Daily Archives: February 9, 2008

Yahoo!’s (YHOO) Demented Board

Yahoo!’s (NASDAQ: YHOO) board will presently reject a $31 a share buy-out bid from Microsoft (NASDAQ: MSFT), according to The Wall Street Journal. The group thinks the offer is undervalued and will not look at any offer under $40 a share.

For the record, Yahoo!’s shares have been above $40 only very briefly in the last five years. That was in late 2005 and early 2006. Only five weeks ago, the traded below $19. The question becomes whether there is any case to be made that the Yahoo! board is acting as proper fiduciaries. The answer is almost certainly "no."

Two generations of management have had ample opportunity to fix what is wrong with Yahoo!. They have not been able to do it, perhaps because it cannot be done. Over the last five years the importance of internet portals has dwindled. The struggles of Yahoo! are mirrored in problems at its peers AOL and MSN. The internet marketplace is now dominated by search and that realm belongs to Google (NASDAQ: GOOG).

If the Yahoo! board could point to a template for success, it might be able to make a case that the company should stay independent. There is no model it can point to. A highly successful internet portal business does not exist. Yahoo! has the No.2 spot in the search business which demonstrates that even that position is not valued much by the stock market. Yahoo! trades at 5.8x revenue. Google trades for 9.5x. The Yahoo! board wants Microsoft to give it a value closer to Google’s. It is a position without a defense.

No one will pay twice what Yahoo! traded for last month. If the management could have gotten the shares above even $30 for a period of time, they would have. All they have proved is that it can’t be done.

Douglas A. McIntyre

Posted on: February 9, 2008 – 1:11 pm in Mergers and Buy Outs, , ,

Yahoo! (YHOO) To Reject Microsoft (MSFT) Bid

Yahoo! (YHOO) will reject the Microsoft (MSFT) bid to buy the web portal firm. According to The Wall Street Journal after a series of meetings over the past week, Yahoo’s board determined that the $31 per share offer "massively undervalues"

The Yahoo! board apparently wants $40 a share for the company.

Not likely

Douglas A. McIntyre

Posted on: February 9, 2008 – 12:39 pm in Mergers and Buy Outs, ,

Sovereign Funds Want No Regulations, Congress Can Take A Hike

Large sovereign funds are being encouraged to adopt a "code of ethics" The governments in the US and UK are particularly interest in this. Their concern is based around the big money from China, the Middle East, and Singapore taking huge positions in larges banks and public companies and using that ownership to push their political agendas.

The sovereign funds insist that all of their investments are merely financial. The companies into which they place money have nothing to fear. It is like the Mitt Romney comment about his religion. His church will not dictate government policy.

According to The New York Times "leaders of funds in Russia, the Middle East, China and other parts of Asia say that the West’s demand for regulations is hypocritical in light of the failure to regulate European and American banks and hedge funds." It is tautological reasoning that two wrongs can make a right.

Sovereign funds have no place to put billions of dollars if they are going to avoid investing in companies based in the major developed countries because government wants a role in overseeing them. There argument is that troubled financial institutions need their capital. But, the power of legislation can trump that. Whether is is right-headed of not, the Congress can say "stay out of our businesses unless you sign up for investing that is transparent and does not compromise the national security." Otherwise, go invest in Venezuela.

Douglas A. McIntyre

Posted on: February 9, 2008 – 10:37 am in Regulation

This week on Stockhouse February 4 – 8

Uncertainty and hesitation marked recent market action, though selling pressure won the week.

Markets had a rough week as economic news rolled in with data that fell well below expectations, including a sharp downward spike in the ISM non-manufacturing index. Company earnings for Q4 continued to not impress, while gold remained relatively range-bound. North of the border and on the plus side, Canada added more than four times the jobs expected in Stats Can’s latest report, which contributed to an unemployment rate that matched a 33-year low also touched in October.

Read More »

Posted on: February 9, 2008 – 10:31 am in Uncategorized

Cramer’s Grooming Tip: Get A Brazilian (PBR, RIO, AMX, GFA, MELI, GOL, EWZ)

This week on MAD MONEY on CNBC, Jim Cramer had some international advice.  He wants portfolios to have Brazilians, but not the waxing type.  He has an oil play, a metals and mining play, a Latin American telecom play, and even a housing play.  Below are his picks and some of the stats for the stocks, and we followed up with some other recent Cramer picks for Brazil or Latin America and even threw in the more diversified ETF’s:

  • Petroleo Brasileiro (NYSE: PBR), or PetroBras, is Brazil’s integrated oil play that has quietly become one of the larger oil stocks with a $244 Billion market cap. At $111+, it spent much of this last week roughly 10% off of highs, and its 52-week trading range is $41.38 to $119.16.  This is also one of Ken Heebner’s long-term favorites in the sector.
  • Companhia Vale do Rio Doce (NYSE: RIO) is a diversified metals and mining company that operates globally, and its market cap is $146.6 Billion as of now.  At $30.35, its is nestled between its 52-week trading range of $15.57 to $38.32. 
  • Another of his picks for Brazil was actually the Mexico-based America Movil S.A.B. de C.V. (NYSE: AMX) as the wireless and fixed telecom play for all of Latin America.  This is a Carlos Slim entity, and its market cap is now $102 Billion.  This had roughly 150 million subscribers throughout Latin America.  Not bad for a company whose origins go all the way back to 2000, wait only 8-years?  On a split-adjusted basis this is still up 10-fold since coming public in February 2001.
  • The last Cramer pick in Brazil was homebuilder Gafisa S.A. (NYSE: GFA).  At $30.85 this market cap is only about $4 Billion, small for picks this week, and shares are nestled in a $20.67 to $42.74 range of the last year.  This one has barely been public for a year, and we had previously noted how this was Sam Zell’s investment down in Brazil. Apparently Brazil’s housing market growth is not yet having the same issues of over-inflated prices with poor overextended borrowers like in the U.S.  Hopefully they know to look north and now see what problems to avoid.

Another recent Cramer pick on Latin America was the individual and corporate e-commerce platform provider MercadoLibre (NASDAQ: MELI), although this one was battered and deep fried in recent weeks and we recently questioned whether or not you should buy the stock since it tapped the secondary markets this soon.  It is based in Argentina, but also has ‘clientes’ in Brazil and elsewhere in Latin America.  In the past Cramer also noted GOL as the airline of choice for Brazil.

We know that Cramer would rather have a diversified portfolio of roughly five large stocks at any time rather than mutual funds, but there are many diversified ways to play the Brazilian stock market without having to choose one of the individual stocks.  If investors want to diversify via ETF’s, there is always the iShares MSCI Brazil Index (NYSE: EWZ).  It closed at $75.11 Friday and its 52-week trading range is $39.80 to $87.67.

A way to partially play Brazil with more diversification is also the SPDR S&P BRIC 40 (AMEX: BIK), although as a "BRIC" play you have to understand that this is more geographically diversified as Brazil, Russia, India, and China. The iShares also has a similar one called the iShares MSCI BRIC Index (NYSE: BKF), and Claymore has the Claymore/BNY BRIC (AMEX: EEB).

Jon C. Ogg
February 9, 2008

Posted on: February 9, 2008 – 9:24 am in ADR, Cramer, ETF, International Markets, , , , , , ,

SEC Wants To Rate Ratings Agencies

Ratings firms like S&P, Moody’s, and Fitch had such monstrously poor track records covering the risks of subprime financial instruments that the SEC may take a hand in regulating them

It’s a good idea. At the heart of the proposed action, the government would take data on past ratings and see how these performed over time. This information would be public. In an open market like this the ratings firms which do poorly are likely to lose most of their business. That would be fine.

So far the ratings firms have been able to avoid normal market forces which would keep track of how well they serve their customers. That may be about to come to an end.

According to The Wall Street Journal "The Securities and Exchange Commission may soon propose rules that require credit-ratings firms to disclose the accuracy of past ratings and distinguish between various products they rate." After the companies let down such a huge portion of their customers, that is only fair.

Douglas A. McIntyre

Posted on: February 9, 2008 – 8:44 am in Analyst Calls

Earnings Preview: Vonage (VG)

This coming Wednesday morning, we’ll get to see Q4-2007 earnings out of Vonage Holdings Corporation (NYSE: VG).  Despite this one being one of the worst IPO’s ever, Vonage still has a cult following behind it.  It seems you can find as many bulls and believers as you can those who think it is a doomed business.

The company is expected to keep posting losses, but estimates from First Call for the VOIP telephony company are -$0.10 EPS on $219.41 million in revenues and next quarter estimates are -$0.10 EPS on $227.8 million in revenues.  Estimates for fiscal 2008 are -$0.21 EPS on $943.48 million in revenues.  Its market cap is $310 million.

Vonage’s history of meeting or beating earnings is a spotty one and a bad one alike.  Analysts have an average price target of roughly $3.50, although most are cautious on the stock and this would represent a 75% gain to the $1.99 stock price.  This chart, if you want to use a chart for a $2.00 stock, has been a weak one for the last 60 days, although we’d note that its lows on each sell-off have been a wave of higher lows.  Its 50-day moving average is also $2.03 and its 200-day moving average is $2.33.

Despite the settlements with the Bells, many still question the viability of the company.  Its legal officer recently announced his plans to leave now that most of the key settlements have been reached.  The company ended last quarter with over $355 million in cash and equivalents, although this number has been reduced significantly now because of restricted cash from settlements.  We’ll have to see what the company lists as a payment schedule for its legal settlements before giving this one the final thumbs up or down for a long-term viability model.

Last quarter, the company added 78,000 net subscriber lines and ended with more than 2.5 million lines in service.  Its average monthly churn was 3.0% last quarter.

Vonage Holdings Corporation’s 52-week trading range is $0.89 to $5.94.

Jon C. Ogg
February 9, 2008

Posted on: February 9, 2008 – 8:01 am in Earnings, Internet, Telecom, ,

Time For Yahoo! (YHOO) Board To Wave White Flag

The Yahoo! (YHOO) board and management could have done an out-sourcing deal some time ago to license its search business to Google (GOOG). It would probably have picked up some money beyond what it makes with its own search features. The Google system gets higher advertising revenue yields. Yahoo! could have saved money by cutting R&D staff as part of the bargain

But, the board never took that step. They obviously did not think it was in the best long-term interest of shareholders to farm out such a strategically critical function. Yet, the board is turning to the Google options as an alternative to being taken over by Microsoft (MSFT). Suddenly, it has become a viable alternative.

The actions of the board raise the question of whether they performed their duty for shareholders in the past or if they were right. Giving a company’s most important function to an outsider can never be an option.

Either way, the Yahoo! management has not been able to keep the firm’s stock above $30 for most of the last two years. Except for the run-up on the bid from Microsoft, the portal’s stock has lagged the Nasdaq.

Steve Ballmer is not going to raise his bid for Yahoo!. He does not have to. The Google option means going to regulators and saying the No.1 and No.2 search companies want to get married. That won’t fly.

The Yahoo! board has to take the one best path open to it, admit that things have gone badly, and take the Microsoft offer.

Douglas A. McIntyre

Posted on: February 9, 2008 – 8:00 am in Mergers and Buy Outs, , ,

Earnings Preview: Baidu.com (BIDU, GOOG)

On Wednesday afternoon, we’ll get to see earnings out of Baidu.com, Inc. (NASDAQ: BIDU). The estimates from First Call for the Chinese internet search engine were $0.71 EPS on $76.83 million in revenues.  Next quarter’s revenue estimates are almost $77 million.  Estimates for fiscal 2008 are $4.13 EPS on $432.35 million in revenues.  Last quarter, the company gave guidance of $74.7 million to $76.7 million in revenues and EPS targets around the time were $0.70 EPS.

Analysts have an average price target north of $382, which is still more than 50% higher than today’s prices.  Baidu’s chart hasn’t been a pretty one over the last 60-days.  Over recent days the stock did bounce off of a $222+ level, although it is now under its 200-day moving average of $252.76.  If options prices stayed static from here, it appears that options traders would currently be factoring in a move of $14.00 to $18.00 in either direction.  We would expect this number to change by Wednesday.

Recently the entire China play and the entire Internet play has come under pressure after a long period of euphoria.  Baidu does usually exceed estimates, although its pattern is hard to peg.  Recently we noted how it was in the same soup as Google (NASDAQ: GOOG) and others, yet we recently noted how its market share in search puts it in a precarious spot.  Even the beloved Google recently followed the Internet sell-off trend.  With roughly an $8 Billion market cap this one still trades at more than 18-times 2008 revenues, so even though the stock is way off highs it is hard to call the stock cheap by even Chinese and internet measures.  The company did also recently lose its CFO after he died in an accident over the Christmas holiday.

Baidu.com closed up marginally at $233.91 on Friday and its 52-week trading range is $92.80 to $429.19.

Jon C. Ogg
February 9, 2008

Posted on: February 9, 2008 – 7:33 am in China, Earnings, Internet, ,

Earnings Preview: Applied Materials (AMAT)

On Tuesday afternoon, we’ll get to see earnings out of Applied Materials Inc. (NASDAQ: AMAT). The estimates from First Call for the semiconductor manufacturer $2.01 billion in revenues.  Estimates for fiscal October 2008 are $8.75 billion in revenues.

Analysts have an average price target north of $23.  Based upon static pricing, options are currently factoring in a price move of $0.57 to $0.66 in either direction.  That number will likely change by Tuesday afternoon.  The 50-day moving average has been a pivot point and is currently $17.80, while the 200 day moving average is $19.49.

While Wall Street might try to hang on to this closely as one of the few key tech stocks posting earnings, by now it is hard to expect any major overperformance demands from the leader in semiconductor chip equipment players.  We have already seen chip companies give their cap-ex forecasts for 2008, and that tends to lead Applied Materials’ guidance rather than Applied Materials leading the tech sector expenditure forecasts.  Maybe the company will spend more time talking up its long-term solar plans.

Applied Materials closed at $17.93 Friday and its 52-week trading range is $16.13 to $23.00.

Jon C. Ogg
February 9, 2008

Posted on: February 9, 2008 – 7:09 am in Earnings, Semiconductor,