The Blockbuster/Circuit City deal: Factoring in 02.19.09 and BluRay

Stocks mentioned in this article: BBI, CC, BBY, NFLX

The BlockBuster (BBI) takeover offer for Circuit City (CC) has received a lot of criticism this week, but it seems like people are neglecting to mention two big things that are happening to the video industry that are going to mark its evolution. 1) February 19^th, 2009 all televised broadcasting will be digital and 2) BluRay has secured a monopoly on the highest quality mass video distribution. The ability to capitalize on the synergy of these two events could take both of these companies far out of the red as separate entities, or more so as a single one.

First, the very basic financials:

The combined market cap of the two companies at the current price is below $1.4 billion. If Blockbuster pays the $6 to $8 per share and you imagine the BBI share price to stay at $2.80 that market value is probably closer to $1.6 or $1.7 billion. There is also net a couple hundred million dollars in debt so you are looking at a price for the combine total prior to any more speculation to be around $2 billion. The combined revenue of CC and BBI together as separate entities is over $16 billion dollars. I don’t like to speculate, so I will just say that I can’t imagine the revenue they could achieve together, but I probably wouldn’t imagine it to be less.

If the market was riding an escalator right now I would probably jump on this deal at $2 billion because I think a lot of the risks that are affecting both of their values won’t actually play out. But at the same time, if I recognize the risk, then everyone else does too and since the market seems more like a water slide right now the desire for an even lower price is making me hold back.

I think the potential for these two companies together to produce earnings is huge. Huge enough to put the earnings of Best Buy (BBY), with a market cap of $17 billion to shame. But the operational risk factor that they both reported negative annual net incomes could hold them both back for some time to come.

Second, the competitive risks:

For Blockbuster there are a few other risks that can’t be ignored. First I will state them, and then I will address them. 1) On demand video distribution is gaining market share fast and has already begun to expand into high definition. 2) Online video rentals eliminate the cost of store front real estate. And 3) competition is pushing very tough pricing models.

In regards to the first risk, as I said earlier all broadcast is going digital. What this means is that instead of an analog signal being sent to your television there is a digital signal being sent in fragments. That digital signal can be split from one channel to many channels. Simply put, let say Channel 5 can transmit a total of 1000 bytes per station to have a single high definition channel; they will also have the ability to split that bandwidth into channel 5.1, 5.2… up to 5.X as long as the total bytes of 5. 1 through 5.X is equal to the 1000 that channel 5 is allotted. Already, the FCC has very tight ownership rules and there is a limit to how many channels each company can own in each market and to how many people they can reach. One way people have been speculating big media will overcome these regulations is by splitting their channels up and using some for infomercials. What this translates to the consumer of broadcast television is that you are probably not actually going to be getting the HD you have been waiting for without paying a premium for it. In New Orleans on Cox for me it cost $5.99 to rent an HD movie. The convenience is great, but you pay more for it and the selection is extremely minimal. My guess is that has something to do with the limited bandwidth space available; it is digital cable. At the same time this is going to happen Blockbuster offers a solution to these issues that we digital agers who love our quality video are willing to pay for; they have a gigantic selection often guaranteeing that titles will be in stock and they offer BluRay which is even better quality than high definition television. BluRay discs do not come cheap and because of that I would expect rentals to increase while new disc ownership decreases. BBI will be there to take advantage of used disc sales too.

In regards to the threat of online rentals taking over, Blockbuster is in that business too. Netflix (NFLX) has reflected a good value recently but their revenue is close to a fifth of Blockbusters and their market cap is inversely almost 5 times BBI’s. Online movie sales are a consumer commodity that is currently going through the most innovating pricing strategies consumers have ever considered that being said, I don’t think that Netflix will win in the long term against Blockbuster’s storefront advertising and selection combination. ITunes new video rental model is also a threat, but again not BluRay quality and a minimal selection just like my cable provider.

The Circuit City risks are less obvious to me. It seems that management has been trailing the work of Best Buy and service innovation has, and probably will be, the determining factor in their success both of which Circuit City has been lagging behind in. The Blockbuster offer is 20%-60% above CC’s market value which alludes to me that they are either in for a robust turn around, they are completely undervalued, or BBI realizes a huge synergy between the two of them. Aside from that, the the purely economic issue of demand for the new digital televisions and BluRay players and the combination of the two together should give Circuit City a sales boost without having to do much inferential work on their own.

The way I see it is I want to own the new Blockbuster if the deal goes through, either from the CC end at a discount to BBI’s offer or on the Blockbuster end with enormous prospects for earnings growth. But if this deal falls through things could get very ugly.

Please know though that I am not a licensed investment adviser and this article is not intended to be advice in anyway. As I mention in most of my articles, I am relatively new to making my own decisions so if I am hugely missing on something, I appreciate all constructive criticism anyone is willing to offer.

Gmarket And The Inudstry Of Online Market Places

Stocks mentioned in this article: GMKT, MELI, EBAY, AMZN, YHOO

The sector of companies focused on the online marketplace appear to be doing a great job as a whole in establishing an industry that I hope, for at least my own joy of bargain hunting, will be around for a long time to come. I am certainly not the only investor who has given in to this belief either. I can’t find a single publicly traded online market place that has a trailing value below a treasury bill, which means people are willing to pay to take on risk in the industry in return for the expectation of growth. The confusion in dealing with these online-foundation based marketplaces however, is figuring out how much the risk is really worth. For most companies that risk is being sold at a very high price. I don’t deny that those companies may live up to, or even exceed, their current value and I hope that they do, but with such high multiples I’d rather let someone else have the heart attack I’d possibly face while owning them. At the same time, I do believe that the growth is real, so I am glad to see that people are selling off their shares of Gmarket (GMKT) at a minimal premium (less than 30 times trailing earnings) in comparison to the rest of the sector, while at the same time Gmarket is successfully producing and expanding their income.

The big time global online auction houses, Ebay (EBAY) and MercadoLibre (MELI) are currently trading at about 100 and 200 times their trailing earnings respectively. For those of you who don’t believe in looking at multiples… they are derived from real figures and you can’t ignore that those statistics could be shattered over night as they have in the past. But Gmarket is not really an auction house like they are or nearly as diversified, so you can’t really compare their growth side by side. For the computer illiterate, Gmarket is a little more like a South Korean Amazon (AMZN), simply connecting sellers and buyers. But Gmarket does not have the magnitude and is not as diversified as Amazon either (which is trading over 60 times earnings) so even they can’t be compared completely. I look at those companies as a start though and I have been buying Gmarket on the way down because I think it will keep up with the industry as it has been.

All four of the companies I mentioned in the last paragraph have double digit earnings and revenue growth. Amazon and Mercadolibre both even have triple digit earnings growth. But those numbers can be deceiving and expected well far in advance. To start with Amazon , they do over 60 times the revenue as Gmarket, but barely distribute more than 10 times the income to the common; which goes to show that in a similar business model Gmarket is operating at a really nice margin. What adds more sauce to the mix is that Amazon has a half of a decade more experience than Gmarket and they are still trailing in the margin race. Looking at MercadoLibre, the multiple appears to be a factor of the huge market available to their service, that being South America, but they are not nearly as established as the other three players. MELI’s revenue is still only 8 figures and their earnings are only 7.

The next factor that I am looking at in all four of the companies is cash and debt. They all have a lot of cash, which I am a big fan of for the current market, but Gmarket is the only one with absolutely no debt. Debt is expensive and cash goes a long way right now in tech so that position could give Gmarket a significant leg up to make big moves.

Now to dead these comparisons that could go on forever, there are a few factors about Gmarket that make ownership even more enticing to me. I am not sure where I read it, but Yahoo has a decent chunk of equity in the company and Interpark, a South Korean mall operator who probably is not the right suitor for such a large stake, also does. And to add to my non source based information I recall reading that Interpark would not sell right now because the market has it undervalued. Gmarkets enterprise value is less that $ 700 million right now. I do not intend to spread any false rumors though, so if I am incorrect about either of those tidbits please correct me immediately. On top of that Gmarket is growing so fast in Korea and they are planning on making the move into Japan in the second half of the year. It looks like Gmarket might be priced where it is in part because investors have already factored in a failure in the move to Japan.

GMarket is the most heavily growth based stock that I have in my personally managed portfolio. I bought a small stake above $22 because I thought that was a good price at around 40 times earnings. It is the same company this week as it was a few months ago and when I saw the price hit $19 I felt like I had to use the 15% off recession sale coupon. If the price does not get to where I would like it soon, I am comfortable holding till I can get some tax benefits for doing so, but I don’t expect to buy more unless it goes below $16.

Don’t do anything just because I am doing it though. I am not a licensed investment adviser and this article is not intended to be advice in anyway. I write because I have already done some research on my own and it would have been a much easier start if I had something like this to read for all the under covered (for free) stocks. Hopefully my work will one day pay off, but if not I at least use this to recollect my thoughts. As I mention in most of my articles, I am relatively new to making my own decisions so if I am hugely missing, I appreciate all constructive criticism anyone is willing to offer.

Disclosure: I own shares of GMKT

Casual Dining

This Article was featured on Seeking Alpha at
http://seekingalpha.com/article/72389-casual-dining-sector-offers-up-compelling-plays-like-ruby-tuesday

Stocks mentioned: RT, DRI, CPKI, EAT, BJRI, SBUX, PFCB, CAKE

I am only 22 and my experience in the market dates back barely a decade, but that is why I am lucky to be influenced by the foresight of investors like Benjamin Graham, who remind me about the popularity factor in stocks. He was around long enough to be influenced by the great depression and throughout his life he followed companies that were around for as long as he was; some doing just as good as him. But even though those companies have been around for so long, the best money and sometimes only money, was made when transactions of ownership were made at the right time.

That is why I am so happy to be getting involved in the market at this particular time. Owning stock in general is just not very popular right now and might continue to be unpopular for a while. For the portion of my life that I did not manage any of my own money a down market killed my mood. But this down market is now what I am looking for. Unemployment is barely over the natural rate, both of which are much lower than pre great depression era, and unlike a lot of other people I have a long time till I am going to retire and a depression is not something I fear or something that will ruin my life. I have barely begun to buy widely and this market is just beginning to open up the opportunities that I want.

That brings me to a point that Jim Cramer brought up tonight on his show Mad Money. If you want to build up stake in a company, do it in segments and take advantage of a market that is threatened by losing the investment vehicle popularity contest… ie: maybe the one we are in now.?? That is the beauty of the stock market now. You can trade ownership in a company for less than $5 plus whatever share of its market value you want. If you think shares of a company are being traded at a discount and they go even lower, don’t panic, you now have an un-penalized opportunity to increase your stake at a lower cost.

Graham and Cramer probably managed portfolios with no relation to each other and what is important in combining advice from 2 great investment managers who operated on opposite sides of the century with opposing styles is to make your own inference on where we are now, how to apply it and to most importantly realize that everyone who gives advice has their own interest. Graham sought the cream of the crop of value stocks; that is where the information was widely dispersed. But that was so many decades ago, when transparency translated into value. The market is no longer opaque, between the internet and the multi screen view, I can acquire information in 10 seconds and absorb it with the same effort it would have taken just to acquire it 50 years ago. I believe that many of the extreme value pickers of the past would be much keener to the idea of accepting more risk into their portfolio because of this new found transparency. The “utilities” of the past would be comparable to a much wider range of equities today.

One industry that I am beginning to pay close attention to is the Casual Diner’s because ownership in that field is losing popularity fast. Advertising to my age range is very expensive. We will buy into almost anything commercial. The goal for the commercial companies to is to maximize the money they can get out of us and the casual dining restaurants are at the fore front of that mission, doing a really good job. Casual Dining is like fast food for the 21^st century’ers. Large scale commercial casual dining has done a great job of beginning to cement itself globally and I am looking for it to continue to do so.

There are 7 publicly traded casual dining restaurants that if you were to do a regression analysis of their month to month market value returns you would find that the expected variance is pretty low for the last 5 years. Those companies being California Pizza Kitchen (CPKI),BJ’s Restaurants (BJRI), Cheesecake Factory (CAKE), PF Changs (PFCB), Brinker (EAT), Darden (DRI), and Ruby Tuesday ( RT). In short, the returns all generally follow a humped curve going up and then coming down over the 5 years. ---There are some charts provided by Yahoo! on the side of this post to check it out ---. For the sake of time that I can save because I have already begun purchasing very small stakes of Ruby Tuesday (RT,) I will talk about their financials, expectations, investor expectations and prospects. And explain the logic if there is any, behind why I want to begin to claim stake in these companies. If I am overly incorrect on anything I would appreciate any commentary that any reader is willing to offer.

To start I am looking at the efficiency that is just beginning to be felt in the industry. The fact is the best of them are privately owned. The best are actually only the best in my opinion let me add, and I really have no idea of their profitability, but I am judging that they are doing well by what I am seeing and I am sure that not many people disagree with me. Hillstone Group which owns Houston’s seems to have a great recipe for success with huge lines everywhere, and Dunkin Donuts, which was taken over by a private equity group a few years ago, is threatening every business that sells breakfast items from Starbucks (SBUX) to IHOP. It appears the people who are best at blowing up these large scale commercial casual dining restaurants are getting compensated a lot better by assuming the risk themselves instead of getting paid by a public market that doesn’t want to dish out the cash. That being said, specialized professional talent is always expanding and getting better and these private stakes present two positive options… 1) Someone else realizes they can get a better return running one of these companies and makes a takeover or 2) the management talent forces the profitability to match the growth.

I said I would talk about Ruby Tuesday because to me the recent history of investor valuation and revenue performance are largely consistent with the business of commercial casual dining and there recent announcement s exemplify the profit maximization that I am looking for. In the beginning of the decade revenue was in the low hundred millions for RT. Revenue growth was huge and investors weren’t afraid to pay for the expectation of huge earnings growth. When revenue was above half a billion dollars the p:e multiple was above 50 at times. But, revenue passed a billion dollars and the earnings were not following. Likewise investors got scared and there has been a wide spread sell off. The math doesn’t add up so simply and insiders have been taking advantage of the discounts all the way down to below $6. When revenue peaked out at about $1.4 billion annually the earnings actually began to decrease. To add even more fear to the mix, while most of their competition did not seem to report revenue that reflected a mass recession, Ruby Tuesday had a double digit drop quarter over quarter. But, 2 big things happened to Ruby Tuesday over the same period of time, 1) they redid their restaurants and gave them a much more sleek appeal and 2) even though they had decreasing revenue they managed to increase their profits. The fact that they were able to increase their earnings against decreasing revenue is an initial sign of a possible turnaround in profitability and a sleeker style should only be good for the margins on meals. Ultimately, investor’s like to pay for earnings and if RT can keep it up, the management that just jumped on the discounted share price, and hopefully I, will be able to ride this one out for a nice long term capital gain even if it does continue to trade at a low multiple of around 10 times earnings.

Disclosure: I own Ruby Tuesday

MinorityShareholderActivist.com

A note to my readers:

I unfortunately do not have any analysis for you today. I apologize for this, but get ready for much more...

I have spent the last few days building the website MinorityShareholderActivist.com and it is finally up and running (successfully), as of about...now.

The MSA is now accepting new article submissions. Check out the site for frequent updates. But, as I have done so far, my original content will be posted here first.

Orbitz Worldwide, Inc (OWW)

Closing price as 03.04.08: $6.86 - Conference call scheduled for 03.06.08 at 11:00 am

Online travel booking sites have all shown that their is a growing demand for their services. Both of the giants, Priceline.com Inc (PCLN) and Expedia Inc. (EXPE), reported end of the year earnings in February . They both showed positive revenue growth and they both had an increase in the gross amount of bookings. The only one left is Orbitz Worldwide (OWW) and they are set to report on Thurseday at 11:00am. Even though the numbers are looking in favor of online booking it seems as though all the funds have rolled into Priceline and out of the competition.

No body likes Orbitz right now except for the consumers; not the analysts and certainly not the investors. But the measurement for the underlying service that they provide, gross bookings (the actual dollar amount for which they successfully connected consumer to supplier), is what I am looking at as a foundation for growth in this relatively new market. Though their 11% quarter over quarter gross booking growth rate was short of both PCLN's and EXPE's, at the current price Orbitz offers the best gross bookings to market value ratio. The rest of the statistics are important for the short term fluctuations in price, but it is not like Priceline has a patent on offering the service without fees.

When Priceline announced that they would no longer charge an online booking fee the markets trembled. We saw the shares of PCLN skyrocket and EXPE and OWW, the main domestic competition, plummet. At the same time, eLong Inc. (LONG) and CTrip.com International Ltd. (CTRP) both took off. The lingering idea of operating profitably with out fees brought the 2 Asian players a new light of prospects. But, that does not mean that Priceline has the competition beat; only a new strategy to approach that goal. Priceline CEO, Jeffrey Boyd, just announced that he plans to sell about $2 million worth of shares on Thursday, and profit taking by the CEO is an ugly signal.

Orbitz has a cloud of short term risks looming over their market value including fears of a recession on consumer travel, heavily fee based revenue in a market that is going open source and the recent popularity of competitive online aggregation sites. But they also have a lot playing in their favor. People are spending a lot of money on their site (twice the amount that is being booked through Priceline and more than half the amount being booked through Expedia), they have a growing international presence and they have great strategic partnerships. During this Thursday's conference call I am not going to be primarily focused on the reported earnings. My concern is going to be on how management is going to raise non fee based revenue in keeping up with its competition. Optimism in that specific regard should be a good sign.

Disclosure: I currently do not own any of OWW and I will be unavailable on Thursday, so I will probably avoid touching it this week.

This article was featured on Seeking Alpha after I wrote it here and can be found at:
http://seekingalpha.com/article/67281-orbitz-earnings-preview-non-fee-based-revenue-key

To my readers: Thursday is a very busy day for me between school work and a job interview. I regret to inform you that I will not be posting an Article tomorrow, but stay tuned for more information.

Gushan Environmental Energy Limited (GU)

Closing price as of 03.03.08: $10.44 - Conference call Scheduled for 03.05.08 at 8:30 am.

Biodiesel is a relatively new (circa 1990'ish commercially) clean burning alternative energy source that makes use of waste oil products, animal fats and vegetable oils. It has not really taken off much in the US, but most people critique that to be the fault of politics. Europe and China on the other hand have already begun to see a major demand for the product. The European Union, a signatory of the Kyoto agreements, has an incentive to use it because they have to reduce emissions and biodiesel burns a lot cleaner then petroleum based diesel. China's demand for biodiesel, however, is increasing along side of both the domestic growth they are seeing, rising prices of oil and a step stool the government created for it.

The Chinese domestic growth over the last 15 or so years has been complemented and made possible in part by a significant increase in vehicles. Their government has realized that in this period of time categorized by massive development, they have the opportunity and ability to make clean burning energy sources a competitive alternative, and that is exactly what they have done. They have legislation in play that requires their petroleum selling companies to include bioliquid fuels in their selling scheme or otherwise be liable for the loss of the bioliquid fuel manufacturers. On top of that, they have permitted foreign investment in the category, which is why we have the opportunity to invest in companies like Gushan Environment Energy (GU).

Gushan had its initial public offering in December, of which it didn't raise as much money as it wanted to, and it is pretty close to the price it entered the market. They raised the money to support R and D, corporate expenses and expand their production, and for the growth that they expect to achieve (and because it's China) they are trading at quite a value. Take note however, that their is not much financial information that goes against what management has said because they are so newly listed.

Gushan claims to be the largest producer in the market and some of their publicly listed competitors, who are much more diversified, include PetroChina (PTR), SINOPECH (SHI) and CNOOC (CEO). Their is potential competition in the future from domestic manufacturers who are still developing and foreign competitors; specifically Malaysia setting up shop and sending over their palm oil.

It has rarely been picked up by the financial media, but Jim Cramer has been optimistic about it twice on his show. There are so many positive factors going for this company that you just can't ignore it. I hope to pick GU up at a good price before Wednesday's conference call.

This article was published on Seeking Alpha after I wrote it here. It can be found at:
http://seekingalpha.com/article/67108-gushan-environmental-energy-the-case-for-chinese-biofuel

BRIEF; Chinese Stocks Reporting Earnings Tomorow

Closing price as of 02.29.08 HMIN: 27.13 Conference Call: 03.03.08
Closing price as of 02.29.08 SCR: 10.47 Conference Call: 03.03.08

I unfortunately have a test tomorrow, so if there is an established reader base here, I apologize for delivering very shallow content tonight. Summarizing my research in writing takes some time so I will use what little I have to VERY briefly tell you about 2 Chinese stocks listed in the US that I am considering (at the most) making a move on tomorrow. Both of them reporting end of the year financial results on Monday, both trading near their all time low, both relatively new IPO's and both have huge growth potential; but both also have serious risks.

Simcere Pharmaceutical Group (SCR) is a generic/pipeline/R & D pharma company that operates in China. They have showed great revenue growth and expect more to come. Their balance sheet has very little debt and a lot of cash and they rarely ever get picked up by the financial media.

My last generic pharmaceutical mention, Mylan (MYL), turned out to be a huge bust. So please approach this one with caution... as it contains the same risks (specifically: recent acquisitions in a previously higher priced market), give or take some, that brought MYL to its 5 year low last week.

The second company worth mentioning.... but only mentioning, is Home Inns and Management Inc (HMIN), only because they are traded down and talk about expected growth could could shoot the price of a share to an even higher multiple of earnings than the currently high one that exists.

Prepare To Pounce On The Next Down Day

This week started off great with a few straight days of rally, but no one expected it to continue forever, and it certainly did not. For the traders who were prepared for Friday, congratulations, but for everyone else... you obviously did not follow the rules.

The market has been has been ugly for a lot of investors, with an overwhelming amount of down trading and an underwhelming amount of up trading. You can pick a great company that is almost certain to be a value play with a predetermined future of segment control and then Bernanke opens up his macro academic mouth and the funds leak right out of the exchange. If you play it right though, a day like Friday should only open doors for you.

The rule that I am implying, that is so tough to follow for active traders, is the 30% cash rule. Everyone tries, and we've all heard about the big dogs who live by it, but its not that simple. When an institution holds a lot of cash they have a very different motivation than when a trader holds cash. Institutions have enough money to get a seat on the board and revamp a company completely. They also have enough to move the price of some companies in which ever direction they choose. Though I frequently wish I did, I don't have that kind of money and when I make an investment (at least for now) I have no intention on writing a letter to the board expressing how I don't like a particular strategy or a new one that I do like.

Which brings me to my alternative rule designed for the active trader, and if your not an active trader this is probably not right for you. There are a million rules for maintaining a portfolio. Broadly speaking... diversification. But traders find opportunities and they jump on them in fear that they will miss the time horizon, which is very likely. But, if you do this with out the right diversification model, a day like last Friday will come about and you will see a great opportunity, but have to forget it because your stuck in great stocks trading at a loss.

How to prepare your self to pounce on a down day:

The model is simple, but requires a good amount of additional non-fundamental research on your part (on top of the fundamental research you have already done). The key is to own stocks that move in different directions when their is no news that directly involves them. It is almost like analyzing what beta attempts to measure. You can't go by beta because it is strictly mathematical and ignores the underlying issue of this method which could be anything from The President of the US speaking to GDP figures being released in Turkey.

You can go about checking a company's correlation with the rest of the market you are invested in by picking out the worst days and seeing how those stocks performed on those days. An easy way to screen out companies that will move opposite each other on the worst days is to analyze the purely economic factors that effect the company. Some examples to give you a start could be... Do they offer luxury, normal or inferior products? Do they operate in the same currency? etc...

If you have successfully positioned yourself into uncorrelated securities, the next time Big Ben gets in front of the world and hints that the US is going to convert to monopoly money, you'll be there to take advantage. The security that you have been waiting to hit rock bottom will get that low and you will have sold your old assets at a gain to pick up the new one at a discount.

This is not to allude that I don't think having cash in your portfolio is important. It is so that when you find your self needing to make a pick up with the cash portion of your portfolio you only do it into a a security that is not correlated with the rest of your assets.

I hope that this information can be of value to you. This weeks conference call screenings will be posted by the end of the day Sunday.

TurboChef Technologies Inc (OVEN)

After hours price as of 02.28.08 - $8.54; Conference call scheduled for 03.03.08 at 4:45 pm.

TurboChef Technologies (OVEN) is a tough call, but it deserves a little more than the cold shoulder before they announce their quarterly earnings on Monday. If the ticker and the company name are not enough of a hint, TurboChef specializes in speed cooking technology. Their narrow market focus and the increasing demand for food cooked fast offers an opportunity for strong economic growth. Unfortunately, from 2004 to 2006 there income statement would prove otherwise, with revenue consistently declining from over $70 mil in'04 to under $48 mil in '06. Don't be mistaken though, they have been on the up and up, and in the 9 months beginning last January they already reported over $52 mil in revenue.

OVEN lost about 50% of its market value just in '08, mainly because news broke that Starbuck's, one of their top 3 customers, reported that they would phase out their hot sandwich offerings in the fall (they were stinking up their coffee shops) and they just couldn't recover from the down trading market. Volume has been on the rise recently and the price started following this week making an upward move of about 10%.

Their are a ton of risks associated with OVEN including a history of negative earnings, there is not really a direct competitor to compare them against, 60% institutional ownership, almost 38% is held by insiders, 18% of the float was short at the end of January and the list goes on. But, there is some upside potential in the short run, if not long, for at least a ride on the rebound if they report good news Monday.

I say long run because they make good, expensive, speed cooking products that should spread globally over time; as they have in the US. They also offer an extremely upper end speed cooking oven for residential kitchens (that I am sure has had a tough time selling along side of the new home starts) that will probably not be so uncommon in the future. To top it off, the consensus of analysts covering OVEN expect earnings to be a positive 3 cents for the last quarter of '07 and to stay out of the red rising to .19 cents for the fourth quarter of '08.

If you are interested in purchasing shares of OVEN check out some of the other players in the cooking equipment market including Middleby Corp. (MIDD) and companies that you feel operate with similar demand, but don't expect OVEN to move in sync with them (because of their R and D focus). Most of those guys did good recently and I think the upside potential should out way the downside risks, which look like they have already been factored in, for Mondays conference call.

Disclosure: I may, or may not, invest in or trade shares of OVEN, but I currently have no position in the company.

Midway Games Inc. (MWY)

Closing price as of 02.27.08 - $2.08; Conference Scheduled for 4:30 pm, 03.03.08

Midway has been a horrible stock to own recently and I am afraid to recommend it mainly because of the ownership issues. Sumner Redstone currently owns an overwhelming majority of the company, direct and indirectly, and the volume has gone straight down hill since he leveraged his stake to Citigroup (C) in 2005. On top of that, MWY has been plagued with bad news all year; late releases, two of their top execs left and Shari Redston (Sumner's daughter) stepped in as the Chairman at the end of the year.

Besides the fact that I am afraid of what could happen to the price of the shares (because the balance sheet looks like a lost checkbook), Midway is posing unbelievably attractive as a business to own in the long. With all this talk about Electronic Arts (ERTS) making an offer 64% above market value for Take-Two Interactive Software (TTWO), because they are afraid of losing market position to the popular game GTA, Midway is looking like a possible value. Sumner and his National Amusements Inc. paid a heavy premium for the stock compared to what it is trading at today, up to 5 times and more, and I don't think they would sell it at such a heavy loss... if it came down to it. Plus their has been a lot written about a discrepancy between Sumner and Shari and it is said that it is largely based on Sumner's misdirection of the firms finances; Shari stepping in could be a good thing.

I also think that Midway is in a market that is rapidly growing and they have showed good revenue growth along side of it. They have been reporting negative earnings for a long time now, but analysts expect a positive quarter at the end of this year. Video game stocks are pretty rocky, but its been pretty good for the rest of them in February. Just look at at ERTS, ATVI and TTWO and you'll see their is a demand for ownership in that industry. They fall under the category of tech and like the rest of the hot tech stocks, they have no debt and lots of cash (a good recipe for consolidation).

Midway is scheduled to report earnings on Monday (after the market closes) and if you can afford the risk this one might be a good pick; either for a trade or longer if you have faith in the Redstone's.

Tele Norte Leste Participacoes (TNE)

Closing Prise as of 02.26.08: $25.94 - Conference scheduled for 02.29.08 at 11:00 am

Latin American stocks have been looking pretty hot this year; both 52 weeks and even more so, just in 08. While America looks like Rome falling, South America (particularly Brazil) looks like it will soon come to rise as an area of equivocal development. More importantly to us right now though is that as developed products continue to steadily spread through out, the value of the companies guiding the distribution are going to grow in harmony with that spread. One product in particular that I like in Brazil is wireless.

From 2005 to 2007 Brazil's wireless subscriber base grew by just under 50% approaching 120 million (~2/3 of the pop.), and Oi, the Tele Norte Leste Participacoes S.A. (TNE) wireless brand, was there to capture that growth, and looks like it will continue to do so. TNE has had a strong hold over the land lines industry for a long time, but that business, which represents a little less than half of their revenue, has not been going any where as it looms as a thing of the past. They also provide internet, digital tv, etc... wireless only represented about 16% of their business in the middle of '07. They recently acquired a bunch more licenses to expand their wireless business in Brazil and I think that will help increase their value.

TNE does $10.29 bil in revenue, has a market cap of 9.91 bil, but has $2 bil more debt than cash (which is common to the industry, in a smaller proportion). Their cash flow is pretty high though, and they have been good about paying off their debt. Institutional owner ship is less than 50% and about 2 million shares trade per day. Other players in the industry including Tele Norte Celular Participacoes (TCN), Telecomunicacoes de Sao Paula (TSP) and Vivo Participacoes (VIV) are all trading at higher earning multiples, and so is the Mexican giant America Movil (AMX). In the 8 times trailing and future earnings range TNE looks like a good buy with a lot of growth potential. If the conference call goes well this Friday I would expect TNE to continue on its upward trend.

Disclosure: I may or may not purchase any or all the companies included in this article.

Sepracor, Inc. (SEPR)

Closing price as of 02.26.08: $23.04 - Conference 8:30 am ,02.29.08


Sepracor (SEPR), known for its popular sleep aid drug Lunesta, took a dive in value of more than 20% over the last month. It has been bad news for them all year, now trading at less than 50% of their high. Most of the focus is on bad management issues: over paying for a new drug, miscalculating Medicare rebates, not getting enough market share of insomniacs. But I don't think they are all that bad. I looked into their management a little bit and they seem like they are a good combination of guys creating a pipeline drug business that is going to be around for a long time.

To start the drug that they "supposedly" over payed for was part of a move to hedge out into different therapeutic areas of the pharmaceutical industry, which I think is a great move. SEPR is no 11 figure Glaxosmithkline (GSK) or Merck & Co. Inc (MRK), but its also not a monotone bio-pharma like Bio-Marin Pharmaceutical Inc. (BMRN) trading at 77 times earnings. Sepracor has approved drugs for allergies, asthma and insomnia, they are in phase 3 with an epilepsy med and have a bunch more in the pipeline.

The numbers look decent too. The market cap right now is just over $2.5, bil, but it does half of that in revenue. It trades like the big barons (PFE, LLY, SNY, MRK, GSK) in terms of P:E but still offers huge growth prospects; being that it is valued at a percent or two of those companies and the introduction of one of SEPR's drugs could tsunami their balance sheet.

Analysts don't expect Serpacor to earn as much money as management does, but when they announced that the stock plummeted. They also supplemented their contradiction with a downgrade and I think that is why it is already a value. Institutions have their entire fist in this company, but there is still over 2 million shares trading daily. If management can follow through at the end of the week I would expect the news to travel.

The reported mess that could exist at Serpacor is a huge short term risk. I read an expectation as low as $20 for a share. If it gets down that low before Friday it would seem to be a good buy because bad news would just provide evidence for that price and would probably not send it any lower. But, if the mess is not as bad as everyone expects, this stock has good upside potential.

Disclosure: I may buy this stock in the near future.

Change of Plans...

As this is a new blog and I am still trying to optimally go about developing it along side of my website, MinorityShareholderActivist.com, I am going to write with a much more free structure then I previously noted. This will enable me to get as many good picks out as possible, in depth, instead of focusing on just tomorrows conference calls. I will still focus on any gain I see fit, be it short term or long, but for now I will be posting one pick at a time. I think this will also make each post more relevant if you don't read it the day it is posted.

Moves for February 26th, 2008

If you are considering making a move and can follow the conference calls, here are the ones I would take a closer look at. I screened through all the companies with a conference on Wednesday and these are the ones I would consider for a trade...

(Symbol - Name - Today's closing price - Tomorrow's conference call time)

VIT – VanceInfo Technologies – 6.90 – 8:00 am

VanceInfo is an IT company based out of China with a global presence. It is a 3 month old Chinese IPO listed on the NYSE. It opened up in December at just below $10, but has had a rough time weathering the New Years recession falling to prices below $5 in late January. Since then it has had a slight rebound and it closed at $6.90 today.

The volume has been really light for the last two weeks, only about 50,000 shares trading daily for the last week compared to an average volume of over 200,000 (less the day it had its IPO; 5 million shares moved). The last big day VIT had was on February 4^th, the day it was announced they made it on some Global Services 100 list (over half a million shares traded), and began an up-trend from $5.30 to the price it is today.

Revenue and revenue growth are pretty strong for VIT, representing about 20% of the market cap and 150% quarterly, year over year, revenue growth. It’s currently trading at 31 times earnings. According to Thomson, less than 50% of the company is held by insiders and institutions, leaving a good amount of space for the trader and Yahoo! Finance shows that just a fraction of a percent of the shares was short in January.

The conference Call is scheduled for 8:00 am tomorrow (1-800-510-9691) and if there is good news I would expect the price to begin to reflect it. The analysts covering seem to all recommend a hold and consensus of 7 cents eps ranging from 6-8 cents. If it doesn’t get the bump that is potential of it tomorrow, it might be a pick that is right for your portfolio in the long. The currently low volume is a major risk in the short term however.

SBLK – Star Bulk Carriers Corp. 12.21 – 8:30 am

Star Bulk Carriers is a December IPO with a market cap around $350 mil, about 10% of DryShips inc (DRYS). They have a carrying capacity just short of 700,000 deadweight tons which is 20+% of DryShips capacity. I like DryShips trading at 5 or 6 times trailing and future earnings and it has fared very well in the last month, as has SBLK, but SBLK has followed the moves of DRYS in a smaller proportion. I think upon the release of earnings, when people have some numbers behind their investment, you’ll see this stock move big time. I am not a dry bulk shipping specialist, but when I look at the numbers this stock could be trading at a serious discount. Overseas Shipholding Group Inc. (OSG), another dry bulk sipper will also be releasing their earnings tomorrow at 9:30. They are trading at almost 9 times earnings and like DRYS, they have over one billion dollars in debt, which is why I like SBLK even more… It has no debt.

TLVT - Telvent GIT S.A. – 22.63 – 9:00 am

Telvent is a security/infrastructure IT company based out of Israel. They have a market cap of about $1.5 bil and are trading at 19 times trailing earnings. Mantech (MANT), a similar company based out of the US, will also be hosting a conference call at 5:00 pm, but if I had to choose between the two of them I would rather own TLVT in the short run. It has more debt than MANT, but also has a lot more cash which would give it the ability to operate the way a technology company should operate, with cash, even in this bad economy. MANT is also trading at a multiple of earnings more than 30 percent higher than TLVT. And finally MANT has a market cap more than its revenue and TLVT has more revenue than its market cap. MANT has done well recently and if TLVT issues a good report tomorrow I would expect them to follow suit.

Don’t forget that it only showed 5,300 shares in volume today, 20% of its average, and if there is not enough people trading, this stock could plummet even on a good report. Be careful with this one.

DLTR – Dollar Tree Store Inc. – 25.70 – 9:00 am

Dollar tree is trading at the same price it was almost 5 years ago. It took a huge dive this year that I hope ended in mid January. At 11 to 12 times trailing and forward earnings this looks like a good buy. If the economy really is as bad as it is the Dollar Tree should be on the winning ending of the market and tomorrow’s report should surprise us. DLTR is offering a more attractive value than both Family Dollar Stores Inc (FDO) and 99 Cents Only Stores (NDN) which have all followed the same path in the last few months, further adding to my conviction that DLTR, in this bad economy, might be a shocker.

MYL – Mylan, Inc. – 13.05 - 5:00 pm revised from 10:30 am

Mylan is a generic pharmaceutical company that has showed decent growth and is trading at a low multiple. Besides that, it is trading at the same price it was 5 years ago. To me, generics seem like a dead economy move, but tomorrow will tell. I am not enough familiar with that industry and I don’t have enough time tonight to break it down, but if it is a an industry you think will do well, take a look at Mylan.

BYD –Boyd Gaming – 24.28 – 12:00 pm

I would like to leave this one to the gaming experts but the numbers on this one are worth mentioning. They have over 2 billion dollars in debt and 7% of the float was shorted in January, so this stock with a market cap of $2.13 bil has a lot of risks. But, it might not be as bad as it is trading to be. Nevada, where most of their properties are located, reported more than 3% gaming revenue growth in December. And while Atlantic City took a 10% cut in their winnings this January, they are mainly focused in Nevada. BYD is 50% below its year high, most of the move happening in the last 8 months. WYNN, ASCA and MGM, Boyd’s competitors in the gaming industry all have debt too and are all trading at way more than Boyd’s trailing and forward PE ratio. A good report tomorrow could put the flip mode on the traders.

BAGL – Einstein Noah Restaurant Group, Inc. – 15.76 – 5:00 pm

Einstein Noah Restaurant Group is trading at 17 times trailing and less than 12 times forward earnings. Besides the fact that I have a personal draw to the brand and I think that in the long term it is going to do well in an under developed market, I think that it should do pretty well tomorrow along with its conference call. Almost all of the news surrounding this company is expansion notices and I think it will continue. Bagels are not a luxury and I don’t see them getting hit in a recession. This stock has risks of low volume, but it’s less than 1% short. It is in the bottom quartile of its 52 week range and at close to $20 this stock seems to expensive but at closer to $15 it is becoming a lot more attractive. Listen in to what they have to say in their conference call or make an inference on your own before the market closes.

GMKT – Gmarket, inc. – 23.28 – 6:00 pm

Gmarket is an Ecommerce website based in South Korea. For its industry and growth prospects it has a relatively low multiple of 40 times trailing earnings. Revenue represents about 20% of its market cap and it has a low level of institutional ownership. It also has no debt and a decent amount of cash, which is always a plus. There has been a lot of take-over talk around GMKT that hasn’t really gone anywhere, but is still a possibility. The tech companies seem to all have a large proportion of cash and the downside economy is a good time to use it to expand.

The volume is less than I would like it to be in GMKT and is trending downward, but hopefully tomorrow will bring good news and reverse that trend. It is definitely a risky play, but offers a good opportunity if you believe that it actually exists. I bought into this one at 22.80 and I think I am going to hold onto it for a little bit

CTRP – Ctrip.com International Ltd. – 55.47 – 8:00 pm

When I look at CTrip.com I see Priceline (PCLN) and China, both of which are blowing up. CTrip’s market cap is about 20 % less than Priceline’s and is trading at twice the trailing earnings of priceline. Most importantly though it only does about 10 percent of the revenue that PCLN does. As unattractive as the numbers are, the growth prospects, along with the traders love for that industry, makes me put this one on my radar. I am not sure what to expect, but if the news is good enough, I am interested.

CTRP has made big moves this year, especially over the last month, recovering from a short period of decline, but is still trading below its 52 week high; unlike PCLN which is definitely up there. If traders were willing to pay more for CTRP in November than they are now, I expect that they will be willing to pay more soon when the PCLN wave catches. Granted it would have to live up to its expectations, if not beat them tomorrow to be successful, this one might be a good move if you can afford the risk and are confident about the industry.

Week 2 Commentary: Lesson's to be learned

(From Notebook on Sunday, February 24th 2008.)

The learning curve this week is flattening out. I have studied the market, finance, economics, corporate governance... all the academics, so I feel I am ready to BEGIN making these moves, but I still have a lot to learn from experience. Granted I have a lot to learn, it seems that the curve is a flattening out a lot from last week and that it is mainly going to be just following through with what I know and a little bit more from here on out.

1. I NEED TO BE MORE INFORMED STILL.
2. If I am not doing what I am supposed to be doing, than I shouldn't be trading.
3. Follow the IPO's

This week, again I learned the importance of being informed. I need to memorize all the available information on EVERY company so that when the news breaks I am the first to know how everyone will respond.

Here is my approach. I am going to start by reviewing every company that is releasing earnings and having a conference a night in advance so that I can listen in on the conference calls and make moves as they happen. I am going to try to pick out a bunch of companies that I think offer an attractive long trade and I'll post them here at night. I did that last night and I made some would have been great picks, but I stayed up to late doing it and I couldn't wake up to make the moves. That should lead to a lesson 4, leave yourself at least four hours to sleep or you won't be able to wake up and make the moves that you stayed up studying for; but I won't include that one.

In my last post I said that I should be watching trades happen in the market and I went in to trade this week with out doing that. What a mistake. I could have made so much more money. So there I am at lesson 2. The one I hate to admit I didn't follow through with over the week. If I am not doing everything that I should be doing to be a successful competitor than I shouldn't even bother competing.

And the final conclusion to this post, a fresh piece of knowledge that I have always over looked. Pay attention to the IPO's. Bankers generally undervalue them and the markets regulation offer profit maximizing rules that could also increase value. I am not saying to get into every IPO, I am just going to pay attention and pick the ones that are right for my portfolio (which could be anyone).

Week 1 Commentary: The Learning Curve

(From Notebook on Sunday, February 17th, 2008)

I just set up a TD Ameritrade account and the initial learning cure has been very steep. I have been following the market for years and indirectly investing for a long time, but there were more surprises than I expected;

1. I tested the efficiency of Market and Limit Orders.
2. I learned the necessity of being able to trade on margin, even if you are not going to use it.
3. Up to 3 Days to settle your trades?!>??
4. I NEED TO BE A LOT MORE INFORMED.

To start, if you are really planning on making short tern gains, you have to watch the transactions being made. Passively sitting back and putting in a limit order is OK, but just OK. If you are willing to do the extra work and follow the price until you want to drop the market order you can definitely maximize the return to the trade. When I was just investing, the ask and bid had no relevance to me, it was just the current price. But when you are trading, the ask and bid price of a stock can reveal obvious triggers as well as the volume in either direction. When the ask and bid price are very tight and their is consistent volume the stock price is moving, but when the ask and bid spread out and start popping around all over the place you can tell that the stock is at its crest or trough. Those points were the obvious triggers that everyone else was using to guide their investments.

I'm just a small potato compared to the rest of the market, their are a gazillion other trading groups, funds and what not... that are all making big moves. When they make a move they change the price of the stock a lot more than I can. So those fluctuating ask/bids are my new way of reading them.

This week I made a trade into MBIA when it hit 11.82 because it looked pretty attractive at that price. The stock went up and then back down and I sold it at 11.83. I only sold it though because I wanted to buy into another stock. Little did I know in my first week, that their is still settlement time up to 3 days, even with online trading. It was a mistake for me to buy the stock because I really didn't know what I was doing and also a mistake for me to sell the stock because I didn't get the cash in time for the purchase I wanted. Now I realize that even though a margin account adds a significant amount of risk to the table, their are times where it may deem very useful and I don't want to be in a situation in the future that I have a sure thing and can't take it.

The most important thing I learned this week is that even though I am reading a lot, it is not enough. I need to be a lot more informed. More informed than anyone else in the market. If their is any available literature , conferences, rumors, news, financial statements, SEC disclosure or whatever, on any company that I am considering making a move on I should be familiar and completely understanding of the situation so that when the news breaks I know what people expect and how they are going to react. If I don't do this, than their is someone else who is doing this and I would be at a competitive disadvantage. And if I do my studying I am at an equal advantage as everyone else; minus a lot of capital.

In response, I am now subscribed to:

-The Financial Times (2 years)
My favorite financial news paper.

-Investors Business Daily (2 week subscription)
I hate reading the IBD, but so many traders read it and it would be ignorant to ignore it. Some of their lists reveal some pretty good companies and then they force the price up by blowing it up in the front page every day. I don't know what I am going to do when my two week free trial is over though, they want something like $400 a year for it.

-Gorilla Trades (free trial)
I'm definitely not going to continue to subscribe to this, its to expensive and the information they give you is heavily volume based it seems. Which is ok for some people, but I like to buy a company that I can hold on to if it doesn't reach the price I want it to immediately.

-Yahoo Market Tracker (12.99/month 9.99 if you sign up for a year)
I love this tool, its the easiest most functional tool for streaming quotes that I have ever seen. It also is linked up to my Yahoo Finance portfolio' s and Yahoo finance in general, (which I think is great) and and provides everything from news to numbers in real time.

-TheFlyOnTheWall.com (25-60/month)
I am definitely going to keep this. It is a real leg up for traders at a really low cost. It provides streaming breaks as they come out.

-And lastly as a customer of Merill Lynch and TD Ameritrade I get all of their information that is offered free.