raised its forecasts for PC shipments in 2007 to a 12.2% increase over 2006 numbers. Its previous forecast was 11.1%. But, the research firm lowered its 2008 growth rate projection.

As TheStreet.com pointed out regarding the company’s quarterly figures: "Dell’s results look like they were in fact in line. Net income was flat, operating margin was down slightly and sales increased a scant 2.8% — all of which sounds a lot like the pressure Dell predicted."

That leaves Dell’s move into retail. Its deal to sell through Wal-Mart. It may work. It may take sales from Dell’s direct-to-customer model. It is too early to tell. But, what the market should know is that Dell will have to fight Hewlett-Packard (HPQ), Lenovo, Sony (SNE), and Toshiba for those customers. And, it will have to fight Apple’s (AAPL) Mac.

There is no guarantee that it’s a battle Dell can win.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com.

Posted on: June 29, 2007 – 10:07 am in Uncategorized, , , , ,

CryoCor (CRYO): Another Small Med Company Rallies Like Mad

CryoCor (CRYO) had revenue of $540,000 last year, and a loss of over $15 million. It did not do much better in 2004 or 2005. But, as of this morning, the company sports a market cap of $81 million.

Nice work, if you can find it.

CryoCor’s shares are up on a deal with Boston Scientific (BSX). The two companies "are collaborating on the development of cryoablation, or extreme cold, to treat irregular heartbeat, or, cardiac arrhythmias," according to The Associated Press. Of course, the company’s quote the largest possible numbers to show the potential of the project: "About 6 million patients have the affliction worldwide, and $9 billion is spent annually in the U.S. to treat it, the companies estimated."

Of course, the device has not gone on the market yet, but CryoCor’s shares have gone from $2.50 to $6.65 in two days.

Nice work, if you can find it.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com

Posted on: June 29, 2007 – 8:47 am in Uncategorized

AMD’s (AMD) New Chip: Slower Than Expected

Industry experts expected that AMD’s (AMD) last best hope for getting back into competition with Intel (INTC) for server market share would have a clock speed of 2.7 gigahertz to 2.8 gigahertz  The first versions will be slower than that at about 2 gig.

As The Wall Street Journal points out "any initial performance advantage over Intel will be less clear-cut." AMD has indicated that the chip would outperform comparable Intel products by as much as 40%.

AMD continues its record of disappointing Wall St. As margins fell last year and the company moved to a loss. The company’s shares are down 40% over the last year.

AMD’s shares are up only .4% in early trading. That tells the whole story.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. 

Posted on: June 29, 2007 – 8:36 am in Uncategorized, ,

China Stock Market: 300,000 New Accounts A Day Plus A 45 P/E

Bloomberg has put out some interesting statistics. The current market P/E for China is 45. The S&P stands at 18. More amazing still, since April, investors are opening 300,000 new trading accounts per day. Too bad E*Trade can’t operate there.

Combine these numbers with the roughly 260% increase in the Shanghai Composite Index and it draws the picture of a market that cannot keep going up.

The increase in the the market might be sustainable if it were not for the number of new accounts being opened. As each account owner buys into the market, the odds are good that it forces unusual increases in the market. While a new trader may sell some stocks, it is more likely that in the early stages that trader is much more likely to buy. And, with the market rising, there is always the temptation to chase it.

Shanghai is down about 7% in the last five trading days. Not much compared to the run up. But, the point will come when a sell-off will cause a panic.

Nothing the capital markets have not seen before.

Douglas A. McIntyre

Posted on: June 29, 2007 – 7:59 am in Uncategorized

Does Motorola’s (MOT) Resurrection Begin In Korea

The RAZR 2. Motorola’s (MOT) next big thing. Better screen than the old RAZR. Better call quality. The works. Can its sell 50 million units worldwide each quarter? No one knows yet.

The new model is being introduced in South Korea now. It is a tech-savvy market where almost every home and business has broadband. It is a turned on and tuned in society. According to Motorola, it is also a "fashion aware" market. Investors will probably have to take the company’s word for that.

South Korea is also a market with strong entrenched handset companies, Samsung and LG.

Wall St. will be watching the results. Certainly several research firms will report sales results the minute they have them. And, it will be and early but telling sign of whether Motorola got it right.

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

Posted on: June 29, 2007 – 6:33 am in Uncategorized,

GE (GE) Checks It Courage At The Door

NBC chief Jeff Zuckerman was quoted in the FT as saying that his company did not bid for Dow Jones (DJ) because "When you have shareholders who you have to create value for, you have to be fiscally disciplined. When you are the shareholder that matters, you play a different game."

Does Zuckerman work for the same company, GE (GE), which has shares trading where they did in 2001? The same company which has a $38 share price compared to $60 in mid-2000?

GE is now all about getting more business in China and India, and helping the world’s enterprises get more "green". It may be a good path, but that won’t be known for a few years. It may deliver steady, unspectacular results as the process has for the last five years.

NBC Universal’s operating profit was down in 2006. It was up only 5.6% in the first quarter of this year.

The chances to build something of real value by putting The Wall Street Journal together with the Financial Times and CNBC is at least as good as the value that Murdoch can create with his Fox business channel and satellite-distributed programming operations. GE’s cost cutters could have taken substantial expense out of a merged FT and WSJ.

But, they didn’t want the risk.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com.

Posted on: June 29, 2007 – 6:25 am in Uncategorized, , ,

Europe Markets 6/29/2007

Markets in Europe were down at 7 AM New York time.

The FTSE was off .6% to 6,532. Barclays (BCS) was down 1.3% to 687.5.

The DAXX was down .2% to 7,910. BASF (BF) was up 1.2% to 95.9.

The CAC 40 was down .4% to 5,982. France Telecom (FTE) was down .9% to 20.3.

Data from Reuters.

Douglas A. McIntyre

Posted on: June 29, 2007 – 6:10 am in Uncategorized, , ,

$70 Oil: Who Gets Hurt

With oil hanging around $70, and gas likely to move above $3 for all of the summer, it bears looking at who gets hurt:

Airlines: It looked like they might get something of a recovery. Now, firms fresh out of bankruptcy like Delta (DAL) face risiing fuel costs and a competitive market for fares.

Cars, pick-ups, and SUVs. Detroit’s recovery is based, at least in part, on fuel prices being at a reasonable level. More profitable pick-ups and SUVs don’t sell well when gas prices are high. Look to Ford (F) to be set-back more than most with its F-series and Explorer losing more ground.

Retail. Wal-Mart (WMT), Target (TGT), and Home Depot (HD) keep mentioning that high gas prices hurt trips to the store. This summer, that will get worse.

Food retail. Starbucks (SBUX) and McDonald’s (MCD) pay to get their supplies delivered, mostly by truck. Those costs will rise. And, driving out to get a latte is going to be more expensive.

Overnight delivery companies. Fedex (FDX) and UPS (UPS) operate a lot of trucks and planes.

Cruise buiness. Carnival (CCL) and Royal Caribbean (RCL) can’t run those big engines on water.

Newspapers. Gannett (GCI) and McClatchy (MNI) spend a lot on truck papers to homes and newsstands.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com.

Posted on: June 29, 2007 – 5:48 am in Uncategorized, , , , , , , , , , , , ,

Research In Motion (RIMM) May Dodge The iPhone

Research In Motion’s (RIMM) stock is up over 150% during the last year. That is much better than Apple’s (AAPL) 110%.

In RIMM’s last quarter, revenue was up 76% to $1.1 billion. Net rose 723% to $223 million. RIMM also said its next quarter’s revenue would be above $1.3 billion and that it would enter the Chinese market, which should help the company’s future quarters.

A new study from ChangeWave Research indicates that the new Apple iPhone is likely to take share from Nokia (NOK), Palm (PALM), and Motorola (MOT) among corporate buyers, but that RIMM should hold its own.

Why? The RIMM Blackberry is really not a phone. It is an e-mail device. That puts it in a special category, off to the side of the competition for phones that take pictures, surf the web, and play music.

Observers could say that RIMM’s success is an example of being more lucky than smart. But, that would miss the beauty of what the company has done. It builds one product, available with a few minor changes from model to model, and it focuses on one, very large market. Generation X buyers may want a key-less screen. Corporate users just want a durable device that works. They can listen to music on the CD players in their Mercedes.

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

Posted on: June 29, 2007 – 4:58 am in Uncategorized, , , , ,

Qualcomm (QCOM) Rejects Broadcom (BRCM)

Qualcomm (QCOM) has rejected a proposal for paying rival Broadcom (BRCM) about $1.5 billion to settle their patent dispute. The fight is keeping a number of new handsets, with Qualcomm chipsets, out of the US. The problem is causing headaches for handset companies like Motorola (MOT) who want to launch new phones and cellular companies like Sprint (S) who want to buy them.

Management at Qualcomm claims that it rival want to "destroy Qualcomm’s business model." That may be true, but, in the meantime, the battle threatens to do some serious damage to the cellular phone industry.

While Qualcomm and Broadcom fight over who pays what to whom in terms of royalties, it might be a good idea to hire an outside firm, perhaps an accounting firm, to temporarily put in place a payment system to get the flow of handsets with Qualcomm tech flowing back into the US. Give the system six months. If the two companies cannot reach an agreement, perhaps the handset companies will have weighed in a proposal that both chip companies would find acceptable.

The industry needs to buy some time, and neither Qualcomm nor Broadcom are doing anything helpful for their customers now.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com.

Posted on: June 29, 2007 – 4:37 am in Uncategorized, , , ,

Rupert Murdoch: Close All The Newspapers

At the end of a recent interview with Time Magazine, Rupert Murdoch suggested that the way to turn The Wall Street Journal into a huge global brand was to hire more top-notch journalists, and perhaps, just perhaps, put the entire enterprise online for free.

In his own words: And then you make it free, online only. No printing plants, no paper, no trucks. How long would it take for the advertising to come? It would be successful, it would work and you’d make … a little bit of money. Then again, the Journal and the Times make very little money now."

The notion may seem insane, but it is not. Last year, the consumer media group at Dow Jones (DJ), made up mostly of the WSJ, had a profit of $33 million on over $1.2 billion. Almost none of that money came from overseas. Several securities analysts have said that The New York Times (NYT) newspaper breaks-even at best.

Putting an entire newspaper online means dumping the huge costs of printing and distribution. At a newspaper with a circulation of 1 million, this can certainly be $1 a paper, depending on where it is printed as where it has to go to be sold.

A non-print newspaper would have to rely on advertising as its sole source of revenue. WSJ.com currently fetches $99 a year. The NYTimes.com. charges for premium content.

But, a free global edition of the Journal would probably have substantially more readers that the 800,000 that it has now. And, that could make it a platform that could pay for itself through advertising. Murdoch may be right. Perhaps that could make "a little bit of money". Or better.

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

Posted on: June 29, 2007 – 4:22 am in Uncategorized, , ,

Media Digest 6/29/2007 Reuters, WSJ, NYTimes, FT, Barron’s

According to Reuters, the Apple (AAPL) iPhone will hit stores today giving the mobile industry a jolt.

Reuters writes that GM (GM) has sold its Allison Transmission business for $5.6 billion.

Reuters reports that the NBC CEO says that his company’s decision to pass on Dow Jones (DJ) due to the size of the premium Rupert Murdoch would pay.

The Wall Street Journal writes that Research In Motion’s (RIMM) profits rose 73% on the last quarter.

The Wall Street Journal reports that Qualcomm (QCOM) was rejected a patent dispute settlement that would have paid rival Broadcom (BRCM) over $1.5 billion.

The Wall Street Journal also reports that Netflix (NFLX) has lowered the cost of its service to match rival Blockbuster (BBI).

The Wall Street Journal writes that NBC and News Corp (NWS) have named a former Amazon exec to run their new online video joint venture.

The New York Times writes that the CEOs of Apple (AAPL) and AT&T (T) defended using a slower network for the iPhone.

The New York Times writes that music publisher EMI will sell music on new internet stores that can be added to other websites.

FT writes that global M&A deals rose 50% in the first half of the year.

Barron’s writes that Palm (PALM) accounced disappointing quarterly results and poor guidance.

Douglas A. McIntyre

Posted on: June 29, 2007 – 3:22 am in Uncategorized, , , , , , , , , ,

Asia Markets 6/29/2007

Markets in Asia were mixed.

The Nikkei was up 1.2% to 18,138. Sony (SNE) was up 1.8% to 6330. Toyota (TM) was up 2.4% to 7800.

The Hang Seng was down .4% to 21,847. China Petroleum (SNP) was off 1% to 8.63. China Unicom (CHU) was off 1.8% to 13.4.

The Shanhai Composite was off 2.8% to 3,821.

Data from Reuters.

Douglas A. McIntyre

Posted on: June 29, 2007 – 2:49 am in Uncategorized

iPhone Option Trades: “Sell The News” Strategy (AAPL)

Everyone knows how to make a bet on a stock going higher.  Most know how to make bets against a stock ("Sell the News") with short selling or buying put options.  But there are ways to leverage the bets, and it is obvious that with the tight trading range in Apple (AAPL-NASDAQ) traders are in a battleground scenario with bets for and against the stock.

Apple is trading right around its $120.00 strike price for the options contract since.  Today’s trading range was only $120.00 to $122.49 and the trading since June 15 has only had a trading range of $118.72 to $125.18.  Some traders have been making a "Sell The News" bet that too much hype has been put into the iPhone.  This can be done by a classic short sell of the underlying stock, or it can be done on a less risky basis with Put Options.  On a leveraged basis it can be done selling Call Options, and on an even more leveraged basis it can be done with a combination of the scenarios.

The most classic bet without just short selling is Buying Put Option, and you can see what the trading was in these options Thursday.  What is odd is that the bets haven’t been all that strong compared to any other normal month if you consider the magnitude of the iPhone.  As a reminder, open interest is measured from the end of the prior trading day.

JULY PUT OPTIONS
STRIKE    LAST    VOL.    Open Int.
100.00    $0.20    1,240    20,941
105.00    $0.42    2,862    33,445
110.00    $0.97    9,508    56,481
115.00    $2.10    6,289    45,489
120.00    $4.10    6,204    34,530

The gutsier bet is selling Call Options.  This is similar in ‘unlimited downside’ just like short selling because in theory a stock can run up and up.  Here is the volume in the slightly in the money calls and out of the money calls:

STRIKE    LAST    VOL.    Open Int.
115.00    $8.20    1,734    32,721
120.00    $5.00    13,138    58,658
125.00    $2.85    24,450    62,264
130.00    $1.60    16,291    54,759

The truth is that Friday will be the real options trading day.  Not only that, but the real "sell the news" analysis won’t really be known until the weekend and Monday because the iPhones are going on sale at 6:00 PM local time on Friday in each market.  That means stock traders are out of the actual know until Monday. 

Jon C. Ogg
June 28, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: June 28, 2007 – 7:04 pm in Options, Telecom, WiMAX, Wireless,

Sirius Retirement Plan Hurt By Its Share Price (SIRI, XMSR)

It is always interesting to see how pension and employee 401K assets are doing when they have heavy stock weightings, and the SIRIUS Satellite Radio Holdings Inc. This is not an actionable event for investors betting on the SIRIUS-XM merger today, but this issue can come front and center as an employee and morale issue that could drive the company’s workforce elsewhere in the long-term if it doesn’t change.  (SIRI-NASDAQ) audited annual reports have been approved by auditors in the 11-K.

                                                                  ($000)
                                                           AS OF DEC 31,
Investments, at fair value:         2006               2005
Pooled Separate Funds          $18,118        $12,403
Sirius common stock                10,940          15,608
Participant loans                        221                225
Total investments                      29,279           28,236
Contributions receivable:
Employer                                      4,309             3,356
Participant                                    146                   —
Total contributions receivable  4,455              3,356

Net benefits                                 $33,734         $31,592

If you look at the SIRIUS common stock, the employees reviewing their 401K statements are probably feeling pretty unhappy.  The above figures are as of December 31, and at that day SIRIUS common stock closed at $3.54.  Then in a couple of weeks shares had gone as high as $4.00+, but today those sit at $3.02 on the close and have been as low as $2.66.  Unfortunately that drop is as the merger is still an IF rather than a WHEN, and there is a good chance those shares will be worth far less if the government blocks the merger. 

The good news is that the net assets still managed a small gain for the entire year because of the other retirement funds.  But investors that are in 401K contribution plans, particularly if they are growth investors, do not always see positive annual returns from the market.  Unfortunately, a 401K plan that is overly tied to the company stock can be a bad thing.  In the past this made workers rich as their tech stocks grew exponentially, but after witnessing Enron we saw what can happen when employee pension/401K monies are too tied up into the same stock as the employer.  If employees there are worried about the merger approval and think there is a real shot that the XM Satellite Radio deal won’t be approved, then they better think long and hard about having that much of the plan being tied to SIRIUS shares. 

Furthermore, what signal will it send to the investment community if all of a sudden one day an SEC filing is made showing a few million SIRI shares being sold by the employee 401K plan?  Probably not a very good one.

Jon C. Ogg
June 28, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: June 28, 2007 – 5:14 pm in Satellite, ,