Friday, May 18, 2007

Subprime woes create mortgage opportunity

Neil George has an uncanny knack for seeing below the surface, often finding hidden values or investment opportunities that others have overlooked.

One example from his Inner Circle -- a premium service designed for more sophsticated investors -- is his recent foray into  mortgage lenders that have suffered from the subprime fallout.

“Our plays on the overreaction to the subprime loan fiasco are right on track and doing well for us. We’re up approximately 15% on American Home Mortgage (NYSE: AHM) and a bit more than 12% on NewCastle Investment (NYSE: NCT).

“American Home Mortgage has a chunk of its portfolio in so-called ALT-A mortgages. ALT-A loans are for borrowers with solid credit scores but include some non-traditional income and non-traditional properties in their mortgage applications.

“There’s some risk here, but let’s put it into perspective. The nationwide rate of delinquencies in ALT-A is running at 0.5% on a 90-day basis.

“Most big commercial banks would be thrilled with corporate borrowers posting such a record. And the ALT-A delinquency rate is less than 20% of that for subprime. This isn’t the same problem.

“Foreclosures represent a tiny fraction of the overall market -- approaching only a sixth of the rate for subprime. American Home Mortgage is a well-managed company holding a good portfolio. With some quick money sitting on the table, we’re still buying more.

“New Castle has even less exposure on the issue of lower-graded debt. But like others in the market, it’s been slashed by the same claws and blood is spurting.

“Buy both American Home Mortgage and New Castle for the return of reality in their share prices in the shorter term. We'll be thrilled to pick up some monster dividends along the way. Both mortgage stocks are buys at the market.”

posted at 11:52 AM 4 comments

Thursday, May 17, 2007

Investing in 'junk' bonds: Fidelity foursome

Few in the newsletter field have as long-standing an expertise in funds as Jim Lowell, who publishes several specialized services for this market.

One particular area of noted expertise is in his assessment of Fidelity funds, which he analyzes for readers of his Fidelity Investor. From a recent review of Fidelity’s bond offers, we offer highlights of his favorites among their “junk bond” plays.

“Fidelity Capital & Income (FAGIX) and Fidelity High Income (SPHIX) hold bonds rated below BBB (the definition of “junk”) as well as unrated bonds, some dollar-denominated foreign debt, and even a fraction in common stocks or bonds convertible into common stock.

“In practice, Capital & Income has been somewhat more volatile, in part due to larger holdings in equities (16%) and foreign bonds.

“Fidelity Strategic Income (FSRIX) would appear to take on similar risks, but has been less volatile with its diversified portfolio of about 40% in junk bonds, 30% in US higher-quality bonds, and 30% divided between foreign established and emerging market debt.

“While junk bond funds are the riskiest portion of the domestic bond market, they’re still less risky than stock funds (except for funds like Balanced and Puritan, which hold a mix of relatively stodgy stocks and investment-grade bonds).

“In short, any investor who can afford to take on stock market risks – and most investors with time horizons over 5 years should – can afford to take on junk bond risks. Over the years, we’ve profited handsomely from our stake in Capital & Income.

“While Capital & Income and High Income have average maturities of 8.4 vs. 6.6 years, which would usually mean a duration of about 6 to 5 years, Fidelity does not provide duration estimates for the funds. Their actual 12 month yields are 6% and 7% respectively.

“That’s because durations are pretty had to figure for bonds that are mostly fluctuating based on credit risks: if interest rates shoot up, these bonds might or might not get hit, based on perceptions about economic strength, the reason why the rates went up, and whether those conditions would affect the health of leveraged corporations.

“Fidelity Floating Rate High Income (FFRHX) is basically a junk bond fund with an effective maturity of about a half year. This is more unusual than it sounds, because companies with low credit ratings can’t rely on short-term bonds; at the first downturn, they wouldn’t be able to roll over their constantly maturing debt.

“Instead, they issue longer-term bonds whose interest rates are regularly re-set based on some interest benchmark. (Sort of like a 30-year mortgage whose rate is reset annually.) When buying the fund you get rid of the interest risk, but keep the credit risk.

“Given the relatively decent yields the fund is offering (6.33%), that may be a good deal, but only for investors comfortable with junk (or stock market) risks.”

posted at 11:51 AM 1 comments

Payne's play on China's JOBS

“I consider myself one of the most bullish people on Wall Street, but I’ve been in awe of the way the market has acted,” notes Charles Payne, editor of Wall Street Commentaries.

Here, noted Fox TV business news regular explains why he still considers U.S. stocks to be “cheap” and highlights a recent recommendation – 51 Jobs (NASDAQ: JOBS), a Chinese recruitment firm.

“It wasn’t that the market soared in April that was so suprising, but how it fought off almost daily attempts to derail the rally. After struggling with the Federal Reserve and the interest rate guessing game that obviously weighed heavily on the market, stocks were able to react primarily to earnings results and corporate guidance.

“Not only was there a rebound in the amount of companies that beat the consensus earnings estimates, but also earnings have been substantially higher than what was expected.

“This refrain Sell in May and Go Away’ has become so ubiquitous that it’s ready to take the place of ‘buy low sell high’, so there will be a certain self-fulfilling angst that could take mundane sessions and turn them into big time losing ones.

“Meanwhile, the stock market is cheap. I can’t believe how many professionals march on television everyday to say stocks are overvalued, or have gone too far too fast. The market is playing catch up, and still has a long way to go.

“We should also note that billions of dollars in stocks have been bought back from publicly traded companies, meaning supply is shrinking fast. The fact of the matter is the American stock market has lagged the rest of the world even though large-cap U.S. companies are huge winners in the rise of the rest of the world’s economies.

“In addition, there is the stability factor along with the sustained earnings power and potential. Just imagine how the U.S. market is going to act once it is deemed a ‘hot’ one.

“Among our latest stock recommendation is 51 Jobs (NASDAQ: JOBS). The company is a China play that was once all the rage, but seems to have fallen off everyone’s radar.

“The company’s shares are changing hands at a price to tangible book ratio of just 3.72 versus 10.00 for the industry, and yet the company’s sales growth is outpacing its rivals. In addition, gross margin is 55.0% versus the industry average 44.0%.

“Technically, the stock breaks out through $18.00 (that may be when the fast money crowd moves back in), and then has a clear shot to $22.00. Our one year share price target is $28.”

posted at 11:47 AM 0 comments

Wednesday, May 16, 2007

Caterpillar and the future of remanufacturing

“Remember that one-word career advice given to college graduate Benjamin Braddock in the classic film The Graduate?” asks David Fried. “Plastics.”

The editor of The Buyback Letter states, “Now, we have a new suggestion for a single word that is going to transform the way business is done in the future: remanufacturing. And the world’s largest remanufacturer is Caterpillar (NYSE: CAT).

“Remanufacturing is the ultimate recycling – actually, similar to recycling, but much more extensive. It involves taking a product apart; cleaning, fixing or replacing worn parts; upgrading the technology where possible; and then putting it back together.

“And noone does this as extensively and consistently as Caterpillar, which we own in our portfolio. Caterpillar, as you probably know, manufactures construction and mining equipment, diesel and natural gas engines, and industrial gas turbines.

“Cat launched its remanmanufacturing –- or reman -- business in the 1970s and today processes more than 2 million units annually and recycles more than 100 million pounds of remanufactured products each year.

“Reman products can cost, on average, half of what new ones do, and the business can be very profitable for companies that do it well, like Cat. Its remanufacturing unit tallied more than $1 billion in sales in 2005 and Cat expects it to grow 15% annually. Bottom line, it’s one of Caterpillar's fastest-growing divisions.

“Cat is heavily into reman research. But equally important is that its product designers purposefully consider remanufacturing during the front-end of the manufacturing process. For example, a thicker part might cost $1 more to produce, but if they can get two to four reman lives out of it, it will be well worth it.

“Think about it: generally, 70% of the cost to build something new is in the materials and 30% of it in the labor. Remanufacturing turns that equation on its head. In most cases, according to reman companies, the overall cost usually runs less than 70% of building a brand new product.

“As if all that isn’t enough, remanufacturing is also simply the right thing to do from an environmental perspective – something even avowed capitalists are considering these days as we collectively realize the limitations of our planet.

“Caterpillar has been solidly extending its reman reach for several years. In 2004 Cat bought two reman companies that serve the auto industry, and reopened a British plant that had been converted to remanufacture military tanks, railroad engines and truck transmission systems.

“Last year, Cat became the first foreign company licensed to assist the Chinese government in the development of a remanufacturing industry. Cat also opened a plant in Shanghai that will function as its Asian remanufacturing center for old motors and hydraulic pumps.

“Overall, Caterpillar is looking very good to us. The company reported better-than-expected quarterly earnings and raised its outlook, saying ‘exceptional growth’ outside North America was offsetting weakness in the U.S.

“Also, take note that there have been no insider sales at Cat for the trailing six months, a fairly extraordinary thing given the size of the company. We also are bullish on Cat because of its $7.5 billion stock buyback over the next 5 years.

“It is the fourth program of stock buybacks since 1995, and during that 12-year period, Cat has returned $8.5 billion to stockholders through repurchasing. In the last 12 months, Caterpillar has reduced shares outstanding by 3.7%.”

posted at 11:46 AM 0 comments

Flying high: Investing in 'composite' metal

”At first glance, the upcoming Airbus A380 and the Boeing 787 Dreamliner planes look much like existing commercial models – but nothing could be further from the truth,” says Elliott Gue.

In Personal Finance, the editor notes, “Both are 20% to 30% more fuel efficient than any planes currently flying, due largely to lightweight composite materials.” Here, he looks at a trio of stock involved in the “composite” industry.

”Composites are formed from two dissimilar materials—usually a reinforcing fiber and an adhesive epoxy or resin. Carbon-fiber composite is the most commonly used in aircraft construction; some composites contain metal alloys of aluminum, titanium or lithium.
 
“And it’s not just airplanes that use advanced materials; wind-power blades, oil rigs and sporting equipment all use high-strength, space-age materials. That spells soaring demand and solid growth for a handful of companies involved in their manufacture.

”Hexcel (NYSE: HXL) is the world’s largest producer of prepregs for the aerospace industry. Prepregs are woven carbon-fiber sheets that have been impregnated with specialized epoxies or resins. When chilled, these sheets remain flexible and can be bent to shape or pressed into molds.

”Once shaped, these prepregs are heated in an oven known as an autoclave. The epoxy hardens to create lightweight carbon fiber composite material.

”Outside aerospace, the wind power industry is fast becoming Hexcel’s most important source of revenues. In fact, wind power is the company’s fastest-growing major source of revenue; Hexcel projects at least mid-teens growth from that line this year.

”The stock got hit last year for two reasons: a slowdown in military orders for fibers used in bulletproof vests and the delay of the A380 plane. But orders related to the A380 will accelerate later this year, and the 787 remains on schedule.

”When it comes to raw carbon-fiber materials, Zoltek (NSDQ: ZOLT) is a global leader. The company has two carbon-fiber factories, one located in Texas, the other near Budapest, Hungary.

”Zoltek sells some aerospace-grade fiber and has a leading market share in aircraft brakes. But with most of the world’s manufacturers concentrated on producing aerospace-grade materials, the commercial market remains underserved, particularly the wind-power market. That’s exactly the market Zoltek is targeting.

”The company’s Hungarian carbon-fiber plant is the largest and lowest-cost carbon-fiber production facility in the world; Zoltek has expanded the plant’s capacity to meet burgeoning demand. And Zoltek already supplies two of the world’s top wind-power plant manufacturers, Denmark’s Vestas Wind and Spain’s Gamesa.

“Allegheny Technologies (NYSE: ATI) derives close to 70% of its revenues from high value-added metal materials such as titanium, nickel and tungsten-based alloys.

”Like carbon-fiber composites, titanium-based alloys are also becoming more important components in commercial airliners, supplanting traditional steel and aluminum. Titanium weighs about 50% less than steel but is equivalent in strength and more heat-resistant.

”Consider that the Airbus A320 and Boeing 737 each contained around 25,000 pounds of titanium. In contrast, the A380 and the B787 contain a whopping 150,000 pounds and 250,000 pounds of the metal, respectively.

”Aircraft demand accounts for about a third of Allegheny’s sales. The company is exposed to a number of other high-growth end-markets such as alloys used in oil drill bits and specialty metals used in the manufacture of nuclear reactors. Buy Allegheny Technologies under 125.”

posted at 11:45 AM 0 comments

Tuesday, May 15, 2007

S&P makes Best Buy a 'Best Buy'

Best Buy (NYSE: BBY) was selected Standard & Poor's The Outlook at its “Stock of the Week,” a pick that is chosen from among those stocks that earn the coveted 5-star strong buy ranking.

The service notes that it expects the retailer “to benefit from strength in consumer-electronics spending and an ability to outmaneuver competitors.” Here’s the reasoning behind making Best Buy, American’s largest specialty retailer of consumer electronics, a “best buy.”

“We think that the healthy consumer-electronics cycle will continue to propel sales and earnings growth despite an expected slowdown in consumer spending. We also think that aggressive expansion and a continued focus on service levels will allow Best Buy to increase overall market share and build loyalty with consumers.

"As of Mar. 3 of this year, it operated 869 Best Buy stores (822 in the U.S. and 47 in Canada), 20 Magnolia Audio Video stores, 14 Pacific Sales showrooms, and 12 Geek Squad stores in the U.S. It also operates 121 Future Shop stores in Canada, 135 Five-Star stores in China, and one Best Buy China store.

”While the market remains fairly fragmented, the top three players have a nearly 50% share. Best Buy leads the way with an approximately 25% share, followed by Wal-Mart, with 15%, and Circuit City, with 9%. Competition is fierce, and we believe that retailers who differentiate themselves, either through service, marketing, or product mix, will benefit.

”We expect further development and increased adoption of digital products to boost future sales of consumer electronics. Longer term, we expect a growing convergence between computers, televisions, cameras, and telecommunications equipment.

“Thanks in large part to a healthy consumer-electronics cycle, Best Buy recently posted revenue growth of 16.5% in fiscal 2007 ended February, including a same-store sales gain of 5.0%. Earnings per share increased 23%, to $2.79. While we expect growth to slow somewhat in fiscal 2008, we remain confident that strong product cycles will continue to drive impressive results at Best Buy.

”Because of its detailed attention to customer service, which we think differentiates the company from other low-cost retailers, we believe Best Buy will continue to remain the retailer of choice when consumers are seeking to purchase a new TV or home theater system.

”Global expansion remains a priority for Best Buy, and we believe the company can continue to drive strong square footage growth over the next several years, including global gains of approximately 10% in fiscal 2008 (this would represent the highest square footage increase for the company in several years).

“We also find the company’s Apple partnership to be promising. While nothing has been mentioned by the company yet regarding the Apple TV or iPhone, we think a relationship beyond computers and iPods would be beneficial for both parties.

”We believe Best Buy has one of the stronger balance sheets in our specialty retail coverage universe, with over $3.7 billion in cash and short-term investments (as of Mar. 3, 2007). In fact, Best Buy's net cash position equals about $6.50 per share. Excluding the net cash position, we note that Best Buy stock trades at just 13.2 times our fiscal 2008 EPS estimate.

”Our discounted cash flow (DCF) valuation suggests an intrinsic value of $63 for Best Buy shares. This value, which is also our 12-month target price, is about 30% above the recent price, and approximately 20 times our fiscal 2008 EPS estimate.

”Finally, we think the company's valuation is compelling. Best Buy shares trade at a price-to-earnings multiple below its peers and in line with the broader market, despite sporting greater growth potential and what we consider to be a stronger balance sheet. These factors help the stock earn Standard&Poor's highest investment ranking of 5 STARS (strong buy).”

posted at 3:51 PM 0 comments

Monday, May 14, 2007

Weak dollar props global stocks

“The U.S. dollar has always recovered after sinking as low as it is now; this time it may make new lows,” says Marvin Appel in Systems & Forecasts. Here’s how this can impact investors.

“How do we reconcile the market’s strong performance with the sluggish economic climate? Ultimately, it comes down to valuation. Interest rates are low relative to the earnings yield of stocks. That provides plenty of incentive to borrow in the bond market and use the proceeds to buy shares.

“We are seeing favorable valuation manifest itself in the high level of buyouts and share buybacks. The good times can last for as long as interest rates remain low and earnings remain at current overall levels.

“Meanwhile, international stocks beat the S&P 500 index handily in local currency terms during the past four years, which has been a highly profitable period for stocks. Based on long-term relative strength trends, international stocks remain favored over U.S. stocks.

“I continue to recommend the highly liquid, low expense exchange traded fund, MSCI EAFE Index (ASE: EFA) as the best way for active investors to gain exposure to the international markets.

“The problem for the U.S. dollar is that real short term rates increased from –1.1% to +2.3% in 2005-2006, yet the dollar is as low as it was when real interest rates were negative. If the current weakness in the dollar is the best it can do when real rates are higher than average, the floor will fall out when real rates start to drop again.

“For this reason, the trend favoring international stocks will continue through the rest of the year. When the Fed starts tightening, that will likely prove to be the time when international stocks begin t lag our own.”

posted at 12:10 PM 0 comments

Two Taiwan techs

“Fears about a breakdown in relations between China and the US are not realistic,” observes Jim Trippon, editor of The China Stock Digest who he looks to two Taiwan tech ideas.

“Fears about a breakdown in relations between China and the US are not realistic,” observes Jim Trippon, editor of The China Stock Digest who he looks to two Taiwan tech ideas.

“Don’t let the political rhetoric fool you; America and China may talk tough in public, but both nations benefit enormously from China’s rise as an economic power.

“Himax Technologies (NASDAQ: HIMX) is an integrated circuit design company that designs, develops, and markets the electronic parts that operate the LCD television and computer screens which have become a part of the electronics of everyday life.

“Himax expects small and medium-sized screen demand will continue to grow as the company adds new customers and products. We maintain our “buy” rating on this company as it pursues its expansion plans and its shares trade at a P/E multiple of 14 with an earnings growth rate of 4.2%.

“Taiwan Semiconductor Manufacturing (NYSE: TSM), the world’s largest manufacturer of contract microchips is under pressure following its first quarter, which was affected by inventory correction and seasonal fluctuations.

“But revenues slightly exceeded the guidance given in January and in its earning report Taiwan Semiconductor projected a brighter outlook for the future. The company continues to be a technology leader, innovating and winning performance awards.

 “The stock still presents good long term value with a forward P/E of 13.8 and a trailing twelve-month dividend yield of 3.4%. Despite some revenue volatility, Taiwan Semiconductor continues to deliver its dividends, and we share its optimism for the second quarter.”

posted at 12:09 PM 0 comments

The case for growth and a defensive 'Force'

Jim Oberweis, Jr. is a specialist in small cap growth stocks, uses a proprietary 8-pronged screening system -- known as the Octagon strategy -- to assess a variety of financial, fundamental and technical factors.

In his latest The Oberweis Report, he offers an intriguing forecast suggesting that the market's next move will be from value to growth stock -- and offers a "defensive" play in the defense sector - Force Protection (NASDAQ: FRPT).

“It seems the market has forgotten the last stock market bubble only seven years ago. Then it was value stocks that were unloved, while growth stocks were all the rage. Between 1995 and 1999, growth stocks returned twice as much as value stocks.

“The Russell 2000 Growth Index returned 181% versus 84% for the Russell 2000 Value Index in this period. Early 2000 would later be recognized as the peak of the growth stock bubble and the beginning of a boon for value investors.

“Today the tables are turned. Growth is undervalued and value stocks are dangerously expensive. I’d argue that the evidence is clear that we are nearing – and maybe even have passed — an inflection point once again.

“Those who believe in the law of mean reversion should buy growth stocks today; indeed, value leadership appears to be waning. In a notable change, small-cap growth returns are leading value by about 250 basis points so far in 2007.

“Frankly, that makes a lot of sense to us. The value creed is to buy asset-rich stocks on the cheap. But value stocks just aren’t cheap today, particularly not in relation to growth stocks. Due to the recent popularity of value investing, value stock prices have been driven up, and the ‘premium’ required to buy growth stocks is smaller than ever.

“Our message should be very clear: The time for growth is near. While it’s impossible to pick the exact inflection point in advance, we believe small-cap growth stocks are highly likely to outperform small-cap value stocks over the next three years.

“Meanwhile, one grwoth stock we favor is Force Protection. The company is the world’s leading manufacturer of ballistic- and ballistic-protected vehicles which have been used to support armed forces and security personnel in Iraq, Afghanistan, Kosovo and other hot spots around the globe.

“The company utilizes the world’s most advanced mine and ballistic protection technology to produce specialty vehicles that offer the most protection against landmines, hostile fire, and Improvised Explosive Devices (IED’s, commonly referred to as roadside bombs).

“In April, Force announced the award of a $490 million contract to produce 1000 vehicles for the U.S. Marine Corps’ Mine Resistant Ambush Protected (MRAP) vehicle program. In the company’s latest reported fourth quarter, sales increased approximately 288% to $62.9 million.

“The company reported earnings per share of $.32 in the latest reported fourth quarter versus a loss in the same quarter of last year. Clients of Oberweis Asset Management own approximately 85,000 shares. These shares may be appropriate for risk oriented investors.”

posted at 12:05 PM 0 comments

Friday, May 11, 2007

USEC: Going nuclear with uranium play

“We’re going nuclear,” says Mark Skousen. The editor of the premium Hedge Fund Trader newsletter says “Since 1985, demand for uranium has outstripped supply by 139%.”

The advisor adds, “Now is an excellent time to add USEC Inc. (NYSE: USU) – which supplies low-enriched uranium for commercial power plants worldwide -- to your hedge portfolio.” Here’s his analysis.

“Despite increased demand and limited supply, very little has been done to correct the world's capacity to create more uranium. That situation has driven spot prices sharply higher.

“And spot prices are likely to rise. Nuclear energy now supplies a full 16% of the world's total power. That number is expected to grow by leaps and bounds, as petroleum-based economies continue to seek lower-priced alternatives to oil.

“An estimated 440 power plants in 30 countries now depend on uranium to run steel plants, auto assembly lines, mass transportation and thousands of factories.

“China's current plans call for building more than 29 new reactors to fuel the country's explosive growth. And, worldwide, 69 new nuclear reactors are already under construction or will be completed within the next 10 years. All will require massive amounts of uranium to operate.

“The Nuclear Regulatory Commission just recently issued a construction and operating license for USEC's American Centrifuge Plant in Piketon, Ohio. The license is good for 30 years. In addition, USEC performs contract work for the U.S. Department of Energy.

“Profits at USEC are surging already. Fourth-quarter net earnings climbed 35% to $40.1 million. And with nuclear energy looking like the best alternative to oil right now, the future looks bright. So pick up USEC at market and place a protective stop at $16.40. If you prefer to play this one more aggressively, try the October $25 calls.”

Don't miss the chance to meet Mark Skousen
and 70 other industy leaders and financial expert leaders at FreedomFest.

 

 

posted at 8:05 AM 1 comments

Amerisourcebergen and the 'ABC' of investing

Applying skills in both technical analysis and psychology, Chris Johnson notes, “Our Behavioral Valuation model continues to signal that the market remains in position to move higher.”

Here, the editor of Insightful Investor looks at the movement of the market “crowd” and what it suggests for future action, as well as a current favorite stock play, pharmaceutical products distributor Amerisourcebergen (NYSE: ABC).

“The essence of our approach to forecasting market moves is detecting when expectations are out of alignment with the underlying fundamental and technical pictures.

“We follow these expectations by watching investor behavior via a number of quantified measures. The result is the ability to detect when investors are likely to move money in and out of the market to reach an equilibrium or balance between their expectations and stock prices.

“We’re now in the process of seeing exactly how Behavioral Valuation plays out in a bullish scenario. Investors now appear to be rushing to buy stocks to avoid feeling left out of the rally, a sign that the Behavioral Valuation of stocks was discounted to actual values.

“Now, like auction buyers who just realized the true value of a trinket on the block, investors are bidding the price of stocks higher. That means that there’s an increased chance that we are ready to see the market’s rally take stocks to the next level.

“Many investors and traders have noted the market’s recent resilience. The number of days that the Dow and other indices have moved lower through the day, only to close in positive territory, is impressive.

“We refer to this situation as the market having a ‘built-in bid’ on stocks. The term refers to the fact that there are investors willing to step up and buy on a small drop in prices. This is bullish for the intermediate term since it indicates that the demand for stock is greater than supply.

“Meanwhile, among individual stocks, we note that the pharmaceutical group has become attractive again, as the big-name companies are coming back to life after a multi-year hibernation.

“While big pharma may have taken a rest, one related group that hasn’t is those that distribute their wares. One such company is Amerisourcebergen Corp., which has numerous distribution arms that continue to thrive.

“Fundamentally, ABC is one of the industry’s leading companies. The company has a history of beating analyst expectations by an average of 8.6% over the last four quarters, and the technical pattern in the stock has been strong as a result.

“The stock’s performance is best described as slow and steady as it trades above its supportive technical trendlines. Despite the strength in fundamentals and technicals, ABC’s sentiment picture includes pessimism ahead of earnings.

“First the option activity, which is now showing a lot of pessimism ahead of their earnings announcement on Wednesday. The ratio of puts traded to calls has jumped from below 2.0 to the 9.0 level.

"This suggests that the options crowd has low expectations for the stock ahead of earnings. Similarly, the analyst recommendations on the stock are unimpressive, with only two of the 11 analyst covering the stock issuing ‘buys.’ 

"Our bottom Line: We recommend buying and holding shares of ABC. The stock appears poised to continue its show of technical strength and thus is a good addition to the portfolio.”

posted at 8:04 AM 0 comments

Thursday, May 10, 2007

MoneyMan shops for value at Home Depot

Host of BizRadio and editor of TheMoneyMan Newsletter, Daniel Frishberg correctly forecast the previous downturn and then became one of the market’s more aggressive bulls, calling for a move back to new highs.

In line with his view that the domestic economy will surprise on the upside in coming months, he is now recommending Home Depot (NYSE: HD) for longer-term value investors.

“Our latest recommendation is a company that will truly be a value play.  Home Depot  is a company which is at the same price now that it was in 1998. 

“There were several management issues which have been resolved and a slumping housing market which we believe is stabilizing and will recover the rest of this year and into next year.
 
“Home Depot's stock is just under $39 per share which is where it was in late 1998.  Back then, their sales per share were $13.65. They are projected for all of 2007 at $48 per share.  Their earnings (profits) were $.71 per share. 

"They are projected for all of 2007 to be $2.85 per share.  Their shares outstanding have decreased by over 15%.  Their P/E ratio was over 40 and is now around 14.  The return on equity is average in the mid to high teens. Here are the three most compelling reasons we like this stock: 

• Based on their historic cash flow multiple, this company could trade at $60 per share
• Private equity continues to take out large companies they believe are a value for big premiums and Home Depot has been rumored in these buyouts.
• They own most of the real estate their buildings sit on which is probably undervalued by investors.  Sears went through this as well a few years ago and the stock ran up tremendously once investors realized the value of all that real estate.

“We want to emphasize that we will be more patient with this stock and the big gains may be back end loaded meaning we believe the gains will be very large but may not come until the next couple of months.”

posted at 11:10 PM 0 comments

Viva la France: Electing gains

“French voters gave newly-elected president, Nicholas Sarkozy -- a son of a Hungarian immigrant -- a sizable mandate to pursue market reforms,” notes international investing expert Nick Vardy.

The editor of Global Bull Market Alert explains, “A comfortable victory of more than six percentage points on an extraordinary turnout of 85% will embolden Sarkozy to push ahead with economic reforms this summer.” Here’s how U.S. investors can benefit.

“Opponents of Sarkozy derided him as an ‘American conservative with a French passport.’ Libération, the left-leaning newspaper, described him as ‘Thatcher without the skirts.’

"For investors, the election of Sarkozy means a reformer who not only will trim some of the country's generous welfare benefits, but also will help to generate bigger profits for corporate France in the years ahead.

“And this week's Global Bull Market Alert pick, the iShares MSCI France Index (ASE: EWQ), seeks to profit from the new Sarkozy Revolution. Under Sarkozy, France is poised for five years of ambitious economic and social reforms under one of its most energetic politicians.

“And there are fewer safer long-term investment themes than a government ready to institute market-oriented economic reforms. Investors in Austria, and more recently Sweden, have benefited tremendously from similar reforms coupled with reductions in corporate taxes. You can expect both in France over the next six months.

“The French ETF is also well-balanced across a range of sectors that are set to benefit from Sarkozy's reforms. The ETF's top holdings include oil giant Total, pharmaceutical Sanofi Aventis, banking leader Societe-General, and global insurance play Axa.

"Other holdings include Suez (water), France Telecom, Vivendi (water), Carrefour (retail), and Arcelor Mittal (steel). This diversification across a wide range of sectors and holdings should make for a steady, upward ride.

“Finally, the French market also has the strength of an appreciating Euro at its back. With the dollar getting clobbered and European markets already galloping ahead, an appreciating Euro will boost dollar returns to U.S. investors by an additional third. So buy the iShares MSCI France Index and place your initial stop at $35.80.”

posted at 11:08 PM 0 comments

Feed the world: Food and farming favorites

“Last year, 40 countries faced food emergencies, with the crisis in Darfur being the most visible example,” notes Glenn Rogers in an exceptional research report on investing in the food and farming sector.

Here, the contributing analyst for Internet Wealth Builder offers a basket of stocks involved in the food chain which he feels will help “fatten your portfolio” in coming years.

“Last year, 40 countries faced food emergencies, with the crisis in Darfur being the most visible example,” notes Glenn Rogers in an exceptional research report on investing in the food and farming sector.

Here, the contributing analyst for Internet Wealth Builder offers a basket of stocks involved in the food chain which he feels will help “fatten your portfolio” in coming years.

posted at 11:03 PM 0 comments

Wednesday, May 09, 2007

A leading pair picks Apple

Two of the very best stock pickers in the advisory world are reasserting their buy ratings for Apple (NASDAQ: AAPL), and boosting their targets. Jon Markman, editor of Strategic Advantage says, “Apple is one of my favorite ideas for new money right now. “

Toby Smith, editor of Changewave Investing notes, “Investors how have one more chance to jump in to Apple before the shares take off for the moon after the launch of the the iPhone.” Here are their reviews.

Jon Markman explains, “Apple recently hammered home its fiscal second-quarter results, growing earnings an amazing 88% over the same period a year ago -- the 16th consecutive quarter in which it has provided material upside to expectations.

“In recent years, much of Apple’s performance has been driven by the iPod/iTunes phenomenon. Therefore, it’s easy to forget about Apple’s roots in computing. But the latest quarter demonstrated how important the Mac lineup remains to the company’s bottom line, and how much success it is having selling them.

“Globally, Apple shipped out 1.5 million Macs during the quarter, which is up a whopping 36% over last year. This is the highest growth rate in six quarters and is even more impressive considering that this quarter represents the three-month post-holiday doldrums for retail sales.

“If your jaw hasn’t dropped yet, you can also compare this to the PC industry’s 10.9% global growth rate or the mediocre 3.6% growth seen here in the U.S.

"Moreover, margins on these new Macs came in much higher than expected, thanks to super low flash memory costs. Company wide, the gross margin rose to 35%, which is the highest in nearly 14 years.

“We can look forward to the new version of Apple’s OS X operating system, dubbed Leopard, to pounce by October. Also on the horizon is a revamp of the iPod line later this year.

"Look for the addition of wireless connectivity for the iPod, probably in the form of Bluetooth compatibility, and a higher resolution widescreen model to the offerings.

“Of course, the June launch of the eagerly anticipated iPhone is also approaching. Apple intends to account for iPhone sales over a two-year period, an approach that will help smooth results. Buy AAPL on any dips for my target of $140.”

Toby Smith notes, “In the wake of Apple's blowout earnings, I think this baby is still worth accumulating for the incredible profits to come. Apple is a technology superstar that deserves a premium valuation. The company is growing as fast as just about any other established technology firm, including Google.

“If Google can be valued at a forward price-to-earnings ratio of 45, then Apple should be valued at least around 25 times fiscal-year 2008 earnings.

"If you add up all of the growth we expect to see in Mac computers, Apple TVs and iPods, along with the new iPhone sales, you get approximately $6 per share in cash flow. At 25 times cash flow, you get a share price of $150.

”One of the reasons I've been so confident about Apple's prospects here is due to the clear signals we're receiving from our trusty ChangeWave Alliance – a group of thousands of consumers, professionals and experts in a wide range of industries whom we survey on an ongoing basis.

“The Alliance has been very accurate in forecasting Mac and iPod sales. According to our latest Alliance research, the iPhone is set to rock the entire cell phone industry.

“Our latest Alliance surveys tell us that nearly 1-in-10 members responding are likely to buy the new iPhone once it becomes available in June. And 4 out of 5 in this group say it will likely replace their existing cell phone. That's tremendous -- and I think we are all convinced by now that when the Alliance talks, we should listen.”

posted at 11:12 PM 0 comments

Tuesday, May 08, 2007

Nanotech: Big gains from TINY

“It’s no secret that certain nanotechnology stocks get whipsawed as news and investor enthusiasm for this new science heats up and then cools,” says Josh Wolfe.

An industry-leading expert and editor of The Forbes/Wolfe Nanotech Report notes, “Publicly-traded nanotech venture capital firm Harris & Harris Group (NASDAQ: TINY) is a case in point.” Here, he reviews this volatile – but potentially valuable – play in the nanotech space.

“This New York City-based venture capital firm -- with a market cap of $275.6 million -- is invested in a diversified range of early stage nanotech companies. Its portfolio is comprised of 27 private companies and its shares trade mostly on investor hype over their potential for growth.

“With net assets of $113 million and 21 million shares outstanding at the end of 2006, TINY's net asset value (NAV) per outstanding share was $5.42. That means investors were getting $5.42 worth of value for a share price of $13.25—not a great trade if you're measuring performance by the usual metrics of sales and profits.

“But, conventional valuation metrics do not apply well to business development companies like Harris & Harris. So what, if anything, justifies TINY's premium valuation? I believe there is plenty to like about Harris & Harris.

“The firm adheres to some basic rules of sound investing, such as keeping a diversified portfolio, sharing investments as a consortium, and selecting companies that have a solid business plan rather than mere nano-hype merchants.

“Also, TINY's invested assets are all in private companies so its portfolio can't be replicated. Plus, Harris & Harris has returned $144 million on an invested capital of $51 million, with an average holding period of 3.63 years from first dollar in to last dollar out.

“Last year, TINY's portfolio generated $158 million in revenues and, unlike other publicly traded investment firms, it regularly reinvests about 65% of capital gains to help drive new growth. And, there is the IPO factor.

“Ever since Sarbanes-Oxley threw a wet blanket on many of the benefits of being publicly traded, the IPO market has been hesitant. Still, eventually investors' appetites for higher risk, high return stocks will make a comeback.

“Time is on Harris & Harris' side. With $60 million in cash or cash equivalents, no debt and very little overhead, the company can afford to sit back and let its assets mature. Today, the nearest thing to finished goods on TINY's shelf are Neophotonics,Molecular Imprints and Nanosys

“Of these, NeoPhotonics appears most ready for prime time. It makes optical components for communications networks. Nanosys isn't far behind. Began as a nanomaterials supplier, over the past few years it has built collaborative business partnerships with companies like Sharp, Intel, and Micron Technology.

“The company had applied and then withdrew an IPO registration three years ago, citing adverse market conditions for the decision. When those conditions reverse, Nanosys should be much more prepared for a public offering.

Molecular Imprints lithography has one of the largest patent portfolios in nanoscale and three-dimensional imprint lithography. In addition, it has received additional backing from Motorola, KLA Tencor and Japan's Dai Nippon Printing Co. It won't be long before Molecular Imprints revenues start attracting the attention of investment bankers.

“In June 2006, I issued a Nanosphere Alert to subscribers to purchase TINY's stock after it dropped below $10. It's already up more than 30% from that point. If the IPO market does indeed warm up in the next 12 months, speculators who buy TINY at even its current share price may be glad they did by this time next year.”

For full disclosure: Josh Wolfe’s venture firm Lux Capital is an equity investor in both Molecular Imprints and Nanosys.

posted at 11:15 PM 0 comments