Monthly Archives: December 2007

The Case For $150 Oil

The killing of Benazir Bhutto and a drop in oil supplies in the US moved oil above $96 overnight. Trouble between the Kurds and Turks contributed as well. But, none of these things has any direct bearing on a significant interruption in the oil supply.

Several pieces of analysis from the US government’s Energy Information Administration and the International Energy Agency see crude demand rising virtually every year for the next decade. Oil producing nations like Saudi Arabia and Mexico are using more crude to build their own economies, leaving less to export.

That leaves the issue of what would happen if there were a real disruption of supply against spiking demand from the US, China, and other oil hungry economies.

A drop in supply of three to four million barrels a day would affect 5% of oil availability. An interruption of the flow of oil from Nigeria is about half of that. A cut of oil from Iraq would be a little less.

In the freak economics of oil pricing, having 5% of supply off-line would increase prices by much more than 5%. News which has little effect on oil supply pushes can push crude prices up by $3 or $4.

Would a real catastrophe move oil up 50%? The man who knows that does not exists. But, the psychology of oil prices is perverse.

Douglas A. McIntyre

Posted on: December 28, 2007 – 6:19 am in Oil & Gas

10 More Stocks That Could Double In 2008

It takes a lot for an active stock of an already established company to see the price of its shares double.  In fact, it usually means that a company has posted a significant recovery or that something incredible happened that wasn’t factored into traditional investment models.  Stocks that double are also frequently deemed as clunkers full of problems that staged a significant recovery.  But that has also been used as a description for many key companies like Apple and many more.

We created a primary list recently (see below), but our screen of stocks that could double yielded over 50  candidates and we wanted to run some of the less active stocks in this category.  Almost all of these are still quite active, so only a few may not ring a bell.  Here is the second list of stock candidates that could double with the explanations if the stars line up right inside each company or if certain outside developments come to fruition:

  • Capstone Turbine (NASDAQ: CPST); Dialysis Corp. of America (NASDAQ: DCAI); Palomar Medical Technologies Inc. (NASDAQ: PMTI); Qwest Communications International Inc. (NYSE: Q); Sanmina-SCI Corp. (NASDAQ: SANM); Smith & Wesson Holding Corp. (NASDAQ: SWHC); Travelzoo Inc. (NASDAQ: TZOO); YRC Worldwide (NASDAQ: YRCW);  Websense Inc. (NASDAQ: WBSN);  Xinhua Finance Media Ltd. (NASDAQ: XFML).

Capstone Turbine (NASDAQ: CPST) is one of those stocks which could actually make a significant comeback. This one used to trade many multiples higher.  We’ve covered this one in our "10 Stocks Under $10 Newsletter" for subscribers.  It was at $1.25 or $1.30 at the time and shares now sit close to $1.70.  This company is now producing revenues and its turbines are getting significant interest.  The initial re-screen on this one came to us after Lazard Capital Markets gave this a call for the stock to double to $2.50 in its alternative energy coverage.  After we dug around and reviewed all the past data and put in our own thoughts on alternative energy, we think that instead of this hitting $2.50 that it has a shot at being able to surge past that level.  This is highly dependent upon it announcing new orders, and recent customer order activity has us behind this one.

Dialysis Corp. of America (NASDAQ: DCAI) is another company that has fallen from grace. Shares were north of $30.00 back in 2005 and it’s seen its share of ugliness since then.  Shares are currently close to three-year lows.  A double from today’s prices would barely get it above the $14.16 52-week high.  The $78 million market cap makes this one trade close to three-times book value and under one-times 2008 revenues.  But we think that the company may actually have to go do a dilutive capital raise first so it can open more facilities.  This has severe risks tied to reimbursement rates, so any cuts in that area would drive this lower.  The problem of today’s treatment is that kidney dialysis is really the only option for renal patients with kidney failure and there isn’t another viable alternative widely available to the masses and widely covered by insurance.

Palomar Medical Technologies Inc. (NASDAQ: PMTI) is a risky cosmetic laser maker that could roar or flop in 2008. With shares under $16.00, this stock could double and still be down more than 40% from its $55 highs seen earlier in 2007.  It and P&G (NYSE: PG) recently agreed to extend the Launch Decision of a home-use, light-based hair removal device for women until no later than February 29, 2008 in place since February 2003. Gillette had until January 7, 2008 to make the Launch Decision and it is likely that this will end exclusivity.  Lasers are a competitive business and it will have to really ramp its sales overseas for this to double again.  But if the company gets another critical supply deal and if it secures this current P&G deal in limbo, then this could become one of the explosive growth prospects again.  If not, well then this could slide further down even if many feel the worst has been priced in.

Qwest Communications International Inc. (NYSE: Q) has had a rough time since September and it has only traded above $10.00 for a very brief time period in the last 5-years.  But it recently reestablished its dividend, and the ‘perceived’ yield was actually higher than the dividend of land-line rivals Verizon (NYSE: VZ) and AT&T (NYSE: T).  Shares are also about 75% higher than the mid-point of its old trading range from 2003 to 2005.  It still has a $13 Billion market cap, so it will take many institutional buyers to believe in this one for it to be a double.  But the performance of its two top rivals has not been sustained as far as the stocks go.  Its lack of a wireless offering has also been thought of as a hole in the business plan and analysts would either have to raise their targets or make cuts on valuation if Qwest got back to $10.00.  Any upside would make the valuations on Qwest seem paltry.  If the company wouldn’t have made its recent dividend gesture we would have passed on this one.  But that sure made us think more good news was coming because a dividend is not meant to be a one-time event for companies.

Sanmina-SCI Corp. (NASDAQ: SANM) is an EMS (electronics manufacturing services) company where tech and non-tech companies come to have it manufacture for them.  It owns factories all over the world and it has been in a turnaround for quite some time.  If the company can make that turn then for this to double after a rough week the stock would still not even be at its 52-week highs. We covered this in our "10 Stocks Under $10" and its market cap has dipped back under that $1 Billion mark.  There are some pretty big risks that it won’t be able to turn around, so this one is a real coin toss.  The company has moved from being perceived as a tech-only manufacturer as it serves medical, defense & aerospace, automotive, and more.  Any major win could make this one turn or it could always become a potential acquisition from some of the other larger EMS players.

Smith & Wesson Holding Corp. (NASDAQ: SWHC) is one of the only gun plays in the entire U.S.  That is a bad spot right now as shares are down 75% from their highs.  So for this to double it would still be down 50% from its 52-week highs.  The company had already been in trouble as a stock goes, but then it failed to impress in October and then warned again for 2008 in early December.  Those each took nearly half of the value away each time.  What is interesting is that with a weak consumer and weakening economy expected in 2008, this could scare people about crime if lower-income wage jobs start to dry up.  That could make more homeowners want to buy a gun.  With a presidential election around the corner, we wouldn’t be shocked to see a rush of buyers try to load up on any remote gun desires if they feared that 2009 or 2010 might bring about stronger gun controls.  That HAS happened before.  We don’t know if it will come about again.  That why this is a COULD rather than a WILL.

Travelzoo Inc. (NASDAQ: TZOO) could end up being a Hail Mary pass for 2008 after posting a dismal 2007.  Shares are barely above 52-week lows and this stock would basically have to rise 200% before it took out its 52-week high of $40.68.  It only trades at about 17-times 2008 projected earnings and it is still expected to have revenue gains.  The beast of the sector is Priceline.com (NASDAQ: PCLN) and that stock has risen nearly five-fold over the last 24 months.  The company has what is deemed one of the lower-end online travel package and search features out there, but the beauty of the web is that ANY company can end up with a killer app or major consumer draw that sucks customers back to it.  That might not be the case and we think management isn’t as sharp as at other online travel sites.  But one bit of good news here could make this skyrocket with a flood of day traders, and it has over 25% of its float listed as being in the short interest.  It has also been the subject of takeover rumors in the past.

YRC Worldwide (NASDAQ:YRCW) is one of our favorite trucking stocks as a go-to play in the sector. The problem is that this sector just stinks right now and it has made warning after warning besides its CEO being generally very openly cautious.  But with shares at $17.00 and a trailing P/E of under 10, any upside surprise or even any ‘less bad’ news might make this look like the old flying trucks commercials from the early 90’s.  In fact, if YRCW stock doubled from here it would still be $13.00 short of its 52-week highs.  In January 2005 this even traded north of $60.00.  Are the rest of the bad headlines out? No.  We think times will remain tough. But at some point Wall Street realizes an overreaction and quickly fixes it.  This one may linger and may continue to slide.  So when or from level it doubles off of is anyone’s guess.  If that CEO would just be upbeat on TV once rather than negative, that might send the signal to others to buy as well.  Lastly, this one could actually be a takeover candidate.

Websense Inc. (NASDAQ: WBSN) is one of the old Internet hi-flyers that got sleepy and then became a Rip Van Winkle of a sleeper. With this being back close to $16.00, a double would only take it back to its highs at the end of 2005 and start of 2006.  But the company has still managed to grow while its shares have slumbered and its $400 million market cap is not ridiculous compared to sales estimates of $226 million expected for 2007 or more than $300 million for 2008.  It trades at less than 19-times 2007 EPS and less than 15-times 2008 earnings, yet EPS growth is expected to be 25%.  The company’s strength is also its weakness: it has the best enterprise-wide web filtering mechanism for enterprise Internet and Intranet access out there, but IT buyers have noted over and over how it is also quite expensive compared to second rate services. Is it fair to hint that Larry Ellison & Co. at Oracle (NASDAQ: ORCL) or that his rivals like SAP AG (NYSE:SAP) or Microsoft (NASDAQ: MSFT) might consider buying it?  Probably not.  But if a buyer stepped in they’d be getting a very valuable set of customers.  The company could always make a strategy of creating a more mainstream web filtering product that smaller organizations can afford or justify.  As web 2.0 applications are bandwidth intensive and as they become more and more prevalent, companies with bandwidth intensive businesses may also have to increase their web filtering efforts.

Xinhua Finance Media Ltd. (NASDAQ: XFML) is another stock that could garner a double if it can prove it is worthy. But we want to warn you that it could also see another 50% drop.  It was a runner up on the "Worst IPO’s of 2007" this week and many investors are not convinced that all the bad stuff out there is fully reflected in today’s prices.  But the Chinese financial and traditional media could end up being a major sleeper as media is still very under-penetrated in China where it is located.  Management is also fairly well heeled in the media circles in China and its media properties and ancillary services all hold significant values independently if it wanted to divest into a more focused company (unlikely to us). If Xinhua Finance Media doubled from today’s prices it still would be short of that $13.00 high.  2008 is either going to be a year of forgiveness and acceptance, or it is going to hurt.  This one is risky enough that we might only want to look at long-dated (May) calls to limit any potential downside if there are more land mines in this one.

Jon C. Ogg
December 28, 2007

You can join our free email distribution list to get previews for other issues around IPO’s, spin-offs, merger-arb, turnarounds, and more.  Jon Ogg produces the Special Situation Investing Newsletter; he does not own securities in the companies he covers.   

Posted on: December 28, 2007 – 6:01 am in HI/LOW, Turnarounds, Value Investing, , , , , , , , , ,

Wal-Mart (WMT) Goes Back To Selling Shirts Online

According to several media reports, Wal-Mart (WMT) has shut its movie download business. It blames the fact that Hewlett-Packard (HPQ) is discontinuing the technology platform which makes the service work. It is hard to believe that some other technology company could not do that.

What Wal-Mart probably discovered is that an e-commerce site, no matter how large, may not be able to sell consumers shirts, garden tools, and sporting goods along with downloads of the latest movies and TV shows.

Wal-Mart was early to the digital video download business. Walmart.com is one of the three or four largest e-commerce websites in the country. It had 42.5 million unique visitors in November, according to comScore. But, it would appear that the digital download crowd is going to Amazon (AMZN), Apple (AAPL), and Netflix (NFLX) for their entertainment. Since those brands are associated with media products, that would make sense.

There is another, more troubling explanation. Wal-Mart is the country’s largest seller of DVDs. It should have some foothold in selling video online. Obviously, that has not worked.

Wal-Mart’s move may be the earliest indication that offering video online is not a viable business yet. And, that is bad news for the companies still in the business.

Douglas A. McIntyre

Posted on: December 28, 2007 – 6:00 am in Internet, , ,

Media Digest 12/28/2007 Reuters, WSJ, NYTimes, FT, Barron’s

According to Reuters, Merrill Lynch (MER) plans to lay-off 1,600 people.

Reuters writes that US durable goods numbers were worse than expected for November.

Reuters writes that Wal-Mart (WMT) will end its movie download business.

The Wall Street Journal writes that Nokia (NOK) has delayed its mobile game business launch again.

The Wall Street Journal writes that hedge funds are having more trouble borrowing money.

The Wall Street Journal writes that Warren Buffett is starting a bond insurance company which will make it cheaper for local governments to borrow money.

The Wall Street Journal reports that Citigroup (C) and HSBC (HBC) are considering selling units to shore up finances.

The New York Times writes that millionaires created by Google (GOOG) are putting their money into a series of start-ups.

The New York Times reports that holiday online sales were only up 19% over a year ago.

The FT writes that the subprime crisis is hitting newspaper revenues.

The FT reports that IPOs of Chinese companies are expected to raise $100 billion next year.

Barron’s writes that a Google phone may launch in February.

CNN Money writes that oil moved up to $96.

Bloomberg writes that Citigroup (C), Goldman Sachs (GS), and JP Morgan (JPM) are discounting their LBO debt by as much as 10%.

Douglas A. McIntyre

Posted on: December 28, 2007 – 4:57 am in Press Digest, , , , , , , ,

Asia Markets 12/28/2007

Markets in Asia fell.

The Nikkei was off 1.7% to 15,308.

The Hang Seng fell 1.7% to 27,371. China Petroleum (SNP) was off 3.8% to 11.70. Bank of East Asia was up 2.7% to 52.90.

The Shanghai Composite fell .9% to 5,262.

Data from Reuters

Douglas A. McIntyre

Posted on: December 28, 2007 – 4:37 am in International Markets,

52-Week Low Club (AAI, ANN, AM, BIG, BJRI, CHS, CC, LIZ, M, OMX, MSO, RL, HOT, WM, WEN, ZLC)

Today’s list of 52-week lows was still dominated by retail and consumer spending stocks, although a surprise surge from several key semiconductor names made today’s list.  Some of these did end up recovering back above their respective 52-week lows.  Here’s your list for today:

  • Airtran (AAI)…down from a $13.09 high.  $95+ Oil is a pain. Stock broke significant support at $8.00 two weeks ago so it’s in no-man’s land.
  • Ann Taylor (ANN)… Is the growth story gone? If so and IF it can hit its earnings estimates then it is a hidden value stock.  But with women spending less on clothes over the holidays it may just be a value trap.
  • American Greeting (AM)… I started complaining about the cost of greeting cards LONG BEFORE the economy softened, and I’m not alone.
  • Big Lots (BIG)…again…should say "habitual offender" on it.
  • BJ’s Restaurants (BJRI)…cool brewpub, although still expensive on earnings measurement.
  • Chico’s FAS (CHS)…again.
  • Circuit City (CC)…needs to fire that CEO immediately.
  • Liz Claiborne (LIZ)…again.
  • Macy’s (M)….again.
  • Marvell Tech (MRVL).. see chip stocks on 52-week lows.
  • Martha Stewart Living (MSO)… Is it changing its name to "DYING"? Maybe a weak ad environment and magazine environment is even worse than we thought?
  • Micron Tech (MU) turnaround still can’t turn around… see chip stocks on 52-week lows.
  • Office Max (OMX)…again.
  • Ralph Lauren Polo (RL)…recovered above that 52-week low but this was a surprise to see even in a weak consumer. Stock is now over $40.00 under highs.
  • Sandisk (SNDK).. see chip stocks in 52-week lows.
  • Starwood Hotels (HOT)… givin’ all the inheritance away may not keep young Paris happy.
  • STMicro (STM)…see chip stocks on 52-week lows.
  • Washington Mutual (WM)… when WA-MU changes its name to UH-OH!
  • Wendy’s International (WEN)… just an expensive burger chain with a "hoped for buyout" allowing a premium, otherwise would be even lower.
  • Zale Corp. (ZLC)….. I didn’t get my wife diamonds for Christmas either.

All these CEO’s have a fairly easy new year’s resolution for 2008: "I want to keep my stock from hitting 52-week lows"…….

Jon C. Ogg
December 27, 2007

Posted on: December 27, 2007 – 4:01 pm in HI/LOW, , , , , , , , , , , , , , , ,

Fed Rate Reductions Most Of Next Year?

According to Bloomberg the Federal Reserve will reduce interest rates at every policy setting meeting “for the next two to three quarters,” Pacific Investment Management Co.’s Paul McCulley said in a note released today to clients.

The note said that rates could fall below 3%.

Douglas A. McIntyre

Posted on: December 27, 2007 – 3:33 pm in Economy

Key Chip & Semiconductor Stocks Hit 52-Week Lows (MRVL, MU, SNDK, STM)

It was a bit surprising today to see some of the names that were on the 52-week low list that were chip stocks.  So far AMD has managed to escape this list today, although it’s only about 1% above the $7.54 52-week low.  It looks like that PC surge isn’t helping more than a few.  Here are some of the key names:

  • SanDisk Corp. (NASDAQ:SNDK) is down almost 2.5% at $34.25, under the 52-week trading band of $34.43 to $59.75. This actually marks the bottom of a two-year trading range and now shares would have to fall back to $20-ish to reach the 2004 lows before this range was in place.  Maybe the company should have stuck with being the Flash memory leader rather than  having tried to compete against iPod sales with its own MP3 flash player.
  • Micron Technology (NYSE: MU) at $7.35 after today’s 2% drop is just under the new low 52-week lows of $7.37 after it’s earnings prove it can’t turnaround.  THIS ONE NEEDS A BREAK-UP.
  • Marvell Technology Group Ltd. (NASDAQ: MRVL) was a bit surprising to see, even if it has been losing its old steam.  This looks like it broke the lows of 2005 and this could fall to $10.00 before traders start pointing to any linear support on its chart.  Ouch.
  • STMicroelectronics NV (NYSE: STM) was a surprise to see on the list, but this is just a re-touch of the $14.34 lows.

Other key chip stocks and chip related names that are within about 3% of 52-week lows: AMAT, CHRT, IMOS, AMD…

Jon C. Ogg
December 27, 2007

Posted on: December 27, 2007 – 1:13 pm in HI/LOW, Semiconductor, , , ,

Boeing (BA) Picks Up An Order From British Air

The end of the year has turned out well for Boeing (BA). British Airways has put in an order for twenty-four 787 Dreamliners. The face value of the order is $4.4 billion, according to Reuters.

Douglas A. McIntyre

Posted on: December 27, 2007 – 12:21 pm in Airlines,

Financial Market Reactions On Bhutto Assassination (INP, IFN, IIF, MINDX, IBN, TTM)

It is unfortunate to have to analyze tragic international or domestic terrorism news from a financial angle on horrible news such as the murder of a foreign leader or a challenger for that leadership ahead of an election.  Pakistan opposition leader Benazir Bhutto was assassinated Thursday in a suicide attack at a campaign rally that also killed killed more 20 others (reports still vary).  The news of her death was reported after the Pakistan markets were closed. 

Investors are looking to see how far down the Karachi Stock Exchange will drop and one of the best proxies as to see how this will affect the Pakistani stocks is to look at the closest markets.  India is the closest and most tied (good and bad) to Pakistan, and the worries that this could create additional instability in the region has the ETF and the Indian funds that trade in the U.S. down considerably:

  • The major ETF that tracks India is the iPath MSCI India Index ETN (NYSE: INP), and it is trading down some 5% at $96.10 today.  Its 52-week trading range is $46.13 to $110.09.
  • There are two closed-end funds that track the performance of Indian stocks. India Fund, Inc. (NYSE: IFN) is also down some 5.1% at $59.40 today, and its 52-week trading range is $35.51 to $71.54.  The second is less actively traded, but the Morgan Stanley India Investment Fund, Inc. (NYSE: IIF) is down some 6% at $50.75, and its 52-week trading range is $38.29 to $66.56.
  • One open-ended mutual fund that we will not know how that trades really until tomorrow after we have a chance to see how those trade is the Matthews India Fund (MINDX).  These only trade at N.A.V. at the end of each day and these traded at $24.29 yesterday.  This fund started out 2007 at $15.62, so it is also up considerably.
  • A couple of the more liquid stocks that trade as ADR’s in the U.S. are ICICI Bank Ltd. (NYSE: IBN) and Tata Motors Ltd. (NYSE: TTM), and both are down close to 5% today.

This is potentially a very large political and geopolitical event that could end up with much greater repercussions than a mere 3%or 5% move.  The hardest part of interpreting these price reactions is that Wall Street is staffed with a skeleton crew this week and part of next week.  These are the go to stock and fund names to track the financial market reactions to the situation.

Jon C. Ogg
December 27, 2007

Posted on: December 27, 2007 – 12:08 pm in ADR, ETF, Mutual Funds, , , , , , , , , ,

Are Netflix & Blockbuster Watching Apple’s Video Deal? (NFLX, AAPL, BBI)

We’ve all heard by now that Apple (NASDAQ:AAPL) is in a deal with News Corp’s (NYSE: NWS) Fox for a movie rental download deal.  Apple is Since Apple TV is still referred to as a "hobby" rather than a solid business line, this deal won’t likely be a huge winner for Apple in the grand scheme of things.  Disney (NYSE: DIS) has had its catalog available on iTunes to allow for purchases, and other studios have partial movie and partial video content catalogs already available.  Maybe the rental feature will be better than the "buy it" feature, but we really doubt this will be a huge financial impact. 

But Blockbuster (NYSE: BBI) and Netflix (NASDAQ:NFLX) may at least on the surface be a potential spot for worries.  These may sell off on the news initially, but this won’t likely be a killer of those operations even if this allows users to rip and burn to PC’s or iPods.

Blockbuster (NYSE: BBI) has been nipped in the heels for years now by competition and by web programs like Netflix that has been a better operation.  Blockbuster’s online video rental program hasn’t been the success that Netflix’s has been.  But it’s hard to imagine that Steve Jobs’ latest ink signing deal is going to keep anyone out of a video rental store that still goes there now.   Blockbuster shares are up 10% from last week after the company raised its prices for its Total Access service.

We’ve already noted that the Apple deal may be a waste of time in the grand scheme of things.  Many Netflix loyalists are also iPod owners.  Maybe Netflix is a bit worried about this, but it just doesn’t seem like this will sway  its loyalists away.  So even though the logic trail seems an obvious one, it may be an exercise in futility.

This will take some time to take hold under any circumstances, so even if Apple manages to make this a success this wouldn’t be a real threat until maybe later in 2008 or even 2009.  First Call has the Netflix estimate for fiscal 2008 revenues at $1.31 Billion, and it has revenue projections for Blockbuster’s fiscal December 2008 pegged at over $5 Billion.  First Call has Apple’s fiscal September 2008 sales projections north of $31 Billion.

Join our free email distribution list for previews on IPO’s, spin-off’s, reorganization, restructuring, merger-arb, buyouts, M&A, and more.

Jon C. Ogg
December 27, 2007

Posted on: December 27, 2007 – 7:59 am in Entertainment, Internet, , ,

Goldman Sachs Raises Potash (POT)

Goldman Sachs is upgrading its prior Neutral rating on Potash Corp. (NYSE: POT) to a new BUY rating.  It is also calling for a 29% stock upside from here with a new $180.00 target.

  • Ken Heebner of CGM has been a bull behind Potash Corp.as well.  On September 28, 2007 he touted this stock on CNBC as one hehad been a believer in (and owned for some time).  Shares were around$105 then.  Potash closed at $143.41 yesterday and is indicated up at anew high around $148 in pre-market activity.

Goldman Sachs does note that shares have already seen a huge run-up, but they believe that further upside remains based on constant upward earnings revisions because Potash has the ability to raise prices due to strong demand and tight supply.  Goldman notes that record global grain prices will allow pricing momentum to remain into 2008. 

The estimates for fiscal 2008 have been raised from $5.50 EPS to a new $6.60 EPS, and fiscal 2009 estimates have been raised from $6.50 EPS to $8.50 EPS.

Jon C. Ogg
December 27, 2007

Posted on: December 27, 2007 – 7:47 am in Analyst Calls,

SPAC IPO FILING: Grand Slam Acquisition Corp. (APP, VRY, TCW)

Grand Slam Acquisition Corp. is a SPAC (special purpose acquisition company) that has filed to come public via an IPO.  But this is larger than most SPAC IPO’s with a $750 million proceeds target.  Each unit will consist of a share of stock at the $10 set SPAC price and will consist of a warrant.  Citigroup is listed as the lead underwriter.

As you can see by its filing, it is not honing in on a set business for the time being:  "Our efforts in identifying a prospective target business will not be limited to a particular industry although we will not search for target businesses in the financial services industry or the entertainment, media and/or publishing industry…. We do not have any specific initial business combination under consideration. We have not, nor has anyone on our behalf, contacted or been contacted by any prospective target business or had any substantive discussions, formal or otherwise, with respect to such a transaction."

While the target sector may not be disclosed, the SPAC says it wants to pursue stable leadership companies.  Here are the notes:

  • Established Companies with Proven Track Records;
  • Companies with Strong Free Cash Flow Characteristics;
  • Strong Competitive Industry Position;
  • Experienced Management Team.

The company is led by the old Endeavor Acquisition Corp. chairman Eric Watson, which just recently became American Apparel (AMEX:APP). He’s been around this game before as he has been behind other SPAC’s such as Victory Acquisition Corp. (AMEX: VRY) with a $390 million market cap today, Triplecrown Acquisition Corp. (AMEX: TCW), and Performance Acquisition Corp.

Join our free email distribution list for previews on IPO’s, spin-off’s, reorganization, restructuring, merger-arb, buyouts, M&A, and more.

Jon C. Ogg
December 27, 2007

Posted on: December 27, 2007 – 7:30 am in IPOs, , ,

China’s Car Market Gets Tougher

The Chinese are clearly getting tired of having their automotive markets dominated by joint ventures which benefit foreign companies like GM (GM) and VW. That may make it much harder for the big car companies to get sales from the fast-growing market.

In a sign that China plans to build out its own car industry, the Shanghai Automotive Industry Corporation and Nanjing Automobile Corporation. Shanghai Auto is a partner with both GM and VW, but good things never last forever.

Douglas A. McIntrye

Posted on: December 27, 2007 – 7:14 am in Uncategorized,

MRV Communications & Source Photonics Finally Live Up To Promises (MRVC)

MRV Communications, Inc. (NASDAQ:MRVC) is finally living up to its promise.  The company is making good on its promise to spin Source Photonics, which used to be Luminent, via an IPO.  An SEC filing yesterday does not have a set amount on the shares or a price indication, but MRV shares rose some 21% yesterday.

The tech outfit has a decent underwriting group for its size.  Cowen & Co and Credit Suisse will be the lead underwriters, and co-managers are listed as Needham & Co. and Merriman Curhan Ford.

MRV Communications has a mere market cap of $261 million based on a $2.50 close yesterday.  Its 52-week trading range is $2.01 to $4.50.  If this sounds familiar it may be because this was a Jim Cramer pick for this strategy, but shares were around $4.00 back then. 

We would caution that many of these smaller deals stay small regardless of the hype.  This small outfitter of communications equipment and optical components is a very thinly followed stock and now the underwriting group may not be able to issue "unbiased coverage" until 45 days after the IPO.

Join our free email distribution list for previews on IPO’s, spin-off’s, reorganization, restructuring, merger-arb, buyouts, M&A, and more.

Jon C. Ogg
December 27, 2007

Posted on: December 27, 2007 – 7:12 am in IPOs, Technology Companies,

Europe Markets 12/27/2007

Markets in Europe were up modestly at 7.05 AM New York time.

The FTSE rose .2% to 6,494. Barclays (BCS) fell 1.7% to 508. RBS (RBS) rose 1.3% to 448.5.

The DAXX moved up .8% to 8,067. Deutsche Bank (DB) moved up 1.8% to 89.42. Man AG rose 1.6% to 111.78.

The CAC 40 traded higher by .7% to 5,653. AXA (AXA) rose 2.7% to 27.68. Cap Gemini fell 3.2% to 43.55.

Data from Reuters

Douglas A. McIntyre

Posted on: December 27, 2007 – 7:09 am in International Markets, , , ,

Oil Moves Back Toward $100

In a sign that the eco-system that determines oil prices is more fragile with each passing month, oil is back to $96 a share.

The conflict between the Turks and Kurds have helped move prices up, as have concerns about US demand for crude. Neither is a major factor in the world supply of oil, but the reaction is akin to watching 100 super-tankers sink to the bottom of the ocean with millions of barrels of crude on board.

The truth about oil is that the reasons for price moves are increasingly unstable, and that will tend to move oil prices higher.

Panic is taking on the scent of gasoline.

Douglas A. McIntyre

Posted on: December 27, 2007 – 7:02 am in Oil & Gas

Apple (AAPL) At $200: The Madness Of Crowds

This holiday, the press is replete with stories of sales of Macs on the Amazon (AMZN) website and the transcendent experience of shopping at an Apple store. Perhaps all of those consumers also bought a share of Apple, or maybe Wall St. has just fallen in love with the stock.

Yesterday, the shares moved above $200. Twenty months ago, they traded just above $50.

What investors don’t want to be told is that the barriers to Apple moving higher have become tremendous. In the fiscal year ending September 29, iPod sales rose 31% to 51.63 million units, according to the company’s 10-K. That is a large increase, but the growth rate is slowing, and year-over-year comparisons are going to be less spectacular as time passes.

The iPhone may well hit its goal of selling 10 million units by the end of 2008. The global handset market is now over one billion units a year. But, the smartphone end of that market is getting crowded and most of the competition comes from companies who know what they are doing–Research In Motion (RIMM), Nokia (NOK) and Sony Ericsson. Getting the next 10 million units is going to be harder for Apple. Competitors are likely to be willing to cut more financially liberal deals with carriers than Apple is. Until proved otherwise, the iPhone is a niche product and the niche is filled by several companies.

Much of the company’s success rests with the Mac. In the last year, the computers were almost half of Apple’s revenue, and Mac revenue rose 40% over the previous year.

But, PC companies are digging in and building computers which are more competitive. Dell (DELL) has just launched a product aimed directly at the Apple machine. Hewlett-Packard (HPQ) is still by far the largest PC company in the world. and it is likely that it will use a mix of price and product features to keep Apple’s share small. Unlike its place in the portable media player space. Apple is fighting from behind to try to pick up sales in the computer market, and each PC company is aided by Microsoft (MSFT) and its goal of increasing revenue from Vista.

The things that helped Apple’s stock may no longer be present. It entered the media player market when the use of digital media was still in its early stages. That made growth a bit easier to come by. Apple’s share of the computer market is still small, but its larger rivals want to keep it that way. The same holds true in handsets.

The air will be much thinner for the rest of Apple’s climb.

Douglas A. McIntyre

Posted on: December 27, 2007 – 6:50 am in Consumer Electronics, , , , , , ,

Citigroup (C) As A Growth Stock

Analysts at Goldman Sachs think Citigroup (C) will have to cut its dividend 40%. Their expectation is that the big bank "may write off $18.7 billion in collateralized debt obligations" in the fourth quarter, according to Bloomberg. The bank has a float of about five billion shares so a cut is worth a lot of money.

Citi has said several times that it will not cut its dividend, but, at 7% yield, it is high compared to most other banks. The fact of the matter is that no one with any sense is buying shares in the bank for their yield. The 7% could be wiped out in a day if bad news knocks the stock down again. Since it is off by almost half this year, that is a distinct possibility.

Citi has become a de facto growth stock, whether the company’s board and management like it or not. The dividend has no place in the list of reasons Wall St. would consider when investing in the shares. The fact of the matter is that one good quarter or the sale of a major division of the firm could move the stock up $5 or $10 which is a return of as much as 30% over where Citi trades now.

Citi has become what no bank wants to be. It is a speculative investment. It is a large cap stock with small cap dynamics. The dividend should be cut. No one is investing is a distressed financial institution in the hope of clipping coupons.

Douglas A. McIntyre

Read More »

Posted on: December 27, 2007 – 6:28 am in Financial Stocks,

Apple’s (AAPL) Deal With Fox, A Waste Of Time

Apple (AAPL) has signed a deal with News Corp’s (NWS) to rent Fox studio movies on iTunes. Apple looks at it as something of a break-through. iTunes subscribers have been reluctant to buy movies.

“Fox and potentially other ­studios are coming around to the idea that there is nobody out there to challenge iTunes,” said Jonathan Weitz, a principal with IBB Consulting quoted in the FT.

But, most industry experts note that Apple has not done very well selling video. A look at the iTunes site shows that most videos rent for about $12. It is hard to imagine that this is a barrier to consumers wanting to get TV and movie offerings.

The explanation may be much more simple. People do not want to watch video content on a 2 inch by 2 inch screen. It is simply too hard to see. Music listening is not "screen dependent" at all.

Video is not a "little screen" product, no matter how many deals Apple does.

Douglas A. McIntyre

Posted on: December 27, 2007 – 6:14 am in Media, ,