This Weeks Insider Buys

Here are the largest insiders buys for the past week. As Peter Lynch once said "There are multiple reasons insiders sell shares but there is only one reason they buy, they think the stock price is going up".


Company and aggregate dollar amount of insider purchases:

1- Biofuel Energy (BIOF) = $45,000,000

2- Franklin Bankcorp (FBTX) = $4,000,000

3- Chesapeake Energy Corp (CHK) =$3,500,000

4- Micromet Inc (MITI) =$2,400,000

5- Occulogix Inc. (OCCX) =$2,000,000

ValuePlays Most Read Posts For June

Here they are, the most read posts for the last 30 days.

1- Finally An Analyst Call That Makes Sense (SHLD)

2- Google: Overkill Reached 6 Months Ago

3- Lampert Buying More Sears Shares

4- Wal-Mart Getting Real Hard Not To Buy

5- Apple: iPhone Making All The Wrong Moves

This Weeks Notable Dividend Hikes

Here are the notable dividend hikes for the week:



1- Neuberger Berman Real Estate(NRO)= 53%

2- Best Buy (BBY)= 30%

3- Felcor Lodging Trust (FCH)= 20%

4- Village Supermarket (VLGEA)= 16%

5- Peoples Financial Corp (PFBX)= 16%

Today's Upgrades / Downgrades

Here are the late Friday analyst calls:

Komag KOMG Caris & Company Below Average » Average

Apollo Group APOL BMO Capital Markets Market Perform » Outperform

Western Digital WDC Needham & Co Buy » Strong Buy

Heelys HLYS CIBC Wrld Mkts Sector Perform » Sector Outperform

Phillips-Van Heusen PVH Matrix Research Hold » Buy

Ralcorp Holdings RAH BB&T Capital Mkts Hold » Buy

Diodes DIOD UBS Neutral » Buy

Research In Motion RIMM Morgan Keegan Mkt Perform » Outperform

Solectron SLR RBC Capital Mkts Underperform » Sector Perform

Komag KOMG JP Morgan Underweight » Neutral

Ariba ARBA CIBC Wrld Mkts Sector Underperform » Sector Outperform


DOWNGRADES:

Packeteer PKTR JMP Securities Mkt Perform » Mkt Underperform

Cascade CAE DA Davidson Neutral » Underperform

Omega Protein OME DA Davidson Buy » Neutral

Topps TOPP Wedbush Morgan Strong Buy » Buy

Rural/Metro RURL B. Riley & Co Buy » Neutral

Guitar Center GTRC Dougherty & Company Buy » Neutral

Ceragon CRNT Ferris Baker Watts Buy » Neutral

Pinnacle West PNW BMO Capital Markets Market Perform » Underperform

Getty Images GYI Matrix Research Hold » Sell

Barnes & Noble BKS Matrix Research Buy » Hold

Endurance Specialty ENH Stifel Nicolaus Buy » Hold

Castle Brands ROX Oppenheimer Buy » Neutral

Corn Products CPO BB&T Capital Mkts Buy » Hold

NetFlix Answers Blockbuster

On June 13th I wrote in response Blockbuster's (BBI) announcement they were cutting rental fees, "What happens if today Netflix (NFLX)comes out today and matches these new prices? It did not take very long as Netflix announced yesterday they lowering their prices to match those at Blockbuster.

Netflix is now charging $13.99 a month to rent up to two DVDs at a time, down from $14.99 previously. The service mails another DVD after subscribers return one of their other discs in postage-paid envelopes. This matches the plan Blockbuster announced three months ago. Blockbuster did say it plans to close 282 stores in the U.S. this year to improve operating margins and expand domestic share, according to a SEC filing.

So were are right where we were 3 weeks ago at Blockbuster except they have now voluntarily decreased their revenue. Revenue is not the main problem at Blockbuster, costs are. What would have made more sense was to leave the pricing where it was and accelerate the store closings. 282 stores, while a good start is just a drop in the bucket. They cannot compete with Netflix on price because their cost structure is just too high, reduce it, and they may have a chance. They are going about this backwards.

What is Blockbuster going to do now? Pay us to rent DVD's from them?

Today's Upgrades / Downgrades

Here are today's analyst calls

UPGRADES:

NetLogic NETL UBS =Buy

Fluor FLR JP Morgan =Overweight

Research In Motion RIMM JMP Securities =Market Outperform

Santarus SNTS Friedman Billings= Outperform

Fannie Mae FNM Citigroup= Buy

Research In Motion RIMM RBC Capital Mkts=Top Pick


DOWNGRADES:

PMI Group PMI UBS= Neutral

MGIC Investment MTG UBS =Neutral

American Home Mortgage AHM Friedman Billings =Underperform

TIM Participacoes TSU= Market Perform

Chordiant Software CHRD JMP Securities= Mkt Outperform

Komag KOMG Robert W. Baird =Neutral

Komag KOMG Deutsche Securities =Hold

Palm PALM Deutsche Securities= Sell

Natural Gas Price Drop Will Boost Ethanol Profits

I think we have all read with nauseating frequency how high corm prices are shrinking margins for ethanol producers (the irony here is that these very same producers are reporting record results). What we have not read is how multi year low natural gas prices should provide another boost to earnings. Guess what, now you are.

August natural gas touched $6.68 per million British thermal units today (Thursday), the contract's lowest level since late May of 2005. It was last down 5.7%, or 40.3 cents, at $6.68, after the Energy Department reported a bigger-than-expected rise in last week's natural-gas supplies. During its tenure as the near-month contract, the futures contract for July delivery at the Henry Hub posted a decline of $1.012 per MMBtu or nearly 13 percent. Natural gas in storage was 2,443 Bcf as of June 22, which is 18 percent above the 5-year average (2002-2006).

Nearly 95 percent of U.S. ethanol distilleries use natural gas boilers. Citigroup analyst Gil Yang estimated 28 billion cubic feet of natural gas would be consumed for every one billion gallons of ethanol produced.

The cost of producing ethanol varies with the cost of the feedstock used and the scale of production. Approximately 85 percent of ethanol production capacity in the United States relies on corn feedstock. The cost of producing ethanol from corn is estimated to be about $1.10 per gallon. Although there is currently no commercial production of ethanol from cellulosic feedstocks such as agricultural wastes, grasses and wood, the estimated production cost using these feedstocks is $1.15 to $1.43 per gallon.

The second largest cost in ethanol production, second to corn is the cost of energy, generally natural gas. Energy costs typically make up about 15 percent of a dry-mill plant’s total costs. for large producers like ADM (ADM), Verasun (VSE), The Andersons (ANDE) and Pacific Ethanol (PEIX), the costs run well into the millions.

A glut of natural gas is expected on the market soon. So much in fact, Dow Chemical (DOW), a prolific user of the stuff is not signing any new natural gas contracts in the near future in anticipation of a "dramatic fall" in prices as large amounts of new production comes on line.

What does this mean for ethanol producers? It would appear we are at the peak of the cost cycle for them. A record corn harvest is coming in better than the most optimistic projections and this has caused corn prices to fall over 11% since their February highs. With natural gas falling and no real impetus to reverse that, we have declining input costs and with gas prices having no reason to fall, a steady or rising price for the finished product.

All in all a nice scenario.

"Fast Money" 6/28

Here are today's picks and results to date:

Today's Picks

Macke- Ford (F) Open $9.49

Najarian- Immersion Corp (IMMR)Open $14.37

Adami- Dell (DELL). Open $28.45

Bolling- Chevron (CVX). Open $84.14



Yesterday's Results:

Macke liked Petsmart Inc (PETM)= Open $32.59 Close $32.41 Loss $.18 and Guitar Center (GTRC)= Open $59.98 Close $59.81 Loss $.18

Najarian liked Dendreon Corp (DNDN)=Open $7.17 Close $7.29 Gain $.12

Adami- Research In Motion = (RIMM)= Open $163.45 Close $193.99 Gain $30.54

Bolling picked USEC Inc (USU)= Open $21.80 Close $21.89 Gain $.09


Records:

Since my tracking began on 6/21 (1-1 means one up pick and one down pick)

Adami= 2-4 Gain $29.14
Bolling= 3-3 Loss $1.63
Najarian= 4-2 Gain $1.62
Macke= 5-4 Gain $6.30
Seymore= 1-0 Gain $.35
Finerman= 0-1 Loss $.18

RIMM Blows The Doors Off

Reaearch in Motion (RIMM) just reported and it's results have pushed the stock up 13%.

1.2 million new people activated a blackberry last quarter and RIMM shipped 2.4 million units. Earnings that had been estimated at the high end, $1.06 a share actually came in at $1.17 a share, a 74% jump over last year. The company also announced a 3 for 1 stock split effective August 20.

Revenue were estimated at $1.06 billion and came in at $1.082 billion vs $613 million last year. It look like initial result do not that many people holding off a new phone purchase for Apple's (AAPL) iPhone.

"We are starting fiscal 2008 with strong operating performance, including record revenue, earnings and subscriber results," said Jim Balsillie, Co-CEO at RIM. "After completing our first billion dollar quarter, we are now preparing to ship the 20 millionth BlackBerry handset this summer. This growth is a testament to our strong portfolio of products and services and our successful channel expansion. We look forward to the remainder of the year in which we anticipate continued growth within both North American and international markets."

A good product, priced reasonably and available on all carriers. A novel little idea.

Starbucks: It's a Matter Of Price

Here is a post from Georges Yared that references my Starbucks (SBUX) post from June 21st. In it he disagrees with my opinion people avoid shares now and I think does a wonderful job laying out his reasoning.

Mr. Yared finishes his post saying "I believe Starbucks can earn $.87-.88 for this fiscal year ending September 30th and $1.08-1.10 for fiscal year 2009. Cost management without sacrificing the customer experience is vital to its success and ultimately its stock price. Starbucks has never missed a quarterly expectation...yet. The stock still carries a premium multiple, deservedly: but it has to be earned every quarter.

Starbucks needs to weather this storm and resume its growth trajectory if it has any hope of attaining a $50 billion market cap and beyond. The first hurdle must be cleared.

I believe the stock is a buy here at $26 for the patient investor. With execution of its detailed business and growth plan, the shares should maintain a premium valuation and look for a $35 price target over the next 9-12 months."

I do not think we disagree very much. On May 18th I wrote:

"So what price then? Shares have to fall substantially from here before anyone should consider them. As the chart below illustrates, Starbucks has traditionally sold at a slight premium PE (1.25 to 1.5 times) to it's growth rate.

eps % PE ratio
1996 20 50
1997 50 49
1998 22 46
1999 27 50
2000 29 47
2001 28 45
2002 22 39
2003 21 36
2004 41 40
2005 27 43
2006 20 46

Of the times it did sell at more than that (2+ times), the following year featured increasing growth "justifying" that "froth". The aberration in the PE vs. growth rates trend has been from 2005 on. 2006 featured dramatically slowing growth for the second consecutive year and an increasing PE over the same time span. This was the genesis of my original post (in January) and shares since then have acted accordingly down 20%.

With that rate at this year at MAYBE 18%, its current 31 PE has shares grossly over valued. A price range of $22 to $27 put us in a historic PE to Earnings Growth range. Now, that also assumes they hit the 18% EPS growth this year which I am doubting more as each day passes.

With all the uncertainty surrounding the company at this point, I could not even begin to consider shares at any price other than the lowest end of the range, $22 or another 21% lower than current prices as I expect EPS growth to slow more."

When I wrote that, shares sat at $29 and now have fallen to $25 to $26 range. While I do agree with Mr. Yared that Starbucks has wonderful growth potential, I do feel shares will continue to fall during the summer and may collapse (if only briefly) if Starbucks misses this quarters earnings estimates. I think this is a very real possibility. I still would be a buyer in the $22 range but would be reluctant to jump here.

Now, if word got out that CEO Jim Donald was being asked to find employment elsewhere, that might be enough to get me to bite at these levels. Barring that, I'll wait.

Monsanto Delivers

I previewed Monsanto's (MON) earnings Monday saying "I would be shocked to see anything but a meet or a beat" and today they reported and delivered.

From the release:
"Key drivers for the quarter were increased corn seed and traits revenues in the United States, as well as higher sales of Roundup and other glyphosate-based herbicides in the North America and Europe-Africa regions."

Good News For Corn Prices:
"Currently, reports from the U.S. Department of Agriculture (USDA) note that the majority of corn, cotton and soybean varieties are facing good crop growing conditions with the vast majority of these crops already having emerged. Monsanto continues to see strong customer demand for its branded corn seed products in the U.S. corn seed market. The company is also seeing strong customer demand for its branded corn seed products in key countries in Europe particularly in Italy, France and Germany." This should help ethanol producers like ADM (ADM), Pacific Ethanol (PEIX) and Verasun (VSE)whose shares have been held back by the specter of high corn prices and worries about the crop conditions.

During the quarter Monsanto saw increased U.S. corn seed and traits revenue as strong customer demand for its branded corn seed products contributed to a sixth consecutive year of market share gains in the U.S. corn seed market. The increase could be as large as 4 or 5 percentage points, which would be the largest historical one-year gain for Monsanto in the corn seed market.

It seems the only thing that could dampen momentum at Monsanto would be an ethanol breakthrough that diminished to thirst for corn.

More on that tomorrow.....

Here Is What the Fed Will Say:

The talking heads have spent the entire morning pontificating about what the Fed will after their meeting. Want to know?


Inflation and Interest Rates:
"The incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing of core inflation. However, in the statement accompanying last month's policy decision, the FOMC again indicated that its predominant policy concern is the risk that inflation will fail to ease as expected and that it is prepared to take action to address inflation risks if developments warrant".


Economy:
"The U.S. economy seems likely to expand at a moderate pace this year and next, with growth strengthening somewhat as the drag from housing diminishes. The central tendency of those forecasts--which are based on the information available at that time and on the assumption of appropriate monetary policy--is for real GDP to increase about 2-1/2 to 3 percent in 2007..."

Housing:
"We have not seen major spillovers from housing onto other sectors of the economy,"

Business:
"The business sector remains in excellent financial condition, with strong growth in profits, liquid balance sheets, and corporate leverage near historical lows. Last year, those factors helped to support continued advances in business capital expenditures."

How can I be so sure? Easy. He has been saying the same thing since February. The absolute worst thing that could come out of this meeting is a rate cut. That would mean the risk of a recession is now outweighing the risk of inflation and this scenario is bad new for everyone.

No matter what is said I am sure CNBC's Steve Leesman will spent three hours debating the significance of the words "should" vs "will" or "more likely" vs "likely" in the statement. These folks fail to understand Greespan has left the building and the deciphering his statements required is no longer necessary. What the Bernanke Fed says it what it means, no guesswork necessary.

Now, the market and it's participants have not fully accepted this yet and it will jump around as the statement comes out and people try to extrapolate some hidden meaning that just is not there. Watch for the Dow Jones, S&P 500 and Nasdaq to jump around. Don't worry, sooner or later they will figure it out.

On Tops and Bottoms

The day before the private equity monster Blackstone's (BX) IPO I wrote "If there was a huge upside to these folks I do not think they would be cashing out and subjecting themselves to all the increased scrutiny a public company goes through.

I will stay away..


Shares, after hitting $37.98 immediately after they began trading have slowly receded and now sit at $29.92 for a 21% decrease in 4 trading days. Do I have a crystal ball? No. This one was easy, when billionaires decide to sell us common folks "a taste" it is usually only because they see more up side in selling it to us that keeping it for themselves.

Carl Ican, in an interview on CNBC yesterday said when asked about private equity "easy money and cheap deals are going away and this will severely impact earnings at private equity". When you add the specter of a tax increase from 15% to 35% on these entities, it is no wonder they are racing to cash in before we all realize they are due to earn much less in the immediate future. This probably also explains why the other private equity IPO, Fortress Investment Group (FIG) which began trading at $31, now sits at $23.25, a 25% loss.

In 1999 and 2000, everywhere you went the talk was about the Nasdaq, tech stocks and the internet. The level of people who made a living "day trading" from their bedrooms skyrocketed. Shares of companies like Yahoo! (YHOO), Dell (DELL), EMC (EMC)and Cisco (CSCO) all were household names that traded with valuations in the stratosphere. When your mailman, paperboy and the 16 year old kid bagging your groceries are talking about the next tech IPO and how it should double the first day, you need to take a step back. When they are throwing around terms like "click through"', "routers", EBITDA and have no idea what those mean, be very afraid. Not long after the market began a two and a half year slide that the Nasdaq has still not recovered from.

In late 2003 people had finally had it with the stock market and accounting shenanigans and began flooding the real estate market with money. Stock valuations, despite an improving economy and growing earnings hit low levels not seen in a long time. The same mailman, paperboy and grocery bagger were all now talking about how stocks are a losing game and that the market was "rigged". This of course signaled the bottom of the market and stock have climbed steadily ever since.

In early 2006, the number of real state agents in the US hit an all time high. Filled with sugar plum visions of real estate riches, potential agent flooded the market to get in on the action. This of course signaled the top of the market and real estate values (and the number of active agents) have plummeted since.

So where are we at today? Housing. It has to be near a bottom. I cannot pick up a newspaper, watch TV or go anywhere with hearing about the "awful" real estate market. Yesterday I was in BJ's (BJ) and listening to a conversation between a 70 year old women who I was behind in line and the kid at the checkout. They of course were chatting about housing as he rang up her groceries and throwing around terms like "subprime mortgage meltdown" and "foreclosure rate". When it was my turn to check out, I asked "what is a subprime mortgage"? The reply came with a look that could only imply I was quite possibly to dumbest person on the face of the earth. He said "it's a mortgage that is not prime".

Right.... smells like a bottom to me


Is it today? Tommorrow? Next month? Who knows, but it is near. How to play it? Home builders are a tough one. Valuing individual companies gets into a lot of guesswork based on the value of their landholding and the demographics of the region in which they do business. Also, they may make a sale today that gets canceled in three months that causes an earnings outlook revision. If investing here I would look at the iShares Dow Jones US Home Construction ETF (ITB) that began trading in May 2006 (another sign of the top) and is currently down 35% since it started. The index is a free-float adjusted market capitalization-weighted index. It measures the performance of the home construction sector of the United States equity market and includes companies that are constructors of residential homes, including manufacturers of mobile and pre-fabricated homes.

It will give you exposure to the whole housing market and avoid the individual companies potential pitfalls.

Today's Upgrades / Downgrades

Here is today's analyst action


UPGRADES:

Sterling Bancorp (STL)= Ferris Baker Watts to Neutral

Cost Plus (CPWM)= Morgan Keegan to Mkt Perform

EXFO (EXFO)= BMO Capital Markets to Outperform

Telus (TU)= BMO Capital Markets to Outperform

Zoran (ZRAN)= Longbow to Buy

West Marine (WMAR)= Morgan Joseph to Buy

JB Hunt Trans (JBHT)= KeyBanc Capital Mkts / McDonald to Buy




DOWNGRADES:

Cowen Group (COWN)= Keefe Bruyette to Mkt Perform

WW Grainger (GWW)= Matrix Research to Buy

"Fast Money" 6/27 Results and Picks

Here are today's picks and yesterday's and to date results. This is a one horse race with Macke running away with it. I have been asked what this has to do with "value investing". The answer? Nothing. It is the antitheses of it. If these guy are some of the best "traders" and have timely access to information most of us do not, yet fail to beat the market most days (or only once a week in Adami's case), how can we really expect to do any better? While I applaud them sticking their neck's out and making picks, I think the exercise is very beneficial to us in only proving that active trading is a crap shoot at best. I will continue to track the results just to see how this plays out.

Thursday's Picks

Macke liked Petsmart Inc (PETM)=32.59 and Guitar Center (GTRC)= $59.98

Najarian liked Dendreon Corp (DNDN)= $7.17

Adami- Research In Motion = (RIMM)= $163.45

Bolling picked USEC Inc (USU)= $21.80



Wednesday's Results:

Bolling- Google (GOOG)= Open $530.26 close $526.29 Loss $3.97

Adami- EMC (EMC)= Open $17.52 close $17.93 Gain $.41

Najarian- Under Armour (UA)= Open $45.80 Close $46.63 Gain $.83

Macke- NIKE (NKE)= Open $53.82 Close $58.29 Gain $4.47



Records:

Since my tracking began on 6/21 (1-1 means one up pick and one down pick)

Adami= 1-4 Loss $1.40
Bolling= 2-3 Loss $1.72
Najarian= 3-2 Gain $1.50
Macke= 5-2 Gain $6.65
Seymore= 1-0 Gain $.35
Finerman= 0-1 Loss $.18


Macke is hands down destroying the others.

How To Announce A Buyback: Best Buy

Last week I lamented about Home Depot's buyback begging for "details boys... details"

Execs at Home Depot (HD) should read Best Buy's (BBY) announcement today. In announcing a $5.5 billion share repurchase, Best Buy said it has used a portion of this new share repurchase program immediately to execute an accelerated share repurchase program, with Goldman Sachs(GS) as counterparty, for the buyback of $3 billion of stock no later than February 2008. The company expects to fund the $3 billion ASR program through cash, short-term investments and interim borrowing.

The remaining $2.5 billion available under the new share buyback program is
expected to be used subject to business results, market conditions and board
approval.

Now, let's ignore the the last $2.5 billion because there is no time frame when and if it will ever be accomplished. What we do know is that $3 billion dollars worth of stock will be gone in 8 months. At todays prices that means about 65 million shares or about 13% of the outstanding shares. We can now count on this giving 2008 (year ending March 2008)EPS a boost of 37 cents a share (13%) over 2007. This number assumes earning in 2008 equal to 2007. Any growth Best Buy delivers in excess of 2007 is just icing on the cake for investors.

In the most recent earnings announcement CEO Brad Anderson said "In addition, as seen in the first quarter, we anticipate continuing our increased share repurchase activity."

Guess he meant what he said. for Home Depot investors, I hope CEO Frank Blake is paying attention.

Todays Upgrades / Downgrades

Here are this mornings analyst calls.



UPGRADES:

Millennium Pharm (MLNM)= Mkt Perform

Sourcefire (FIRE)= Buy

PAREXEL (PRXL)= Peer Perform

Bruker BioSciences (BRKR)= Peer Perform

Kohl's (KSS)= Outperform



DOWNGRADES:

Sunoco (SUN)= Hold

Valero Energy (VLO)= Sell

Tesoro Petroleum (TSO)= Sell

Ventana Medical (VMSI)= Peer Perform

Coca cola: An Update

Back in February I wrote about the prospects of Coke (KO):

"If you are looking at shares of Coke, do just that, look but do not touch. Currently they trade at 22 times earnings and are ecstatic to be growing at 9%. Do not pay over 2 times earning growth for a company who has no desire to do any better. It is one thing to have a mediocre year and look to the future with plans to improve, it is another to have a mediocre year and stand up and take a bow. This is what Coke did."

Again, please read the first post as this one will make much more sense. Shares sat at $47.87 the day I wrote that post and today sit at $51.95 for a 8.5% gain in about 5 months, nothing to sneeze at.

Since the first post Coke has agreed to purchase Glaceau Beverages for $4.1 billion, bottlers in the Philippines & Tokyo and increased the annual dividend 10%. All excellent.

In the original post I compared Coke to Pepsi(PEP) because let's be honest, this is a two horse race. In that post I said:

"To be fair we need to compare this to their only competitor, Pepsi. Maybe it is the business they are in? Maybe to expect more is unreasonable of me. For the answer we need to turn to Pepsi's call on 2/8. CEO Indra Nooyi said of 2006 results "We are making good progress on key initiatives" a rather subdued synopsis of the year. CFO Richard Goodman gave the outlook for 2007, "consistent with our long-term guidance, we anticipate.... EPS growth of at least 10%". Oh, and what did Pepsi do for 2006? Eps increased 13%, and they call that "good progress".

What to make of this? Easy, the floor for success in the eyes of Pepsi is Coke's ceiling."

What has Pepsi done since the original post? They have increased their share buyback by $8 billion, grew earnings 16% (vs 14% for Coke) and raised the dividend 25% and share are up 2%. Coke trades at a PE of 23 times earning (1.5 times earnings growth) and Pepsi trades at a PE of 19, almost equal to it's earnings growth rate.

So, have I changed my mind? In a word no. I still feel Coke is way too levered to sugar laden soft drinks as they depend on soda for 80 percent of sales, compared with less than 20 percent for Pepsi. Both companies posted soft drink declines of more than 1 percent last year in the U.S. as consumers cut back on sugary drinks, according to data compiled by industry journal Beverage Digest. Coke's fortunes will rise or fall will soft drink sales.

Now, at least coke is trying to change this as they are trying to push into the tea markets but Coca-Cola's Nestea brand has 10 percent of the U.S. tea market, lagging Pepsi's 37 percent share with Lipton and SoBe. Coke just always seem to be playing catch up. Even their foray into bottled water was with Dasani was well behind Pepsi's Aquafina offering.

What to do? Personally, I would not own either at these levels. If I had to choose, and really what is the point of a blog without and opinion, I would still be a buyer of Pepsi vs Coke. They have a more diversified business which makes earnings less dependent on a single item and this is especially important when that item is being steadily removed from schools and the like, out of the hands of large consumers of it. Pepsi shares also represent more of a value at these levels than Coke although that is a relative value, not an absolute one.

Time will tell...

"Fast Money" Results 6/26

Here are today's picks and yesterday's results.

Picks for Today:

Bolling- Google (GOOG)= $530.26

Adami- EMC (EMC)= $17.52

Najarian- Under Armour (UA)= $45.80

Macke- NIKE (NKE)= $53.82

Note: Macke said buy Nike in the afternoon, not morning.




Here is how Monday's Picks did yesterday.


Macke- Sell Dow Jones (DJ).Open $57.50 Close $58.77 Gain $1.22

Najarian- Buy Centene (CNC). Open $20.32 Close $21.30= Gain $1.02

Adami- Short the Dow and buy Short Dow 30 Proshares ETF (DOG) Open $59.68 Close $59.50 =Loss $.18

Bolling- Buy Google (GOOG) Open $527.42 Close $530.26= Gain $2.84


Records:

Since my tracking began on 6/21 (1-1 means one up pick and one down pick)

Adami= 0-4 Loss $1.81
Bolling= 2-2 Gain $2.25
Najarian= 2-2 Gain $ .67
Macke= 4-2 Gain $2.18
Seymore= 1-0 Gain $.35
Finerman= 0-1 Loss $.18

Macke get a special nod with his Pick of Nike that was up over 5% yesterday.

Today's 52 Week Lows

Here are the folks that fell below the Mendoza line today.


Standard Pacific (SPF)= $18.02

Pulte Homes (PHM)= $22.56 (2nd day in a row)

Office Depot (ODP)= $31.92

Newmont Mining (NEM)= $38.53

Lennar (LEN)= $37.55

Centex (CTX)=$39.74

Blackstone (BX)= $30.75 (2nd day in a row)

Frontier Air (FRNT)= $5.46

Coffee And A Salad, $12 bucks??!!??

Just in case you thought management at Starbucks (SBUX) just did not seem to get it when they went into the music biz, they made sure today. Starbucks announced today that they will add prepared salad's to their menus. It will add a tomato mozzarella salad and a "fiesta salad" with grilled chicken, roasted corn and black beans, to its lunch menus nationwide. Regional additions will include white chicken curry with couscous, albacore tuna penne, "champagne pasta salad," bowtie pasta with goat cheese, and Asian sesame noodle salad.

The price tag for one of these gems? $5.50. So now I can get my $5.75 Carmel Macchiato which is about as healthy as a Big Mac at Mcdonalds (MCD) and even it out with a $5.50 salad? Why won't I go get a quality coffee and salad at McDonald's for half that and not have the 17 grams of fat the Macchiato delivers?

If anything, Starbucks need to find a way to not be "the more expensive and less convenient" option to McDonald's which is what they are today. I can only imagine how slow the lines are going to be now as folks ponder what salad choice they are going to make. Plus, a salad needs to eaten sitting down. How many folks actually sit in a Starbucks vs. get a coffee and walk out? If their muffin sales which are very mobile are not getting it done, (again, high price and they are a heart attack inducer) this idea will flop on it's head also.

this is ironic in the wake of Howard Schultz's memo in which he feared the company has gotten away from what made it great. Every action they have taken since then has moved the company even farther away from it's roots. Peculiar.

I haven't seen a company push this hard in the wrong direction in a long time.

This is just a bad idea....

Altria Moving Toward PMI Spin

It appear that Altria (MO) is taking another step to it's eventual spin of Phillip Morris International (PMI). Today they announced a consolidation of operations that will result in a North Carolina manufacturing plant being closed by 2010. The Cabarrus, North Carolina plant employs 2,500 workers will be closed and manufacturing will be consolidated at its Richmond, Virginia plant. The production for PMI that currently is done in Cabarrus will be moved to Europe, eliminating shipping/freight costs for PMI. Most hourly workers in Carrabus will be offered work at the Richmond facility.

The company expects total savings by 2011 to be $335 million per year. Of the savings, $179 million will go to Philip Morris International and $156 million will go to Philip Morris USA. 2007 charges will be $325 million, or $0.10 off of EPS, mostly taken in Q2 and $50 million will come later in 2007.

This is another step for Altria's Phillip Morris USA (PMUSA) to separate from the International operations (PMI). With this move PMI will now have it's own production facilities and be wholly functionally independent from PMUSA. It is starting to look like we may get an announcement of the intentions here at the next board meeting (along with a nice fat dividend increase)in Q3.

Another Update: Harley Davidson

Another update of a past post. In early February I wrote about shares of Harley Davidson (HOG), "Don't Reach for the Bacon Just Yet".

Again, please read the initial post as this one will reference it and it will make a whole lot more sense if you do. In that post I advised NOT buying shares at their then $70 a share levels and waiting until shares dropped to $60 (they sit at $61 currently). There were a couple of factor I alluded to that I though would drive the price down but would not have any long term negative effect on the company. Let's update those and see where we are at now.


The Strike:

In February:
"For the first time in history Harley has a strike at its production facility in York, PA. This plant makes Harley's most profitable bikes. Now even though Harley says there should be no long term effect, there will be an effect now and this year (the longer the strike, the larger the effect)."

The strike turned out to me a non-event. It 's duration was about 3 weeks and workers and management played nice in the end. It caused a drop in Q1 earnings and shipments but even that was less that expected.

Credit

In February: " Harley has been selling more and more self financed motorcycles recently through Harley Davidson Finance (this is no different that any other retailer offering you "a credit card" at the checkout). The number of bikes sold this way has gone from 21% to about 48% in the past 6 years. There is concern that more of these loans may be of questionable credit. This could cause losses or decreased earnings at this division which would negatively effect earnings as a whole."

It would appear that credit tightening in all markets is affecting Harley. Not significantly enough to cause real serious concern, but enough to cause people to dial back their expectations for next year. A recent survey of dealerships showed significant pricing below Harley suggested prices on bikes. This is being done to clear dealer floor before new models come out. Now, if these bikes cannot be moved, then orders to Harley will drop and earnings are going to be negatively affected.

Consumer credit is the main issue with Harley now. Since "easy money" is not so "easy" anymore, there is a certain segment of potential Harley buyers out there who will not be able to get financing to either buy their first bike or, more significantly upgrade to a bigger, more expensive one.

What To Do?

Recently share jumped as rumors swirled that Honda Motors (HMC) would make a bid for Harley. Days later Honda denied the rumor. This illustrates the effect of rumors and how people react to them before they really think about it. I am going to say that shareholders, management and those who work at Harley would rather lay their genitals on a hot tailpipe than see their company sold to the Japanese. This is not to say they have anything against the Japanese but Harley is America through and through and nothing will ever change that. The executive that blessed the transition of Harley from US to foreign ownership would probably spend the remainder of their life "looking over their shoulder" and would have Sammy "The Bull" Gravano saying "thank God I am not that guy". Let's just put this one to bed.

Now, does that mean Harley will not be bought out? No, it just means it will not be Honda. It's valuation is becoming compelling and once this current credit squeeze shakes itself out, shares resume their perpetual upward climb. It would make sense for one of the US auto makers like Ford (F) or GM (GM) to try to pick it up, at least then they would have a profitable division but admittedly the chance of that happening is very slim, if not non-existent.

Buy now? I am going to say no... I think the current credit situation will last a while and next years earning will be be negatively affected. If you are a value investor looking to buy shares , this is good news as the share price will fall more from here. Harley has yet to reduce earnings estimate and when they do (they will) share get hit, hard.

From their current $61 level I would wait for another 10% fall the $54 to $55 and then jump in. Again, this assume no dramatic news event, just the event we anticipate here.

Harley is a great company that is in the midst of a stumble, not a fall, and that may give us value folks a golden opportunity to pick up cheap shares.

Tuesdays Upgrades /Downgrades

Here are the call from late Monday and this morning.




UPGRADES:

Edison (EIX)= Buy

Energy East (EAS)= Hold

Winn-Dixie Stores (WINN)= Outperform

National City (NCC)= Hold

Pearson Plc (PSO)= Buy

Sirius Satellite (SIRI)= Buy

LivePerson (LPSN)= Hold

Infineon (IFX)= Strong Buy


DOWNGRADES:

Buffalo Wild Wings (BWLD)= Sell

CEC Entertainment (CEC)= Mkt Perform

Amgen (AMGN)= Equal-weight

Cinemark (CNK)= Hold

Shore Bancshares (SHBI)= Hold

Jackson Hewitt JTX Sector Pefrom

Fast Money 6/25

Here are today's picks and results so far.


Macke- Sell Dow Jones (DJ).

Najarian- Buy Centene (CNC).

Adami- Short the Dow and buy Short Dow 30 Proshares ETF (DOG)

Bolling- Buy Google (GOOG)


Fridays Picks:

Macke liked Foot Locker (FL). Open $21.67 Close $21.98 Gain $.31 and Nike (NKE), Open $52.95 Close $53.81 Gain $.86 .

Seymour BP (BP), Open $69.76 Close $70.11 Gain $.35.

Finerman Home Depot (HD),Open $39.36 Close $39.18 Loss $.18

Guy Adami says the market looks terrible and doesn’t have a trade.


Records:

Since my tracking began on 6/21 (1-1 means one up pick and one down pick)

Adami= 0-3 Loss $1.62
Bolling= 1-2 Loss $ .59
Najarian= 1-2 Loss $ .35
Macke= 3-2 Gain $ .96
Seymore= 1-0 Gain $.35
Finerman= 0-1 Loss $.18


Looks like Adami was smart to not to have a pick Friday.

Today's 52 Weeks Lows

Here are today's cellar dwellers

Blackstone Group (BX)= $32.44

Genetech (DNA)= $73.95

Dominos Pizza (DPZ)= $18.00

Lexmark (LXK)= $49.28

Pulte Homes (PHM)= $23.28

Hovnanian Enterprises (HOV)= $17.40

Wendy's A Final Word

Okay, my last post on the topic as I have already spent way too much time posting on a company I have zero interest in. I do this because I think my arguments are being "summarized" in a way that does not accurately reflect the true nature of them.

In his post, Mr. Cohen states:

"The spin-off of Wendy's from THI created value. Why? Because both organizations can now concentrate on maximizing value of their own operations. THI is a great chain that was for a long time masking the ineptitude of Wendy's mgmt team."

It created a shareholder profit, not value. Why could the two management's not concentrate on doing this when the companies where together? Why is separation necessary?

Cohen: "To me, Sullivan's argument boils down to the fact that Wendy's (WEN) and THI should have stayed together because of the "synergies" that could be created by keeping them together."

Yes, that and as I stated "Horton's would have buffered Wendy's shareholders while the management tried to fix it"

Cohen: "I think it's mostly self-evident that there are few synergies between a Canadian doughnut chain and an American burger chain. THI has 2,700 locations in Canada and ~330 in the US. Wendy's has about 7,000 locations in the US, and 370 in Canada. Are there really any synergies between these two in terms of "integration of logistics and getting product to locations?" I don't really think so.

Wendy's sells burgers and fries and meat and fish and potatoes. Horton's sells coffee and tea and snacks and doughnuts and yes, sandwiches also. But cost savings from combined purchasing? The two chains don't really sell similar stuff. I can see Dunkin Donuts and THI having cost savings from combined purchasing, but not a coffee & doughnut shop with a burger chain."

Here is where his argument falls apart. Why, consider how Wendy's is attempting to jump start sales. From Wendy's site:

"Wendy’s is expanding its new breakfast menu to more than 75 additional restaurants in markets across the U.S. this month. This move comes after an extended test involving about 160 restaurants in five markets.

The Company is on track with the planned timing of its breakfast expansion, and expects to offer breakfast in more than 650 restaurants by the end August.

“Breakfast is the fastest growing business segment in the quick service restaurant category; and, we’re raising the bar by introducing a fresh, delicious, premium-quality breakfast menu,” said Wendy’s Chief Executive Officer and President Kerrii Anderson. “We believe it’s a better breakfast, and the positive customer reaction that we’ve received so far bears this out.”

As part of its breakfast menu, Wendy’s will be the only major quick service restaurant or convenience store chain to offer a proprietary blend of Folgers® Gourmet Selections™ coffee."

Now, I am sorry but "Folgers" and "gourmet" belong in the same sentence only slightly more than "spam" and "gourmet" do. How much better would that sentence be with "Tim Horton's Gourmet Coffee" instead of Folgers? How many more people would be willing to partake in a Wendy's breakfast if the coffee they are serving did not remind them of the "extra screws" can in their father's and grandfather's garage? How much more "value" would Tim Horton's coffee bring to the equation? Now, if I am out and want breakfast and coffee, I will not go to Wendy's for the Folgers, even though I have a positive mindset towards their food quality, I will go to McDonald's (MCD) for the Newman's Own coffee. How many other people out there feel that way? I would argue a ton.

Cohen: " McDonald's introduced premium coffee that was branded McDonald's. Wendy's can introduce premium coffee that's branded Wendy's. The ability for Wendy's to introduce premium coffee in cups that say Tim Horton's doesn't really justify keeping the conglomerate together. They can always license the THI name if they think it will help. If you read this Wall Street Journal article, though, you'll see that Americans in general don't really recognize the Tim Horton brand, so I don't think it would really help Wendy's to introduce Tim Horton-branded premium coffee in its 7000 US locations."



Again, just untrue. McDonald's coffee was not only NOT branded McDonald's it was branded, advertised and sold as "Newman's Own". For proof take a look at this cup of iced coffee, if you look hard enough at the bottom you can see the McDonald's logo, barely visible. As for American's "not recognizing" Tim Horton's, I would not expect folks in Tuscon, 2,000 miles away from the closest Tim Horton's to recognize it, but, the same poll taken in areas where Horton's does business would yield starkly different results. There is a reason Dunkin Donuts has not entered those markets yet.

Cohen: "Sullivan also claims that the Wendy's management could have handled THI and Wendy's together because there's no reason why management can't "walk and chew gum" at the same time. I would argue that if the management team (which by the way has already changed its CEO since then) couldn't handle Wendy's properly, they would've eventually screwed up THI also."

This fails to recognize that the chains had separate management.

Cohen:"Sullivan argues that "everyone knew the burger chain was mismanaged" before the THI spin-off "and if they did not, they just did not look into the company very well before they bought shares." I don't really agree with that statement. Until Bill Ackman and Nelson Peltz came onto the scene, it didn't seem like shareholders really cared about management ineptitude. Both Ackman and Peltz pushed for the spin-off to create value. Peltz, by the way, has significant experience in the restaurant field and he still holds Wendy's shares today, indicating that he thought and still thinks that the spin added value. Now that Wendy's is a stand-alone entity, Peltz can get his hands dirty with either fixing the company himself (which Wendy's management is doing its best not to do) or getting it sold off. None of this would've happened without activist shareholders urging a spin-off. Certainly a purchase of Wendy's would have been much harder to pull off if it was an entire conglomerate."

I will not speak for the thousands of Wendy's shareholders and what they did or did not think but I will say that a cursory look at the company would have revealed the burger chain was not doing very well. I will say most people knew Wendy's was in third place in a 3 horse race vs. McDonald's and Burger King. I will address the Peltz issue at the end.

Cohen:"As Whitney Tilson writes in this FT article (.pdf) from last year, "with the stock in the high $30s, the company?s Tim Hortons subsidiary was worth nearly the entire stock price." Well, if that was the case, why wasn't the stock trading higher? It all boils down to transparency. That, after all, is why spin-offs outperform the market almost all the time."

Again, not really. Now it is true that percentage wise, spin do outperform the market. But, one cannot just blindly invest in spin offs and expect to beat the market. For instance if we have three spin offs that perform 25%, 8% and 8% and the market does 10%, the average gain for the spins was in excess of the market even though 60% of them did not beat it. I believe the actual % of spins that beat the market is around 60%, a far cry from "almost all". Now, the transparency argument. Mr. Tilson also argues that Warren Buffett's Berkshire Hathaway (BRK.A) is undervalued. Is there a more transparent company out there? Is Mr. Cohen advocating Berkshire start selling off assets to "unlock" this value? Or, should we wait for the market to recognize the true value of Berkshire and price shares accordingly? Isn't this after all the very essence of Buffett's style of value investing? Are we going to argue against his results?

Cohen:"In this case, keeping Wendy's and THI together didn't make sense. And hey, you don't believe me? Ask Nelson Peltz. He has much more experience with both value investing and restaurants than either Sullivan or myself. He both supported the spin-off and continues holding the stock. I couldn't ask for better proof than that"

What happened to Mr. Ackman? You cannot in one post trumpet Ackman's beliefs and activism and call him a "long term investor" and then casually omit he dumped his stake in Wendy's when you are trying to make a point about why holding Wendy's shares is a good idea. It should also be noted that Ackman's stake was nearly twice the size of Peltz'z current one (9% to 5.5%)and that he no longer holds Tim Horton's shares either. Since we are throwing famous investors names around, let's not forget George Soros dumped shares in both Wendy's and Tim Horton's after the spin along with Ackman.

I think the fundamental disagreement we have is what "value" means. I believe to Mr. Cohen it means "what can I get for my shares today" while to me it's means "how much will they appreciate over the next several years". This is why I have advocated Andrew Liveras NOT sell Dow Chemical, (DOW) because I believe the value of it long term is multiples of the $15 to $20 a share quick hit I would get from a sale. I believe Wendy's long term would have made more money for shareholders with Tim Horton's than without, especially when you consider the push they are making into breakfast which is what Horton's really does well. It was a natural fit for the two.

Alas, we will never know "what could have been" for Wendy's but one thing we do know, Ackman and Soros seem to believe the valuations of both companies no longer present investors with a "value" nor are they optimistic enough about the separate entities to continue to own shares.

Monday's Upgrades & Downgrades 6/25

Here are the calls from this morning so far


UPGRADES:

Pier 1 Imports (PIR)= Buy

True Religion (TRLG)= Sector Outperform

Interpublic (IPG)= Buy

Chevron (CVX)= Buy

Perot Systems (PER)= Buy

Bristol-Myers (BMY)= Outperform




DOWNGRADES:

Town Sports International (CLUB)= Neutral

Monsanto Earnings

Monsanto (MON), the seed and fertilizer giant reports Thursday before the bell and analysts are looking for $1 a share vs. the $.61 cents they earned last year for a cool 64% growth.

With the explosion in ethanol production (and now corn plantings) Monsanto is seeing unprecedented demand for it's seeds and fertilizers and shares have vaulted form $39 to $68 in the past 52 weeks. Competitors such as Potash (POT), Agrium (AGU) and Terra Industries (TRA) have participated in the bonanza with shares prices all up well over 100% in the past year.

Monsanto will set the bar for the group this week and a miss will cause shares of the smaller companies, several of whom sport PR ratios in the 70's and 80's to implode. Conversely, a beat and upward revision in full year guidance will cause the sector's party to carry on. In short, when you have valuations this high, volatility will be the name of them game.

I would be shocked to see anything but a hit or beat for Monsanto. The Ag business, as the Agrium CEO recently said "is on fire" and does not look to be slowing down anytime soon. Monsanto is experiencing huge demand for it's new disease resistant corn seeds that farmers will want to satisfy ethanol producers.

If you think the party may be over, I would avoid betting against this group now, to quote James Taylor "don't tug on superman's cape, don't pee into the wind, you don't pull the mask off the old long ranger..." and do not bet against the Ag sector now.

If you think there is more room to run, it will be a wild ride when valuations are this high. If you buy shares, buckle your seatbelt and hold on.

Portfolio Tracking Changes

I am changing how the portfolio is tracked. It will not effect the performance and will make accessing it easier.

If you follow this link you can see it here. Bookmark it to your browser and it updates I believe at the end of each day. It also allow comparisons to all types of benchmarks. All in all, I think it is much better.

The website assumes all dividends are reinvested, which is something I do anyway, but do not have the excel abilities to track on my current spreadsheet. The way I currently do it is to take the cash and I reflect that as a decrease in the purchase price. While accurate, it painfully understates the effect on results when dividends are reinvested. Icarra does not, track the options I sell but the dividends I receive and their reinvestment outweigh that consideration. They are attempting to add that capability soon and if and when they do, I will update it to reflect that.

There is supposedly a way to integrate the chart into the blog. When I figure it out, I will do it.

Current holdings are (in order of size, LARGEST FIRST):

Goldman Sachs (GS)
Sears Holdings (SHLD)
Altria (MO)
Sherwin Williams (SHW)
Wal-Mart (WMT)
Citigroup (C)
US Oil Trust (USO)
Dow Chemical (DOW)
Archer Daniels Midland (ADM)
Owens Corning (OC)
Leap Frog (LF)


Now, If Sears Holdings (SHLD) gets much cheaper, I may just have to pick up more shares this week which would make it the largest holding. We'll see.

Notable Stock Money Flows Last Week

Here are some notable money flows from last week. Inflows signal buying on price drops and outflows means people are selling shares on strength.

Money Flows: Buying on Weakness

Company, Amounts in Millions

Proctor & Gamble (PG)= +$93

Merrill Lyn (MER)= +$60

General Motor (GM)= +$46

American Credit (ACF)= +$47

Chicago Mercantile (CME)= +$46

Nymex Holdings (NMX)= +$45

Ingersol Rand(IR)= + $44


Selling Into Strength, Amounts in Millions

Best BUy (BBY)= -$42

Applied Materials (AMAT)= - $31

Limited Brands (LTD)= - $29

Monsanto (MON)= -$23

UAL (UAUA)= -$15

BP (BP)= -$9

This Weeks Insider Buys

These are the buys from insiders for the week. As Peter Lynch said, "there are a multitude of reasons insider sell shares, but only one reason they buy, they think the stock is going up. Notice the big buying in the pharma sector.

Brookfield Homes (BHS)= $4,019,000

Ligand Pharmaceuticals (LGND)= $2,748,000

La Jolla Pharmaceuticals (LJPC)= $1,852,000

Mylan Labs (MYL)= $1,094,000

Terremark Worldwide (TMRK)= 720,000

"Fast Money" Picks 6/22

Here are the picks for Monday

Macke likes Foot Locker (FL), $21.67 and Nike (NKE), %52.95.

Seymour BP (BP), $69.76.

Finerman Home Depot (HD), $39.36

Guy Adami says the market looks terrible and doesn’t have a trade.


The results of Friday's recommendations:

Bolling- USEC Inc, (USU) $22.02
Close $21.67 = Loss $.35

Adami- Honeywell (HON) $56.38 Close $55.68 = Loss $.70

Najarian- Bristol Myers (BMY) $32.02 Close $31.40 = Loss $.62

Macke- Hasbro (HAS) $31.63 Close $31.30 = Loss $.33

Now, the market was down over 180 points so there were not many winners out there Friday, but, we need to track the good days and the bad.






Records:

Since my tracking began (1-1 means one up day and one down day)

Adami= 0-3
Bolling= 1-2
Najarian= 1-2
Macke= 1-2

This Weeks Notable Dividend Increases

Here are the payout boosts for last week


Sun Hydraulics (SNHY)= 35%

Center Financial Corp. (CLFC)= 25%

Ameron (AMN)= 25%

Winnebago Enterprises (WGO)= 20%

Bank of South Carolina (BKSC)= 14.3%

This Weekends Upgrades / Downgrades

UPGRADES:

Darden Restaurants (DRI)= Buy

Newfield Exploration (NFX)= Buy

Agrium (AGU)= Buy

Terra Industries (TRA)= Buy

AES Corp (AES)= Buy

Kraft(KFT)= Neutral



DOWNGRADES:

Talbots (TLB)= Sell

Pier 1 (PIR)= Underperform

Southern Co (SO)= Underweight

Abercrombie (ANF)= Equal-weight

Canadian National Rail (CNI)= Sector Perform

NASDAQ 52 Week Low Club

Here are the bottom dwellers from the Nasdaq

Starbucks (SBUX)= $25.54

Wilshire Bancorp (WIBC)= $11.70

Heelys (HLYS)= $25.95

Hudson City Bank (HCBS)= $12.19

Commerce Bancshares (CBSH)= $45.10

Community Bancorp (CBON)= $28.36

ABIOMED (ABMD)= $10.99

NYSE 52 Week Low Club

Here are some new 52 week lows from the NYSE

Wachovia (WB)= $51.84

Sanofi Aventis (SNY)= $40.37

Pulte Homes (PHM)= $23.80

McClatchy Newspapers (MNI)= $25.07

Hovnanian Enterprises (HOV)= $18.20

Public Storage (PSAA)= $25.65

Leggett $ Platt (LEG)= $21.60

Gulf Power (GUI)= $22.71

Journal Register (JRC)= $4.67

NL Industries Wins In Milwaukee Lead Paint Trial

The much awaited verdict is in in the lead paint case of The City of Milwaukee vs NL Industries (NL).


The jury said that lead paint in and of itself was a public nuisance BUT, NL was NOT responsible for the problems it is causing. This makes 4 victories now in the last two weeks for lead paint defendants.

On Questions two and three - Did NL Industries intentionally and unreasonably engage in conduct that was a cause of the public nuisance and Did NL Industries negligently engage in conduct that was a cause of the public nuisance - the jury voted NO.

Visit Jane Genova's Law and More for interviews and updates.

ADM To Enter Brazilian Sugar Cane Ethanol Market

ADM, already producing biodiesel in Brazil now wants to enter the ethanol market.

In an interview, ADM's (ADM) senior vice president of strategy, Steve Mills,said the company hasn't ruled out a purchase of Brazil's largest ethanol producer, Cosan SA, in which ADM owns a small stake. A Cosan spokeswoman declined to comment.

Mr. Mills wouldn't say how much money ADM is willing to invest in Brazilian ethanol, and it isn't clear how soon they will move but based on recent history, when ADM finally talks about something, action soon follows. Mills said sugar-cane ethanol is now "a key component" of ADM's immediate strategy. "We're devoting a lot of time and energy to this area. We're not talking about something 10 years down the road. It's on the front burner," he said.

Brazil is among the world's lowest-cost producers of ethanol, at a cost of about 90 cents a gallon, roughly two-thirds that of corn ethanol, according to the Institute for Studies of Commerce and International Negotiations, a think tank in Sao Paulo. This is very interesting as it means corn based ethanol is made at a cost of about $1.20 a gallon. This really does squash the thought that ethanol is becoming unprofitable. It does mean that ADM will be able to make it 30% cheaper in Brazil toi export both to the US and the rest of the world.

ADM will have enough flexibility to sell it's Brazilian production. They can funnel Brazilian ethanol through Caribbean countries (like Bunge (BG) and Cargil plan to do) who can export a limited amount to the U.S. duty-free and will also look to overseas markets, which are growing rapidly. "What ADM really understands is the global nature of green fuels," said Dan Basse, president of AgResource Co., a Chicago commodity-advisory firm.

Coming off the heal of the hire of former DOE Head Todd Werpy and this weeks announced hire of Michael Pacheco, who served as the director of the National Renewable Energy Laboratory’s (NREL) National Bioenergy Center since 2003, ADM is gearing up for something big. Pacheco will lead ADM in the development of food and fuel processing technologies. At NREL, Pacheco was instrumental in the completion of the “Billion-Ton Report,” which confirmed the ability of U.S. biomass resources to meet the nation’s transportation fuel needs.

HTML Emails Now Available For Blackberry

It looks like my biggest complaint about my RIMM (RIMM) Blackberry has been solved

Simply go to the site Empower from your Blackberry and download the beta version of the software. It takes 30 seconds. You can also sign up for free updates as they come out. I have downloaded it and it does work. For sites that you have set to send you text emails, you'll need to change that the HTML to get the full functionality of the service.


The best part? It is FREE

Friday Upgrades / Downgrades

Here are the calls from late Thursday and Friday


UPGRADES:

Owens Corning (OC)= Buy

MGM mirage (MGM)= Sector Outperform

Navistar (NAVZ)= Buy

United Auto (UAG)= Outperform

Advanced Micro (AMD)= Buy

JP Morgan (JPM)= Outperform

Panera Bread (PNRA)= Buy

Symantec (SYMC)= Outperform


DOWNGRADES:

Starbucks (SBUX)= Market Perform

Chipotle Mexican Grill (CMG)= Neutral

Regal Entertainment (RGC)= Neutral

Analog Devices (ADI)= Underperform

Cheesecake Factory (CAKE)= Sector Perform

GE (GE)= Long Term Buy (I do not know why this is bad..)

Cheesecake Factory (CAKE)= Peer Perform

Prudential (PRU) = Hold

Alltel (AT)= Equal weight

"Fast Money" Picks and Recap

Here are today's picks from Bolling, Macke, Najarian and Adami

Picks For Today:

Bolling- USEC Inc, (USEC) $22.02

Adami- Honeywell (HON) $56.38

Najarian- Bristol Myers (BMY) $32.02

Macke- Hasbro (HAS) $31.63


Yesterday's picks and the results:

Macke-Columbia Sportswear (COLM) $68.02 = $68.16 + $.14

Najarian- Terra Industries (TRA) $22.40 = $23.22 + $.82

Adami- "Short" Dow 30 Proshares ETF (DOG) $59.02 = $58.77 LOSS $.25

Bolling- NYMEX Holdings (NMX) $137 = $137.09 + $ .09

Looks like yesterday's winner was Najarian and the sole loser was Adami.

Records:

Since my tracking began (1-1 means one up day and one down day)

Adami= 0-2
Bolling= 1-1
Najarian= 1-1
Macke= 1-1

Ohio Supreme Court Agrees with Missouri and New Jearsey Supremes

The hits just keep on coming as the Ohio Supreme Court ruled municipalities cannot sue lead paint manufacturers unless they can prove "whose paint" is causing the "public nuisance". For manufacturers like Sherwin Williams (SHW), NL Indusrtries (NL), DuPont (DD) and Berkshire Hathaway's (BRK.A)Benjamin Moore, this ruling has now set the legal hurdle plaintiffs must cross and since the scientific community cannot "beyond all doubt" prove who manufactured the paint, this litigation is in it's final hours.


From Law and More:

Another major blow for Motley Rice and other plaintiff firms suing Former Lead Paint Inc. - the Ohio Supreme Court on June 20th, ruled that product identification was necessary. Like the Missouri Supreme Court in the lead paint public nuisance St. Louis decision, the OH Supreme Court rejected a claim of market-share liabiity by the plaintiffs in Jackson v Glidden. The trial court had refused to allow the plaintiffs to sue former producers of lead pigment or their successors without identifying who made the paint. This ruling, of course, is in direct conflict with the jury instructions issued by Rhode Island Superior Judge Michael Silverstein in RI Lead Paint Trial II.

Former Iowa Attorney General Bonnie Campbell, who is spokesperson for the defendants, commented, "For nearly two decades of litigation, plaintiffs have moved from legal theory to legal theory, and venue to venue, in an attempt to place the responsibility for poorly maintained properties on the former manufacturers of lead paint. The market share theory is an attempt to evade the most basic requirements of a product liability suit - that the palintiffs show who made the product that allegedly caused harm."

Motley Rice is a resourceful opponent. It will be fascinating to observe and deconstruct how it re-goups and re-positions itself in the media after three consecutive state supreme court losses in New Jersey, MO and now OH. We lead-paint watchers are still waiting for the ruling from the OH Supreme Court on SS 117 which would prohibit the state's public nuisance law from being applied in product liability matters.

Another Commodity Play FCStone (FCSX)

Looking for another way to play the commodity boom? With volatility in commodities increasing, users and producers of products that use them are looking for a way to manage costs.

Enter FCStone (FCSX) . Stone provide risk management consulting services to commodity wholesalers, end users, producers and offer customers clearing and execution services on all major domestic and international futures exchanges. Essentially, they enable companies to hedge against commodity price fluctuations and enhance their margins. Customers range from ethanol producers to sellers of heating oil but currently most of its customers are in agricultural grain business and they do business in the U.S., Canada, China, Brazil and Ireland

With the increase in commodity volatility, clients are entering into more transactions with FCStone, which went public March 16. In the second quarter, earnings climbed 78% to 41 cents a share and revenue rose 50% to $403.5 million. In 2006, earning more than doubled 2005's.

How does it work?

Say a company produces ethanol and wants to hedge against the price fluctuations in corn (currently the fastest growing segment). No,w these will be one of the hundreds the small local producers as the big ones, like ADM (ADM), The Andersons (ANDE) and Pacific Ethanol (PEIX) will have in house operations.

"If it's a natural-gas-fired ethanol plant, we'd look to lock in a processing margin," said FCStone's treasurer Bill Dunaway. "We would enter into a financial derivative contract to lock in the price they'll pay for corn in the future and lock in the price of natural gas they'll need to purchase in the future to run the plant."

FCStone would also put in place a financial derivative to hedge the price of the ethanol that will be produced by the plant in the future. In so doing, it would lock in the price of the "inputs and the output, therefore securing a processing margin," he added.

What to expect?

Analysts polled by Thomson Financial expect earnings for the 2007 fiscal year, ended in August, to rise 77% to $1.59 from the prior year, then 11% in 2008. By now means is this a value stock. But, for a momentum play, they are in a great market at the right time for it's business. Also, if you expect consolidation in the Ag business, a fast grower like this could get swallowed up.

At these prices it is more of a momentum play than a ValuePlay, but, that does not mean you cannot make money with it.

Blackstone IPO Trades Tomorrow

So, it all starts tomorrow as the PE King, Blackstone begins trading

It will trade under the symbol BX and priced at the top end of the range at $31 a share. If you believe in the "greater fool" theory then this would be an indication that these firm are at the top and the people in the know are cashing in. This is especially relevant when you consider that KKR, probably the most well known to the gneral public of the bunch hired Citi (C) and Morgan Stanley (MS) to consider a possibly IPO also.

If there was a huge upside to these folks I do not think they would be cashing out and subjecting themselves to all the increased scrutiny a public company goes through.

I will stay away...

Another Update: Circuit City

The past week and a half I have been doing updates on previous posts ans since Circuit City reported earnings Tuesday, it is as good a time as any to update that post.

In my early May post, I speculated that Circuit City (CC) was "ripe for a buyout". Has anything changed?

May,11th:

"Shares, now down almost 50% in the past year are priced for a buyout and have great value, sans current Management. CC is sitting on $4.05 a share in cash (after LT debt is subtracted), $2.94 a share in owned inventory and last year generated another $2.11 a share in cash from operations. At today's price of $16.72, the cash on hand and value of the owned inventory would give a buyer a 42% return almost immediately or, assuming a buyer would have to pay a premium for the shares, CC's cash and inventory values would more than finance it."

Now:

Shares have been flat lined since then (currently $15.82) despite the just recently announced $82 million loss (33 cents a share) vs last years $8 million profit (3 cents). What does this mean? Shares do not have much more downside. Cash on hand has been cut in half and debt remains the same, irrelevant and owned inventory levels are the same. Should you buy CC now? I would stay away as long as current management is there. They have withdrawn all guidance for the year. They did this not for the same reason Eddie Lampert at Sears (SHLD) or Julian Day and Radioshack (RSH), they did it because as they said "Combined with an uncertain macroeconomic environment, for the time being, it is difficult to project sales and earnings performance for the balance of the fiscal year. As a result, we are withdrawing financial guidance at this time," said CEO Philip Schoonover. Translation? We have no idea what is going to happen from here. While I applaud their honesty, they should have an idea of what is going to happen.

As a trade, any good news could vault shares up immediately. But, I do not see the conditions that could create that good news anytime soon. Maybe they could get bought out and that would cause shares to jump, but, I am reluctant to invest on the prayer someone rescues them. An Eddie Lampert, based on past history would just be as likely to wait for these buffoons to run it into bankruptcy and buy it there even cheaper than now. Why pay a premium to the current price when in bankruptcy he could get it for a fraction of it?

At their current rate CC will be out of cash before Thanksgiving and then the fun really starts. This assumes they do not start ramping up debt to pay for operations and also assumes no further economic slowdown. Should the economy slide even more, see ya...

Will The FDA End Up Endorsing A Safer Cigarette?

Sometimes you read something that just strikes you as so ironic.

Under bills now wending through Washington, FDA would be empowered to approve cigarette makers’ marketing claims if a tobacco product is scientifically proven to “significantly reduce harm” to smokers, and the product’s availability would benefit the “health of the population as a whole,” the WSJ reports. That designation could be provide “a potentially lucrative opportunity” for the company.

Philip Morris (MO)\ has a bunch of test products in the works, including one with a carbon filter, and another with a battery-powered device that heats the tobacco. But it’s unclear whether any of them would qualify for the potential FDA-approved marketing claims. And the public health community is skeptical. “We must be extremely wary of claims made by manufacturers,” the dean of the University of Michigan School of Public Health told the WSJ.

Altria has supported this legislation from the beginning while it's competitors like Reynolds (RAI) have fought it. By embracing it's inevitable passage and participating in it, Altria has leap frogged over it's competition in developing products that will take advantage of the new rules.

Here is the irony. While "lights" suits wind their way through the courts across the nation, the FDA will undoubtedly end up endorsing a cigarette that is "lighter" or "safer". You just cannot make this stuff up.

The government should just back off tobacco companies, every time they try to nail them, they only end up making their business stronger.

Starbucks' Earnings Warning: Outrageous

I have been saying this since February and if I was a shareholder, I would be asking management why they took so long to admit this to you, rather than reaffirming guidance as recently as May. None of these issue are new, unless they were hoping they would just go away. Incredible.

Shares of Starbucks (SBUX) imploded to a near two year low this morning after CFO Michael Casey, said meeting the top end of its 2007 profit target will be "very challenging." The company had set a range of earnings of 87 cents to 89 cents a share for the year but Casey, speaking to a conference in Chicago, cited "rising dairy costs and soft transaction growth" as factors that are weighing on the bottom line. Shares were down about 3% at $26.49 in morning action.

In May, when Starbucks was still blowing smoke up your, well you know where, I was saying "Starbucks, which uses an estimated 93 million gallons of milk a year, is looking at a $279 million milk bill in 2007. While it may not seem a lot to a billion-dollar company, it does equate to 36 cents a share, an increase of about 9 cents, or about 10.3% of profits, over 2006. This does not include the price increase to be incurred from changing the percentage of hormone-free milk from 27% to 37%. Starbucks does charge 50 cents more at some locations for this milk, so it must cost considerably more, no? When you are guiding 83 to 87 cents a share and 18% growth, the 10% of that in milk costs is huge.

Then, when management continued the deception with their 2% milk move in "response to our customers requests", I opined:

"This is all about price and Starbucks doing anything it can to reduce rising costs in the face of stagnant store traffic. According the USDA, 2% milk averages 8 cents a gallon less than whole milk and when you buy almost 300 million gallons a year, 8 cents a gallon adds up real quick. Starbucks can try to gloss over this by saying they are "listening to our customers" but the cold hard reality is they have been making drinks this way for almost two decades now and no one has complained. If they really were listening, they would have eliminated all milk with growth hormones from the stores, but that would be expensive and negatively effect profits. The tell tale sign here is that they are cutting costs, not raising prices like they have in the past. This is perhaps the most public recognition that even they feel they are at the top of the price range and going higher here will cause even more defections to McDonald's (MCD) than they have already suffered."

So now the truth finally comes out today and shareholders, down over 20% since January and believing in management are getting killed again today. Shareholders should be outraged and it is not because milk prices or coffee prices are going up, they have no control over that.

They should be outraged because management apparently still believes in the face of all empirical evidence that they exist in an business category of one. When CEO Jim Donald says "we do not really consider our competition" despite stagnant store comps, there is a serious problem. This is painfully obvious when you consider this store growth stagnation directly coincides with product (coffee) improvements at these non-existent competitors.

Shareholders should be outraged because for almost 7 months now management has been in denial about their business and if you believed them, you have lost a boatload of money.

There are two options here for Starbucks and neither one is good. Either they do not know what is happening out there, or they did and lied about it. When some guy in Massachusetts is more honest with you about a company he has no financial interest in than the people you entrust to run it, there is a serious problem.

Wendy's Post: An Answer

I usually ignore things like this but when they cross the line from a well though out rebuttal (like Andy Kern's Berkshire rebuttal to me that I requested from him and actually posted on my site) to one that takes selective items from a post of mine while ignoring and misstating others to make a point, I need to set the record straight.

In a post, David Cohen states: "Aside from ignoring and/or mis-stating key facts (Bill Ackman is indeed a long term value investor, and Nelson Peltz, who still holds Wendy's shares, also pushed for the THI spin-off), I think the argument is off-base." THI is Tim Horton's International

First things first. I never claimed Ackman was a long or short term investor and as a matter of fact I alluded to him still owning McDonald's (MCD) saying "he recognizes the bright future there". What I said was that he had "a short term interest in the company (Wendy's)". Ackman first disclosed a Wendy's stake in April 2005 and by November 2006 (immediately after the Tim Horton's spin) had liquidated it and yes I consider this short term. Don't believe me? Let Ackman himself tell you, "We buy things when they are discounted, and once they reach the potential of what we think they are worth, we sell. It could take months, or it could take years. That is our business." Bottom line? He is "long term" or "short term" depending on the situation and what he wants out of it. Is this any different that what I said?

Nelson Peltz. In my post I said "agitation from activist investor Nelson Peltz and former shareholder William Ackman that action be taken to boost the company's share price." I am not sure what the point of restating my comment as though I alluded to something else is.

He continues "Sullivan's argument is that Wendy's could be doing much better if it only sold coffee to its customers, as McDonald's seems to be succeeding in doing. My retort: Can't Wendy's (WEN) sell coffee without THI just as it could with THI? What in the world does Tim Horton's have to do with Wendy's selling coffee?"

Again this only touches the and I think intentionally misses the core of my argument. It never implied it was the "only" thing they would have to do, just a glaring opportunity they now do not have. Also, the argument was "premium" coffee, not "brown liquid in a cup". Again to accurately quote my post, "given the overwhelming success McDonald's (MCD) has had with it's premium coffee offering." McDonald's sold coffee before but the introduction of the premium (Newman's Own) stuff has lead to an explosion in coffee sales for the chain. Along with the added customer trips come more ancillary sales of food items. There is a reason in every monthly earnings release "breakfast" (coffee) is at the top of the list of reasons for yet another record month at the Golden Arches.

If anyone has been to where Tim Horton's does business, they are wildly popular, more so than Dunkin Donuts. It is a premium brand in those areas. Are we really going to believe that selling premium coffee at Wendy's drive thru's would not lead to increased business? This is true if for no other reason it would stop people from defecting to McDonald's for a cup and give them a reason to stop at Wendy's. More customer trips always equal more sales in the fast food business. Selling Tim Horton's coffee would have assured additional trips to Wendy's as McDonald's has proven premium coffee drives business.

Again Mr. Cohen: "I would argue that if the spin-off of THI never happened, then Wendy's would still be basking in the glory of its well-run THI operation and not focusing on its mismanaged core business. Now that THI exists (and is thriving) on its own, everyone can see how badly Wendy's is lagging behind McDonald's and Burger King. With this transparency comes shareholder pressure to improve operations. If the THI spin-off never happened, it never would have been so painfully obvious how badly Wendy's is managed. With the transparency of the spin-off comes a recognition of problems. While the solutions may not be easy, recognition is the first step."

Not sure why he "would argue" this after I said "Now holders are stuck with a third rate burger chain that is missing what would have been the fastest growing part of it." I think everyone new the burger chain was mismanaged and if they did not, they just did not look into the company very well before they bought shares. What Horton's did was buffer shareholders while they tried to fix it. There seems to be this thought out there that management cannot walk and chew gum. Like the recent Home Depot (HD) sale announcement, it is a short term gain at the expense of long term performance. Neither the Tim Horton's spin or the Home Depot sale are going to "fix" the problems at the parent nor will they make them any more apparent. They both will make shareholders happy initially and scratching their heads later. Why? Had either Wendy's or Home Depot fixed what really ailed them and kept the items they sold off, shareholders would have been rewarded in multiples down the road with two thriving businesses that would have had wonderful synergies together.

Now, am I opposed to all spins? No, just the ones done for the wrong reasons. Ones like the Wendy's and Home Depot spin are like taking diet pills instead of exercising and eating right. You'll get immediate gratification at the expense of long term benefits. In the post I referenced the Chipotle (CMG) spin by McDonald's as one that was done right. The two businesses were unrelated (Mexican food vs Burgers and eggs)and the synergies between the two on a retail level were nil. It made sense to cut Chipotle loose to shareholders so they could experience the full benefits of both operations. It was not done to mask problems. Even the recent Altria (MO) spin of Kraft (KFT) was done for the right reason, to fully recognize the full value of BOTH entities, not one.

Mr. Cohen concludes: "Now, shareholders can decide to own either Wendy's or Tim Horton's or both. As a shareholder of Wendy's, you would've received your fair share of THI in the spin-off. You can decide to do with that whatever you want, but you can easily create the old Wendy's/THI conglomerate by just keeping your shares. I don't understand why having more flexibility in building your position results in a destruction of value."

I agree, you can own one one, both or neither. You cannot replicate the old conglomerate by owning both, however. You cannot replicate the cost savings of not having two entirely separate corporate structures, the increased purchasing power of the larger combined entity, the savings from combining advertising, the savings from the integration of logistics in getting product to locations and the increased revenue that could be realized from cross selling products with each other.

Having portfolio flexibility and the destruction of value in Wendy's "Long Term" (which was the title of my original post on my blog) are two wholly unrelated items. This confuses the "price" you received for your shares vs. the "value" in the company. Shareholders had flexibility when they first bought shares and continued to have it as they held them. They could have sold them or added to their position at anytime.

The long term value in the combined entity would have come from what the two businesses could have done for each other to generate earnings for shareholders. My argument was and still is that Wendy's was better off with Tim Horton's long term than without.

Ethanol Producer Boosts Earnings Estimate

I though high corn prices were supposed to be hurting ethanol producers?

Andersons Inc., (ANDE) boosted its 2007 per-share-earnings estimate to a range of $2.80 to $3.05 from $2.35 to $2.60. On average, analysts expect $2.62, according to Thomson Financial.


The company noted that its Plant Nutrient Group has specifically benefited from the increased corn acreage and associated higher volume and margins. Additionally, its new ethanol plant in Clymers has started producing ethanol, and both ethanol plants are realizing better margins and throughput than the earlier projections envisioned.

Commenting on the earnings revision, the company's President and Chief Executive Officer Mike Anderson, said: ``When we last provided guidance, planting progress within our region was behind historical norms. Planting has now been successfully completed. This has had a positive impact on the earnings outlook for our Grain & Ethanol and Plant Nutrient Groups.

Now, granted they are getting a boost from fertilizer sales but they are also experiencing better than expected ethanol production margins.

The anticipated margin decline was something that has been much touted in calling for an "earnings crunch" for ethanol producers. It seems to be just not happening. Now, this may be on a case by case basis as the better run companies are able to manage their way through the corn price increase so do not extrapolate this out to all ethanol producers. Firms like The Andersons and Archer Daniels (ADM) that have a history of success are the safe bets here.

"Fast Money" Picks For Today

Here are "Today's Trades" from Bolling, Najarian, Adami and Macke.


Share price is Wednesday's close.

Macke-Columbia Sportswear (COLM) $68.02

Najarian- Terra Industries (TRA) $22.4

Adami- "Short" Dow 30 Proshares ETF (DOG) $59.02

Bolling- NYMEX Holdings (NMX) $137.78


Now, here are yesterdays picks with the results.

Macke- Home Depot (HD)= Open $40.63 close $40.03 Result $.60 loss

Najarian- Boyd Gaming (BYD)= Open $51.00 close $50.35 Result $.65 loss

Adami- Bank of America (BAC)= Open $50.66 Close $49.99 Result $.67 loss

Bolling- News Corp. (NWS)= Open $23.93 Close $23.60 Result $.33 loss

Now, the market was down 146 point yesterday so not much was up so a little leeway here is needed. Let's see what happens today.

Stock Buyback Study

Andy Kern over at Berkshire Ruminations sent me this share repurchase study from 1998 in response to my Home Depot (HD) post. It is very detailed and informative.

The authors found:

- 74% to 82% of firm announcing buybacks actually repurchase the number if shares they originally intend to within 3 years.

- 57% repurchased more than they originally intended to 3 years later

- 30% repurchased more than twice the original amount 3 years later.

You can read it here.


Now, seeing as the current record buyback binge in corporate America is a 21st century phenomenon, I want to see any new studies out there for comparison of the results. Basically, has there been an improvement or a deterioration in the percentage of firms that announce and then complete share buybacks in a reasonable time frame. This one, while very good is from 1998 and covers the time period from 1981-94 and the authors do admit "some information was not available for 141 out of 591 firms before 1984". I would imagine in today's information rich era, this is no longer a problem and getting these studies out requires much less time and energy.

If anyone has one please email me or post it to the comments section of the blog.

Thank you

Thursday's Upgrades / Downgrades

Here are the calls from late Wednesday and this morning.


UPGRADES:

Kaiser Alum (KALU)= Buy

Dollar Thrifty (DTG)= Strong Buy

Home Depot (HD)= Buy

Andersons (ANDE)= Hold

Airgas (ARG)= Buy

CNOOC Ltd (CEO)= Outperform

Atlas Pipeline (APL)= Outperform

Symantec (SYMC)= Outperform


DOWNGRADES:

Ensco (ESV)= Hold

Bankrate (RATE)= Hold

Anheuser-Busch (BUD)= Hold

Schlumberger (SLB)= Neutral

Maxwell Tech (MXWL)= Mkt Perform

Compuware (CPWR) = Neutral

Buffalo Wild Wings (BWLD)= Neutral

Home Depot (HD)= Market Perform

Congressional Chairs Oppose XM / Sirius

It looks like Congress is getting into the act against the proposed satellite radio merger.

A bipartisan group of 72 Congressional leaders sent a letter Monday to the chairpersons of the Federal Communications Commission, the Department of Justice and the Federal Trade Commission, opposing the merger of the nation's only two satellite radio companies, XM (XMSR) and Sirius (SIRI) saying “On its face, we believe that sanctioning the marriage of the only competitors in the satellite radio market would create a monopoly which would be devastating to consumers,” the letter said.

Among the Democrats signatories are Budget Committee chair John Spratt of South Carolina, Agriculture Committee chairman Collin Peterson of Minnesota, Rules Committee chairwoman Rep. Louise Slaughter of New York and presidential candidate Rep. Dennis Kucinich of Ohio.

Among the 25 Republicans who signed the letter are former House Speaker Rep. Dennis Hastert of Illinois, Republican whip Rep. Roy Blunt of Missouri and Tom Cole of Oklahoma, chairman of the National Republican Congressional Committee.

Earlier I posted my thoughts on the possibility of the merger based on the reaction to the Whole Foods (WFMI) and Wild Oats (OATS) attempt. This action by Congress all but assumes this one is dead. While not unusual for those in Congress to chime in with their opinion , in this seemingly new era of a market segment anti-monopolistic attitude, I cannot see how they will allow the merger.

Personally, I think the Wild Oats / Whole Foods opposition is laughable but a combination of XM /Sirius does create only one satellite radio company, last time I checked, that was a monopoly.

Wendy's: Tim Horton's Spin Destroyed Long Term Value

Shares of Wendy's (WEN) closed down 3.7% at $38.26 Monday after the company cut its full-year earnings forecast and currently sit at $37. Wendy's also said for the third time since April that it is considering a sale. They lowered 2007 EPS guidance to $1.09-1.23, down from a $1.26-1.32 forecast and below analyst expectations of $1.27. EBITDA is now forecast at $295 million-315 million versus a prior range of $330 million-340 million. Wendy's, which is facing intense competitive pressure, has also had to contend with agitation from activist investor Nelson Peltz and former shareholder William Ackman that action be taken to boost the company's share price


Activist investor Bill Ackman, though his Pershing Square Capital hedge fund, owned 6.42 million as of 9/30/2006. By 12/31/2006 after he got the spin he wanted that stake was liquidated. Now holders are stuck with a third rate burger chain that is missing what would have been the fastest growing part of it.

Ackman was instrumental in pushing Wendy's to spin-off its Canadian Tim Horton (THI), which was completed in Sept. 2006. Given the popularity of the Tim Horton's coffee and the overwhelming success McDonald's (MCD) has had with it's premium coffee offering, one has to wonder how much better off Wendy's would be if they were serving the coffee in their stores and at their drive-thru's. One thing is for sure, they would not be any worse AND they would be driving traffic to their stores for the coffee.

This what happens when management caves to somebody who only has a short term interest in the company. Conversely, Ackman's demands to McDonald's were essentially rebuffed. Yes, they spun the Chipotle (CMG) chain but that was rumored in the works before Ackman stepped in. He then wanted a sale of the corporate owned stores and real state sales but was denied by management. Where is McDonald's sitting now? At an all time high with a future as bright as it has had in decades. It should be noted that Ackman, even though he was denied his proposed changes, is still a McDonald's shareholder, apparently even he sees the bright future there.

Wal-Mart's Moneycenters, A Winning Idea

Wal-Mart (WMT) announced today it will open 1,000 Wal-Mart MoneyCenters covering a quarter of its stores by the end of 2008. The company will also broaden its menu of financial products and services, beginning with the launch of the Wal-Mart MoneyCard, a reloadable prepaid Visa rolling out nationally with GE Money and Green Dot.

Wal-Mart says it's MoneyCenters "will assist customers who are outside mainstream banking with convenient, nationwide access to low-cost money services, including check cashing, money orders, bill payment and money transfers. Together with the
Wal-Mart MoneyCard, which provides many of the advantages of a checking account
in your pocket -- an easy, safe and convenient way to manage money, pay bills and
make purchases."

Wal-Mart MoneyCenters
*Convenience -- One-stop shopping with extended hours, seven days a week
*Safety -- Well-lit, safe and secure area to cash checks, pay bills and transfer money
*Savings -- With Wal-Mart's every day low pricing, customers can save 25 to 50 percent or more over other leading money service providers.

Wal-Mart MoneyCard
*Convenience -- Use at all locations where Visa(R) is accepted and at ATMs worldwide. Shop and pay bills by phone or online, pay at the pump.
*Safety -- No need to carry large amounts of cash and funds are protected if card is lost or stolen. Online access to track your activity.Daily balance alerts on your cell phone or email
*Savings -- No over limit fees. Designed so customers can minimize or avoid usage fees


Wal-Mart currently conducts more than two million money services transactions
each week. Last year, customers using these services saved an average of
$450 per year (or almost $40 per month). With the opening of additional Wal-Mart
MoneyCenters, the total savings are expected to grow dramatically this year, putting
over $320 million back into customers' pockets.

This is a natural move for Wal-Mart. By giving their stores more one stop functionality, they are creating additional traffic. More traffic will inevitably lead to more sales and profits. There is also a loyalty element to this that is hard to put a price tag on. People who are saving money via these transactions at Wal-Mart are more likely to spend that savings there. I don't see a scenario where these people go to Wal-Mart, cash a check and then go someplace else to shop, won't happen. Both sides here come out a winner.

This is a great move for Wal-Mart and hopefully a sign of more to come now that they seem to have taken their foot off the accelerator with their growth obsession.

Wednesday's Upgrades and Downgrades

Late Tuesday and this mornings activity:


Upgrades:

Build-A-Bear Workshop (BBW)= Hold

Sempra Energy (SRE)= Buy

NYSE Euronext (NYX)= Market Perform

Time Warner Cable (TWC)= Outperform



Downgrades:


Marathon Oil (MRO)= Hold

Finish Line (FINL)= Neutral

Freeport-McMoRan (FCX)= Hold

Isle of Capri (ISLE)= Sell

American Railcar Industries (ARII)= Buy

Occidental Petroleum (OXY)= Hold

Stunning Ethanol Production Breakthrough

We all had to know it was coming, right? Perhaps both OPEC and the US oil companies caught wind of this and that was the genesis of their saber rattling lately?

With U.S. biodiesel production at an all-time high and a record number of new biodiesel plants under construction, the industry is facing an impending crisis over waste glycerin, the major byproduct of biodiesel production. New findings from Rice University suggest a possible answer in the form of a bacterium that ferments glycerin and produces ethanol, another popular biofuel.

"We identified the metabolic processes and conditions that allow a known strain of E. coli to convert glycerin into ethanol," said Ramon Gonzalez, the William Akers Assistant Professor in Chemical and Biomolecular Engineering. "It's also very efficient. We estimate the operational costs to be about 40 percent less that those of producing ethanol from corn."

Gonzalez said the biodiesel industry's rapid growth has created a glycerin glut. The glut has forced glycerin producers like Dow Chemical (DOW) and Procter & Gamble (PG) to shutter plants, and Gonzalez said some biodiesel producers are already unable to sell glycerin and instead must pay to dispose of it.

"One pound of glycerin is produced for every 10 pounds of biodiesel," Gonzalez said. "The biodiesel business has tight margins, and until recently, glycerin was a valuable commodity, one that producers counted on selling to ensure profitability."

Researchers across the globe are racing to find ways to turn waste glycerin into profit. While some are looking at traditional chemical processing -- finding a way to catalyze reactions that break glycerin into other chemicals -- others, including Gonzalez, are focused on biological conversion.

In biological conversion, researchers engineer a microorganism that can eat a specific chemical feedstock and excrete something useful. Many drugs are made this way, and the chemical processing industry is increasingly finding bioprocessing to be a "greener," and sometimes cheaper, alternative to chemical processing.

In a review article in the June issue of Current Opinion in Biotechnology, Gonzalez points out that very few microorganisms are capable of digesting glycerin in an oxygen-free environment. This oxygen-free process -- known as anaerobic fermentation -- is the most economical and widely used process for biological conversion.

"We are confident that our findings will enable the use of E. coli to anaerobically produce ethanol and other products from glycerin with higher yields and lower cost than can be obtained using common sugar-based feedstocks like glucose and xylose," Gonzalez said.

Find article here:

Annual consumption of glycerin in the United States has ranged between 400 million and 450 million pounds for the past three years (2003-2006). Domestic production figures show that approximately 400 million pounds per year was produced heading into the turn of the century.

The U.S. biodiesel industry is expected to produce an estimated 1.4 billion pounds of glycerin valued at $289 million between 2006 and 2015, according to an economic study by John Urbanchuk, director of LECG Inc. According to projections gleaned from NBB estimates, the industry could produce as much as 200 million pounds this year alone. Crude glycerin that once fetched between 20 and 25 cents per pound is now edging closer to 5 cents and lower. This is down from the high of $1.08 in 1996. The glut and pricing pressure have led Dow to close it's 150 million pound per year facility in Freeport, Texas.

Ethanol giants like Archer Daniel's (ADM) had previously put glycerin facility plans on hold at the turn of the century as prices collapsed. ADM will produce an estimated 250 mmgpy of biodiesel in the US by the end of 2007 which equates to 25 mmgpy of glycerin. At ethanol production costs of 40% less than corn, anyone want to bet the glycerin facilities plans that are on hold will be jump started?

More information when I get it as I have requests out.

Going for the Gold(man) (GS)

I just cannot find a reason not to buy shares in Goldman Sachs (GS).

Overview:
A global investment banking, securities and investment management firm who provides a wide range of services to corporations, financial institutions, governments and high-net-worth individuals. GS operates through three core businesses: Trading and Principal Investments, Investment Banking, and Asset Management and Securities Services.

The Trading and Principal Investments business (68% of 2006 net revenues) facilitates customer transactions with corporations, financial institutions, governments and individuals, and takes proprietary positions through market making in, and trading of, fixed income and equity products, currencies, commodities and derivatives. The activities of this business can be grouped under three segments: Fixed Income, Currency and Commodities (FICC);Equities; and Principal Investments.

The FICC business makes markets in and trades interest rate and credit products, mortgage backed securities, loans and other asset-backed securities, currencies and commodities. The Equities business makes markets in, trades, and acts as a specialist for equities and equity-related products. It generates commissions from executing and clearing client transactions on major stock, options, and futures exchanges worldwide through its Equities customer franchise and clearing activities.

The Principal Investments business primarily represents net revenues from corporate and real estate merchant banking investments. These net revenues are from three primary sources--returns on corporate and real estate investments, its investment in the convertible preferred stock of Sumitomo Mitsui Financial Group, Inc. (SMFG), and overrides. Overrides represent net revenues from the increased share of the income and gains derived from it's merchant banking funds when the return on a fund's investments exceeds certain threshold returns.

The Investment Banking business (15%) provides investment banking services to corporations, financial institutions, governments, and individuals. Investment Banking business is divided into two segments: Financial Advisory and Underwriting. The Financial Advisory segment includes advisory assignments with respect to mergers and acquisitions, divestitures, corporate defense activities, restructurings, and spin-offs, while the Underwriting segment includes public offerings and private placements of equity and debt instruments.

The Asset Management and Securities Services business (17%) offers investment strategies, advice and planning to institutions and individuals worldwide, and provides prime brokerage, financing services and securities lending services to mutual funds, pension funds, hedge funds, foundations, and high-net-worth individuals. GS's assets under management increased 27% in 2006, to $676 billion.

MANAGEMENT. In June 2006, Lloyd C. Blankfein was named as chairman and chief executive officer. The management change was due to Henry (Hank) M. Paulson, Jr., GS's then chairman and CEO, becoming U.S. Secretary of the Treasury.

FINANCIAL. At the end of FY 06, GS's net revenues had increased 51%, to $37.3 billion, driven by improvements of more than 50% at both the Investment Banking and Trading and Principal Investments businesses. Investment banking benefited primarily from underwriting volume, up 73% year to year, while the trading business saw a 60% improvement at its FICC desk. Operating expenses increased 38%, to $22.7 billion, more than offset by the growth in net revenues. Net earnings registered a robust 70% increase, to $9.4 billion and EPS rose to $19.69, from $11.21. Assets under management were 27% higher than a year earlier at $676 billion.

The most recent quarter saw EPS of $4.93 vs. $4.78 in 2006 and was shy of $5.35 estimates and 6 month EPS $11.61 vs. $9.86 in 2006. Top line was hurt by exposure to sub-prime mortgages, although equity and investment banking results were strong. Margins were pressured somewhat by continued global expansion and high levels of business activity.

It's main competitors are Merrill Lynch (MER), Morgan Stanley (MS) and JP Morgan (JPM)

Alumni include CNBC's Jim Cramer, Sears Holdings (SHLD)Eddie Lampert, White House Chief of Staff Josh Bolton, NJ Governor John Corzine and Former Treasury Secretary Robert Rubin .

Here is the thing, Goldman is undoubtedly the king of this sector yet it trades at a discount to it's competition. At only 10 times earnings, it is just too cheap to pass up. Rather than jump at the new Private Equity companies that are rushing to go public and will soon see their tax rates soar, why not take a run with the unquestioned leader in the field?

I am.....

Home Depot Buyback: Great, But, When?

So the Home Depot (HD) made a splash this afternoon with the announced $22.5 billion buyback. But they failed to answer one little question... when?


The board of directors authorized a $22.5 billion increase in its share repurchase program and stated their intent to repurchase up to $22.5 billion in shares as soon as practicable. It will be funded with the proceeds from the sale of HD Supply, existing cash on hand and proceeds from an anticipated $12 billion issuance of senior unsecured notes. The $22.5 billion share repurchase may be in the form of a tender offer, open market repurchases or accelerated share repurchases, the details of which will be announced at a later date.

"Our planned recapitalization is transformational for our company. While we continue to invest heavily in the five priorities focused on our core retail business, this recapitalization plan allows us to return significant capital to our shareholders, improve the efficiency of our balance sheet by lowering our cost of capital, while at the same time retaining strong financial and operational flexibility," said Carol Tome, CFO and executive vice president - Corporate Services.

"As soon as practicable?" When is that? 3 years? 13? Stuff like this drives me crazy, if you are going to announce something that big so you make headlines, give us some sort of time frame. The time frame of the buybacks is the only thing that really matters when it comes to their impact. Over the next decade I would expect them to come close to that amount, if they are going to do it in the next 3, that is something entirely different.

Details boys... details....

HD Supply Unit To Be Sold For $10b To Private Equity

Looks like Home Depot (HD) CEO Frank Blake caved to activist shareholders and now officially deserves the moniker, "Bend over Blake."

In February I contemplated buying HD shares but wanted to see what was going to happen to the only division in the company actually growing, the Supply unit. Later, when it looked like the unit might remain a member of Home Depot, I backed off Blake and decided to take a "wait and see" approach. It now looks like my initial assessment was correct.

CNBC today announced "Home Depot Inc. agreed to sell its Home Depot Supply
business to a consortium of private equity companies for more than $10 billion,
the New York Times reported in its online edition on Tuesday. Citing people
briefed on the talks, the paper said Home Depot will announce the deal later
today with Bain Capital, the Carlyle Group and Clayton Dubilier & Rice."

At least the folks at the PE companies see the value in the unit. This move is all about Blake trying to appease Relational Investors and jump the stock price today at the expense of long term gains. This smells eerily similar to what happened at Wendy's last year when Pershing Square's Bill Ackman demanded a spinoff of the Tim Horton's (THI) coffee chain. He got what he wanted, cashed in, bolted and now Wendy's (WEN) shareholders are left wondering what became of their company. How much better would Wendy's sales and profits be today if they sold Tim Horton's coffee at their drive thru's given the success Mcdonald's (MCD) has had with premium coffee?

Getting rid of the Supply unit will not fix the problems at Home Depot. The problems there are systemic, not financial. The thought that they cannot execute both a retail and a Supply unit only means they have incompetent management there, not that it cannot be done. Is it really that far of a stretch to picture them selling pvc piping to a homeowner vs a business owner? Had they entered the food business, it would make sense to sell it. This is a value destroyer long term.....

Too bad...

Best Buy.....Not All Bad

Here are the results for Best Buy (BBY), not good but not really bad either. This one depends on your time frame

Reported Q1 earnings of $0.39 per share, $0.11 below the consensus estimates of $0.50; revenues rose 13.9% year/year to $7.93 billion $6.9 billion last year. Full year guidance lowered for 2008, to $2.95-3.15 vs. $3.16 previous.

Brad Anderson, vice chairman and CEO stated, "Our first-quarter results fell short of our expectations. Strong revenue results from lower-margin products significantly cut into our gross profit rate." The gross profit rate for the first quarter was 23.9 percent of revenue, a 150-basis-point decline compared with a gross profit rate of 25.4 percent of revenue for the prior-year first quarter. A significant contributor to the year-over-year decline was the inclusion of the China business acquired last June, which carries a significantly lower gross profit rate.

"Yet our customers continued to increase our market share. Our share gains, combined with other indicators we see, show that our core business is healthy. To us, the totality of our results suggests we are on the right track with our strategy, which is aimed at re-defining the customer experience." He continued, "Early evidence suggests that consumer spending will be more difficult to predict this year - but it appears to be accelerating in lower-margin categories. We are confident that flat-panel TVs, gaming and notebook computers will remain very appealing to our customers."

In short, more shoppers (my observation that stores were full was accurate) but the newly acquired China biz dragged down earnings. If you want to buy shares, you will get a great chance today as they will get hit hard and are already down $2.50 pre-market.

Fundamentally there is nothing wrong with the business. The repurchased $412 million of stock in Q1 (about 8.6 million shares) and still have $800 million remaining under the current authorization. Expect them to announce an increase soon (if not today, the conference call is at 10am). Why? They said so. "In addition, as seen in the first quarter, we anticipate continuing our increased share repurchase activity." said Anderson.

How will this affect the rest of retail today? It really shouldn't. Revenues were good which means folks are still shopping, that is always good for retailers.

Today's Upgrades & Downgrades

Here are the calls from late yesterday and early this am



Upgrades:

NOVA Chemicals (NCX)= Buy

Enbridge Energy (EEP)= Outperform

Pacific Sunwear (PSUN)= Buy

Bank of America (BAC)= Buy

US Airways (LCC)= Neutral

CIGNA (CI)= Neutral


Downgrades:

Conventry Health (CVH)= Peer perform

US Steel (X)= Reduce

Hercules Offshore (HERO)= Hold

Best Buy (BBY) Preview

Best Buy (BBY) reports today, what should we expect? If we believe management, they predict fiscal 2008 earnings of $3.10 to $3.25 per diluted share on full-year sales of $39 billion (9% growth). Broken down, it will consist of an approximately 130 new stores and same-store sales growth of 3% to 5%.

For the current quarter, Q1 for 2008, the street is looking at 50 cents a share vs the 47 they posted last year. Been in a Best Buy lately? Still full of people, still busy and I see no reason they should not beat the expectations. With competition like Circuit City (CC) and Tweeter (who is now in bankruptcy) falling by the wayside so fast you would swear they were racing to get there, Best Buy clearly is the king of the hill.

The only serious competition for shopper's value left is Costco (COST), Wal-Mart (WMT) and Sears (SHLD) but even they cannot hold a candle to Best Buy in term of selection. Best Buy is in a field of one here now. With the recent announcement that they will provide Apple (AAPL) a "store in store" concept soon, this gap only looks to widen.

Best Buy's earnings become more important each quarter because if they are not doing well, the entire consumer electronics space is suffering. A word of caution, since they do not issue quarterly guidance, if they do miss, pay close attention to what they say for the rest of the year. If they miss and guide inline for the remainder of the year, don't worry, it was the analyst who missed, not them.

Should they miss and guide lower? Watch for blood in the retail street today.

$1.3 Billion An Hour

Interested? Well that is what shareholders of Apple (AAPL) are pricing a new battery at today. Previous estimates had the new iPhone having about 6 hours of talk time, new ones, 8. This was apparently a reason not to buy the phone?

According folks who have been emailing and commenting to my posts, the battery life has never been mentioned once, not once in the hundreds of comments and emails. It was not mentioned as an issue by those who would not buy it and those who said they would buy it, any potential battery issue was inconsequential. Those who will not buy it are going to do so because of price according to polls and those who are going to buy it would do so even if Steve Jobs stood at the door to the Apple store and assaulted them when they walked in. The battery was irrelevant.

So, how can we add $2.6 billion to the market cap of Apple today just because there is an improvement to the device that just makes it comparable to other makers devices? An improvement, it needs to be noted that has not been mentioned by detractors in discussions about the phone?

I guess the question is, why is this important and did anyone really think battery life would not be improved?

It is almost like the stock running up because they are going to put it out in red... who cares?

Things like this that do not make sense are signs... Why doesn't it make sense? If it was any other battery in any other cell phone from RIMM (RIMM), Nokia (NOK)or Motorola (MOT)
would anyone care?

This Mornings Upgrades and Downgrades

Upgrades:

Ingersoll-Rand (IR) =Outperform
PrivateBancorp (PVTB)= Strong Buy
Natl Instruments (NATI) = Overweight
Tektronix (TEK) = Overweight
Fairchild Semi (FCS) = Outperform
CheckFree (CKFR)= Sector Outperform


Downgrades:

Hercules Offshore (HERO) =Hold
Action Semi (ACTS) =Hold
Western Digital (WDC) =Neutral
ChoicePoint (CPS) =Sector Perform

US Oil Companies Take A Page From OPEC's Playbook

"Why would I invest in a refinery when you're trying to make 20 percent of the gasoline supply ethanol?" Sound familiar?

Just over a week ago an almost identical statement was made by the head of OPEC, Abdalla El-Badri. When asked about future refinery plans ge said, “If we are unable to see a security of demand...we may revisit investment in the long-term.” The first quote? None other than Chevron's vice chairman Peter Robertson. Valero's spokesman Bill Day apparently got his copy of the new playbook when he said "That's not to say we've changed our plans, but it's fair to say we're taking a closer look at what the president is saying and what Congress is saying" about biofuels.

Okay... so we now have the US oil majors like Exxon (XOM), Chevron (CVX), Valero (VLO) and BP (BP) parroting the same sentiment as OPEC? This is just possibly one of the most simple minded acts I have seen in a long time. Just step back and look at it. Let's put aside oil prices and resentment they always illicit towards big oil. Let's also put aside whether of not gas prices are justified and assume they are. We also need to ignore the unfathomable profits oil companies make and just accept it is purely a function of scale and there is no market manipulation happening. Assuming all those things are true (they may or may not be, I am assuming they are for the point of the post). Why, why would any business ever align themselves philosophically with OPEC?

Are they just trying to make themselves hated even more than they are now? Is it some twisted masochistic urge the industry just cannot ignore? Why not put Bin Laden on their marketing materials? At a time when you have the Democrats, who hate oil companies only slightly more than they do Republican's in charge in congress and the White House up for grabs, why would you give them more of a reason to vilify in the eyes of American's?

Renewable fuels are being trumpeted as a national security issue. Whether or not you feel they are is irrelevant, the fact is that they are being market this way is what matters. The less we rely on OPEC for oil, the safer we are. Period.

So, now both OPEC and the US oil majors are going to take their ball and go home? After years of telling us biofuels were a pipe dream and would never amount to anything, they are suddenly so threatened that they are going to refuse to add refining capacity? This is their solution? To pout? Jesus, even my four year olds know that is not the way to get what you want.

This is a colossal mistake on the part of the oil companies and they are going to be doing some heavy damage control after this. Here is the question they will have to answer before congress, and yes they will end up there "Why are you and OPEC colluding to keep oil prices high by threatening to refuse to invest in more refining capacity, are you aware your actions are undermining the security of our nation?"

Can't wait to hear the answer.

Buy Dow Because of Fundamentals, Not Rumors

Lehman Brothers upgraded the chemicals giant last week and laid out three scenarios, a big purchase, significant sale or huge share repurchase, that could lift earnings next year. Do not buy DOW (DOW) shares because of this.

The analyst, Sergey Vasnetsov raised his recommendation on Dow Chemical's shares to overweight from equal weight and lifted his price target to $55, or $15 higher than his previous projection.

He said the company's large cash position and statements from executives over the past few months have made three outcomes possible that could add to earnings next
year. They include a big acquisition, such as the purchase of a company with sales topping $10 billion; a stock buyback worth up to $10 billion; and a $3 billion divesture of some of Dow's commodity, or bulk, chemicals businesses.

Given the company's strong free cash flow, Dow Chemical "could be quite an active
chemical company in M&A," said Vasnetsov.

If not for those reasons, why buy Dow? Let's put aside the stellar balance sheet, cash hoard and envious cash flow and look just at the business. Recently in an interview CEO Andrew Liveris said "The good news, though, is that volume is good, and I would tell you with the exception of housing, end-use markets are strong in North America, surprisingly strong, and the rest of the world is somewhere between dynamite and good," said Liveris.

For proof of his statement? Look at recent pricing actions by the company.

Dow announced price increases for acrylic acid and esters, also known as acrylic monomers or acrylates, effective July 1, 2007, or as otherwise allowed by individual contract terms.

Dow will increase prices for glacial acrylic acid, butyl acrylate, ethyl acrylate, methyl acrylate and 2-ethylhexyl acrylate, as follows:

Butyl Acrylate/2-Ethylhexyl Acrylate

* In North America by US$0.05 per pound.
* In Asia Pacific by US$120.00 per metric ton.
* In Middle East/Africa by US$120.00 per metric ton.
* In Latin America by US$120.00 per metric ton.
* In Europe by 90 Euros per metric ton.

Ethyl Acrylate/Methyl Acrylate/Glacial Acrylic Acid

In North America by US$0.03 per pound. In Asia Pacific by US$70.00 per metric ton. In Middle East/Africa by US$70.00 per metric ton. In Latin America by US$70.00 per metric ton. In Europe by 50 Euros per metric ton.

“The need for these increases is driven by an industry-wide butanol and 2-ethylhexyl supply/demand imbalance,” explained Mark Bassett, global business director for the Acrylic Monomers business of The Dow Chemical Company. “This has reached such a critical point that production is not able to meet demand. This increase also attempts to recover increases in the cost of raw materials such as propylene and natural gas.”


They also announced recently they will raise list and off-list prices on a number of their Oxygenated Solvents products in North America effective June 1, 2007, or as contracts allow. This increase is primarily driven by the tight supply of butanol combined with the continued increased costs of propylene and natural gas.

“A tightening market for raw materials namely propylene and butanol are the primary drivers for this price increase,” says Martin Sutcliffe, global business director, Glycol Ethers. “The global butanol market has been steadily tightening this year, with supply now unable to keep up with demand.”

“Dow recognizes that we need to make exceptional efforts to meet the demand,” says Pat Gottschalk, global business director, Solvents & Intermediates. “However, when the industry is dealing with the need to maximize supply, we must raise our prices to continue to compete for raw materials and other resources.”

If you follow this link, you will see Dow's 2007 pricing announcements. You will also notice that announcement after announcement has the words "price increase" in it. Demand and pricing are firming and that is never a bad thing.

Liveris said 2007 will be a good year for Dow, but it will definitely not outperform its 2006 earnings. He said earnings should be below $4.00 per share. The reason? Low cost production facilities are being built and Dow is still tied to the US energy market. That US dependence is being fixed but will take time and each year we will see a dramatic improvement.

In the meantime, Liveras does have Dow in a position to purchase more earnings and expand capacity without adding huge debt demonstrated by the recent announcement in five petrochemical projects in Thailand worth $2 billion... a win-win.

Top & Bottom 5 Sectors 2007 To Date

Okay, first 6 months almost finished. so, what are the best performing sectors to date?


Ranked by price performance of ALL stocks in the group.

Top 5

1- Chemicals / Fertilizers = 84% (13 stocks)

2- Trucks and Parts /Heavy = 48% (13 stocks)

3- Steel Producers = 30% (22 stocks)

4- Heavy construction= 36% (26 stocks)

5- Oil & Gas Machinery = 36% (31 stocks)

Bottom 5 (#5 in the worst)

1- Banks/Southeast = -8% (171 stocks)

2- Retail/Home furnishings = -4.6% (20 stocks)

3- Banks/Northeast= -9.4% (128 stocks)

4- Banks/Midwest= -10.2% (76 stocks)

5- Computer-Data Storage= -16% (20 stocks)

Insider Buys For The Week

Peter Lynch once said, "there are a multitude of reasons insiders sell shares, but there is only one reason they buy, they think the stock is going up." Here are the top 5 insider buys this week listed by size.


1- Celgene (CELG)= $5,582,000

2- Kapstone Paper (KPPC)= $4,022,000

3- Chesapeake Energy (CHK)= $3,605,000

4- Cardica (CRDC)= $2,530,000

5- General Growth Properties (GGP)= $1,925,000

Picks From The Master's

The gang over at The StockMasters tell us why we should be picking Sears Holdings(SHLD), Yahoo! (YHOO), Ivanhoe Mines (IVN) and Hansen Naturals (HANS)

Please visit them and read the article here:

Notable Dividend Increases for The Week

Here are some of the more notable dividend increases for the past week


1- Danaher (DHR)= 50%

2- American Eagle (AEO)= 33%

3- Casey's General Stores (CASY)= 30%

4- Caterpillar (CAT)= 20%

5- United Technologies (UTX) = 20%

Month To Date Top 5 At VIN

Here we go again.

The top month to date stories at Value Investing News


1. Remembering the Wisdom of Keynes and Twain- (via www.controlledgreed.com)



2. Finding Value With Joe Feshbach- (via www.fool.com)



3. Breakdown of HNR Financials- (via hcmthoughts.blogspot.com)



4. Sell Side Cliches (via marketprognosticator.blogspot.com)



5. CHEAP STOCKS: Value Investing Congress West 2007: ReCap(via stocksbelowncav.blogspot.com)

Enjoy the weekend!!

NJ Supreme Court Tosses Lead Paint Suits

"Plaintiffs cannot state a cognizable claim consistent with the well-recognized parameters of the common-law tort of public nuisance. To find otherwise would be directly contrary to legislative pronouncements governing both lead paint abatement programs and products liability claims." With that, the NJ Supreme court correctly ended the lead paint litigation in the Garden State. You can view the decision here.

The defendants, the deep pocketed crew of Sherwin Williams (SHW), Dupont (DD), NL Industries (NL) and others are savoring their second State Supreme Court victory in less than a week following Missouri's earlier decision. It would appear Wall St. is finally catching on as shares of Sherwin rallied 2.3% during the day and another 1.4% after the close Friday.

Said defendant's spokesperson Bonnie Campbell, ""With this long-awaited and significant ruling, the Supreme Court of New Jersey has taken an important step by joining Missouri, Illinois and other state courts in rejecting the distortion of public nuisance law."

"Today the Court found that the plaintiffs' nuisance claim is inconsistent with the well-recognized parameters of public nuisance law, and that to find otherwise would be directly contrary to the legislature's pronouncements on both lead paint abatement programs and products liability law. These companies are not responsible for risks today from poorly maintained lead paint ..."

So, what has to happen now to finally put this to bed? The Ohio Supremes are expected to rule soon on Senate Bill 117 that would have prohibited the use of public nuisance in lead paint litigation and by next summer. Expect them to rule in favor of the Senate that is bringing the case to block the veto. Next summer Rhode Island extricates itself from the near felonious behavior of AG Patrick Lynch and Judge Silverstein as it Supreme Court will now assuredly toss the verdict there on it's ear. The only question in Rhode Island left to decide is whether or not Lynch or Silverstein are sanctioned for their actions during the trial.

So what were these cases really about? The court today summed it up when they said:

"less support exists for the notion that the Legislature intended to permit these plaintiffs to supplant an ordinary product liability claim with a separate cause of action as to which there are apparently no bounds. We cannot help but agree with the observation that,were we to find a cause of action here, "nuisance law" would become a monster that would devour in one gulp the entire law of tort.’”

Yes, money. Not poor folks, poisoned kids or "public good". Just plain old money and another way the fleece business. Here is cheering the courts in NJ and MO this week. They got this one right. Maybe now the states can actually get around to stopping the onslaught of toys with lead paint that are being recalled almost daily?

Instant Bull Stock Market Blog Rankings

I received an email about a site that that "ranks" the various stock market blogs out there, well, the "Top 100" anyway. They do it in a very democratic way also, which is always nice.


They are ranked by Technorati and Alexa rankings. The Technorati rankings I feel are more accurate because Alexa ranking do not take into account Firefox browser users as their software is not compatible with it and all browsers work with Technorati. This Alexa oddity causes a whole batch of visitors and page views on your site not to be recognized by it. Unless you have an Alexa toolbar downloaded to your computer, they do not see you.

So, according to the Instant Bull site, ValuePlays is the 29th ranked site (as of 6/15).After 5 months, I can live with that (for now) They update the rankings weekly so I guess on Monday we will have a different number.

It is a neat site in that they direct link to the blogs there and you can veiw them in the same window. Check it out.

iPhone Poll: It's The Price

Everyone probably knows my feelings (or ambivalence) about the upcoming iPhone. A poll was published today in the Wall St. Journal.



I will abstain from adding my two cents because I think the poll results speak for themselves.

It is a cell phone, price rules, not fancy features. Ok, just one cent.


You can read the whole article here

Stock Money Flows

Here are the top individual stocks in term of money flow. A negative number means that as the stock rises, there is increased selling of shares, a positive number means that as shares sink, buyers come rushing in.


Inflows (buying on weakness):

Google (GOOG)= +$70 million
Citigroup (C) = +$66 million
CVS (CVS)= +$51 million
Ciena (CIEN) = +$35 million


Outflows (selling on strength):

Kraft (KFT) = -$137 million
Apple (AAPL) = -$119 million
AT&T (T) = -$99 million
Microsoft (MSFT) = -70 million

Upgrades /Downgrades

Here are some upgrades and downgrades this morning.


Upgrades:

Freddie Mac (FRE)- outperform
Nationwide (NFS)- buy
Netflix (NFLX)- buy
Pantry (PNTY)- buy
Kendle (KNDL)- buy

Downgrades:

Pheonix Group (PNX)- hold
Watsco (WSO) - hold

Wal-Mart (WMT): Getting Real Hard Not To Buy

In early May I did a post about Wal-Mart (WMT) in which I mainly commented on two things, the lack of a substantial share repurchase program and stores that are old and dated. Wouldn't you know what happened next? On June 1st at the annual meeting Wal-Mart announced they were enacting a $15 billion share buyback plan and slowing the store growth to better reinvest in existing locations. Well, if that don't get you thinking, a hugely profitable company that seems to be fixing your biggest complaints about it.

Both Warren Buffett at Berkshire Hathaway (BRK.A) and Wally Weitz at the Weitz Value Funds bought shares in the summer of 2005 at levels virtually identical to today's prices and still hold the shares today. Now, this is not to say they made a mistake buying shares 2 years ago that have been flat, it is to say that as two of the greatest value investors ever they saw value in shares then. That value, is enhanced today. How? Earnings since that summer have increased 20% and the dividend has increased the same, yet the price you have to pay for a share of those earnings and a larger dividend check has remained virtually constant. Again, I know I have been critical of Warren lately but I have never criticized one of his picks and I challenge anyone to find where I have, I have only criticized the size of his picks.

In April I wrote "There seems to be a trend recently in former high flyers like Wal-Mart (WMT), Starbucks (SBUX) and now Home Depot (HD) to not fully recognize that they cannot continue to just grow and grow to get results. There comes a point in time where you begin to just cannibalize your own customers. Rather than focusing on their current locations and improving them and their customers experience in them, they still have an almost myopic focus on more locations. All three are experiencing discontent among many of their core customers as they have felt “neglected” or taken for granted and are leaving for competitors like Target (TGT), Dunkin’ Donuts, McDonald’s (MCD) and Lowes (LOW) whom they feel more appreciated by, who have grown smarter, and have retained what made them popular. As a result, all three are experiencing difficulty and an onslaught of negative sentiment."

Thursday I read a post at Seeking Alpha by Whitney Tilson who echoed this sentiment in a post, "Stop pretending you’re a high-growth growth business...You’re a slow-growth business. But a slow-growth business, managed properly, producing unbelievable amounts of capital and returning capital to shareholders can be a home-run investment."

He continued by saying Wal-Mart today reminded him of "McDonald’s 4 1⁄2 years ago, when it, too, was everyone’s favorite whipping boy, responsible for the obesity epidemic, etc. McDonald's has engineered a remarkable turnaround thanks to slowing down growth, reinvesting in its stores, focusing on delivering better products and service to customers, improving its corporate image, spinning off ancillary businesses, rationalizing its international operations and returning capital to shareholders – all of which Wal-Mart can and should do."

This is one of the single best analogies I have ever seen. Just brilliant and I am pissed I did not say it first. McDonald's turned it around by providing more quality items without losing what made then great, value and service, but, can Wal-Mart do it?

My original post ended: "...when you think "cheap", you think Wal-Mart, when you think "value", you think Target (TGT). Want the answer to the question in the last paragraph? Thursday at the office we were debating what to do with a new work station we will need. How should we go about setting it up for a computer and where could we get a good one quick and reasonably. The first words out of two people's mouths were? Dell (DELL) computers at Wal-Mart. Now I do recognize they are stripped down Dell's but, they are Dell's none the less and Dell does have a reputation of making a good computer. The point is that we can pick these Dell's up at Wal-Mart for $699, a good "value" and people are already beginning to recognize this. It would seem someone in Bentonville getting with the program. With Wal-Mart's ability to price items for consumers, when they flick the switch from "cheap" to "value" in consumers minds, folks will come streaming in. Just like they have been for McDonald's.

Why You Should Vote Your Shares

So, do you think that if you do not vote your shares when you receive those shareholder notices in the mail that those potential votes just do not get cast? Think again.


The Wall St. Journal reported Wednesday:

Investors who are growing increasingly vocal about the performance of executives and directors may soon get a boost, as the role of shareholder votes cast by brokers comes under closer scrutiny.

In routine matters at annual meetings, such as the election of uncontested directors, shares not voted by shareholders can instead be voted by the brokers who hold those shares, any way they want. That's created controversy in some votes recently, and has gained the attention of regulators, some of which are pushing for a change.

ROCKING THE VOTE

• The Issue: Brokers can vote the shares held in client accounts on regular director elections if the client hasn't told them how to vote.

• Twist: Some investors in CVS (CVS) Caremark say the "broker vote" unfairly swung the election of a director in a recent contest.

• What's Next: The SEC is deciding whether to take on a NYSE rule change that would ban such voting.


This question arose most recently in the case of Minnesota businessman Roger Headrick, who was re-elected to the board of CVS Caremark Corp. last month after receiving 606 million votes, or 57.2% of the total cast. CtW Investment Group, an arm of Change to Win, a coalition of labor unions, says the contest was swung by 264 million "phantom" votes cast by brokers who hadn't received specific instructions from their clients.

Exclude those votes, CtW says, and Mr. Headrick loses, having won only 43% of the votes.

Carolyn Castel, a spokeswoman for CVS Caremark, says the 264-million-vote figure is "potentially correct," though she notes that CtW assumes all the broker votes went for Mr. Headrick. "This is pure conjecture," she says, declining to be more specific.

Mr. Headrick didn't return calls seeking comment.

Brokers generally vote for management, partly, they say, because if clients wanted them to oppose management they would let them know. Shareholder votes rarely mattered in the past since most proposals needed only a plurality to pass. In the U.S., as much as 80% of stocks are held in accounts at brokerage houses.

Complaints about the system go back for years. In 2003, the proxy advisory firm Institutional Shareholder Services said that the system was hurting investors' ability to express dissatisfaction. At Tyco International Ltd.(TYC) and Sprint, now Sprint Nextel Corp. (S), ISS said, unhappiness with the companies' boards was "watered down by broker votes."

In 2004, the issue surfaced during the re-election vote of then-Walt Disney Co. (DIS) Chairman and CEO Michael Eisner, when 43% of voters opted to withhold support; he was then pressured to resign. The Council of Institutional Investors, which lobbies for major investors said excluding broker votes, more than 50% of the votes cast would have been withheld for Mr. Eisner.

NYSE's Proposal

Already, NYSE Euronext's New York Stock Exchange (NYX) has proposed amending the broker-vote rule. It would redefine director elections as "non routine," no longer allowing brokers to vote shares without instruction. At the same time, the Securities and Exchange Commission is reviewing the entire voting system, from allowing companies to send proxies to shareholders over the Internet to allowing shareholders to nominate their own directors on corporate ballots. The NYSE rule change would require SEC approval.

Some business groups warn eliminating broker votes may raise election costs for companies, because of the extra effort needed to get shareholders to vote. Some firms say they will accept the change if they can communicate directly with these investors; currently, they have to go through brokerage houses.

Other groups have advocated other changes, such as having brokers vote uninstructed shares in proportion to those cast by individual or "retail" investors, generally matching the totals from their own individual clients who give instructions. In this year's proxy season, Goldman Sachs Group Inc., Merrill Lynch & Co., and Morgan Stanley did just that. Charles Schwab Corp. has been following that practice since 2005.

'Stuffing the Ballot Box'?

Now, the close CVS election has spurred investor groups, including the Council of Institutional Investors, to push for changes. In a letter to NYSE Regulation last year, the exchange's regulatory arm, the council said counting broker votes is "akin to stuffing the ballot box."

CVS Caremark says the 264 million shares voted by brokers were split for and against Mr. Headrick, but it won't divulge further details. Companies aren't required to calculate how the vote would have turned out if the broker votes didn't count, nor are they required to break out that category into votes for and against. The treasurer for North Carolina, Richard Moore, the sole trustee of the state's pension fund, which owns $2 million of CVS stock, wrote a letter last week to the chairman of CVS Caremark asking him to disclose how many uninstructed broker votes were included in Mr. Headrick's 'for' category.

CtW, originally a Caremark investor, has been battling the new company for a while. This year it sought to rally shareholders to vote against CVS's $27 billion acquisition of Caremark, saying the board should have negotiated with another company that made an offer.

CtW also opposes Mr. Headrick because he was on the Caremark board at the time of the merger. Union pension funds affiliated with CtW own an estimated 12 million shares in the new company, less than 1% of the total.

Article originally appeared Here.

The Gap (GPS): Another Watch List Update

In early February I posted about The Gap (GPS) and as it has been almost 6 months, time for another update like I did yesterday for Caterpillar (CAT). It is important to look back at you decisions as it is a great learning experience.

You should first read the February Gap post here, then continue with this post as it will be referenced.

From January:

"Numbers: We need to break everything down to per share amounts. Why? You pay your price for the company on a per share basis, we need to find out what you are getting for that money by the same metric. Currently Gap has 900 million shares outstanding and roughly $2.5 billion in cash (this amount has typically risen after the holiday season but we will use "what is" rather than "what could be"). That gives us $2.77 per share in cash. It's property is valued at $7.2 billion or $8 a share (this is carried at an undervalued level, I will use it though so as not to be accused of fudging numbers to make a point, again, "what is"). Profits will be about 85 cents a share and the dividend is 32 cents a share. At this profit level, investors are paying 23 times 2007 earning (16 times the $1.25 they earned in 2006). The total value of the cash, property, earnings and dividends is $11.94. Sales look to be about $16 billion this year or about $17.80 a share."

Where are we now?

As of May 5th, Gap now has $2.7 billion in the bank, EPS looks to be on track to finish the year around the 85 cents a share and the dividend is the same. Shares outstanding have increase 2 million but that is a function of the timing of repurchases vs. employee options and the overall number should continue to decrease. Debt, is unchanged and still essentially irrelevant. Q1 2008 revenue(quarter just completed) rose over Q1 2007. In March they announced the long overdue closing of the Town & Forth chain and are expanding the best performing unit, Banana Republic, a great move. Growth of the over saturated Gap line is being reigned in and the popular Old Navy brand in on track which is better but not really good enough. More decisive action probably wait until a new CEO is installed.

So, what to do? The stock price is essentially unchanged since the original post and until our single determining factor is answered, we should remain on the sidelines.

From February:

"I am not buying shares of Gap now nor do I currently own any. I want to hear what the new CEO says first. If they just continue the same path and try to jazz it up through more advertising, I do not see a resurrection of the Gap brand. In that scenario I believe they are in for another five years of mediocrity. But, any hint of them closing unprofitable locations and I am jumping in as I think we'll have a ValuePlay."

What do I really want? Ideally Eddie Lampert at Sears Holdings (SHLD) buys them. He is raising $3-$5 billion for more investment and with the cash he now has at Sears (almost $4 billion) he could easily do the deal. Now that Julian Day is in the process of fixing RadioShack (RSH) after he laid the groundwork at Sears and Kmart, would he like a return to a bigger stage with his buddy Lampert at the Gap to cement his fame as a retail turnaround wiz? The thought of this makes me want to run out and buy Gap shares but, that would be foolish. Like I said above, if the new CEO is just more of the same, shareholders will just get more of the same which is not much.

I think Gap is in wonderful shape and has great potential, I just need to know the direction they are going in.

Wall St. Radio Interview On-Air

Well, it is out there for all the hear. Drop me a line and let me know what you think..

Here is the link. A special thank you to Denis Olson and the Wall St. Radio group for including me in a program that I was a fan of even before they invited me to take part in it.

URGENT LEAD PAINT RECALL: THOMAS THE TANK ENGINE CHILDRENS TOY TRAINS

So, can we now stop suing companies that have not produced lead paint for over 50 years for injuries happening today? Especially when you consider 1.5 MILLION Thomas The Tank Engine wooden toy trains are being recalled today by RC2 (RCRC)

ABC News reported today

"Consumers should take the recalled toys away from young children immediately," the Consumer Product Safety Commission said in the recall notice. The company said this recall accounts for about 4 percent of the total wooden trains it sells in the United States (Click here for a list of the recalled Thomas products.)

"As part of a thorough investigation, RC2 identified the issue, isolated the manufacturing facility, and has implemented a corrective action plan," the company said in a prepared statement released by the PR firm Salmon Borre Group.

Enough is enough!!

Here are more recent lead paint based recalls, and this only includes children toys.

1-Children's jewelery. May 31st

2-Children's gardening gloves , May 16th

3-Children's rings, May 15th

4-Children's Jewelry, May 15th

5-Children's rings (Again), May 2nd

6-Children's necklace, May 2nd

7-900,000 children's necklaces, April 17th

8-Dollar General key chains, April 3rd

9-Children's bracelets, April 3rd

10-Children's mood necklace, March 15th

11-Claire's Store children's necklace, March 15th

12-Children's mood necklace, March 13th

13-Children's 2-sided painting easels, March 7th

14-Big Lots , children's rings, February 23rd.

15-Boys jackets, February 13th

16-"Cars" Toy chest sold at Toys R" Us, Nov, 2006

There are dozens more lead paint based recalls and you can see the Consumer Products Safety Commissions entire list here The total number of just children's items recalled due to lead? Over 10,000,000. The kicker? 100% have been imported, virtually all from China and Mexico.

These are products being produced today, sold today, used today by our children, poisoning them today and will be imported again tomorrow for our kids to play with. Why are you as tax payers in Rhode Island, Milwaukee and possibly Ohio watching and cheering as your DA's sue Sherwin Williams (SHW) and NL Industries (NL) when they have had nothing to do with this product in over 50 YEARS and when they did, it was because the very gov't now suing them asked them to add lead to paint. Talk about irony?

Why aren't you calling your state reps and the DA office and asking them what they are doing to stop the current onslaught of lead paint at our children? Who are they going to hold responsible, anyone? Are they even aware of this? Better yet, go look in the mirror and ask yourself, "what am I doing?"

Finally An Analyst Call That Makes Sense (SHLD)

After the last few analyst changes I have been reading I was beginning to wonder. All is not lost, here is one today from Goldman Sachs (GS) that makes perfect sense.

"Sears Holdings (SHLD) price target raised at Goldman to $200 from $195 based on strong cash flow generation and valuation updates. Promising initiatives include brand relaunches, growth of Land's End, commitment to Sears Grand, and new IT systems. Maintained Neutral rating."

Now, I will not address the price target because let's be honest, it is a guess. Nobody knows what the price of the stock will be 5 months or a year from now. I am not also going to address the "rating" because it means something different at every brokerage even though they call them the same names.

So, then , what does matter? The reasoning behind it. Since January (and repeatedly since then) I have been saying the Land's End store in a store concept was going to be a big winner and the record sales they produced last year prove that and, Lampert's plan to double the number of stores that have from 100 to 200 illustrate his belief in the same. Goldman seems to also recognize this.

The IT upgrades to date have saved millions of dollars in inventory levels and operating efficiencies. Additional investment here (referenced at annual meeting) will enable Sears to streamline operations more and increase margins that have increase 3 years in a row now.

Brand launches of Craftsmen tool in Kmart is going full steam ahead and will have the multiplier effect of drawing more people onto Kmart for the tool and they will undoubtedly pick up other item while there.

Again, ignore the predictions of price and the "rating" but pay close attention to the reasoning.

Another Update: Peabody Energy (BTU)

Another in follow ups this week. As I have said before, it is important to review your past decisions so that you may make better ones in the future. If your analysis and reasoning is proving to be correct, keep it up, if flawed, change it. Let's look under the hood again.

On April 12th, I posted about Peabody Energy (BTU). As usual, please read the complete first post first to better understand this one.

In April with shares trading at $45, I wrote:

"Just as investing in alternative fuels begins and end with Archer -Daniels Midland (ADM), commercial roofing and insulation with Owens Corning (OC) and paint and coatings with Sherwin Williams (SHW), investing in coal begins and ends with Peabody Energy (BTU) . Since their initial public offering on May 22, 2001, at $28 per share, or $7 per share on a split-adjusted basis following the March 2005 and February 2006 two-for-one stock split, shares hit a high of $75 in May of 2006. Since then, shares have fallen steadily (40%) to their current level of $45 despite growing earnings last year 60% . The world's largest public coal company, their products fuel approximately 10 percent of America's and 3 percent of the world's electricity."

I finished by saying:

"So, all this now has us considering buying shares of a company that is the world leader in its industry, with increasing demand and pricing power for its products selling at historically low levels....

ValuePlay anyone?"

So, I sold a few puts, hoping for the price to fall a bit so i would be able to pick up shares for less than the $45 they were trading at. What happened? They immediately began a March up to $55 for a 20% gain. Why? In the weeks after my post 7 analysts came out and either raised the rating or their price target for the stock and Peabody announced they were going to spin off their Appalachian assets that had been viewed as a drag on earnings. Oh well, at least we made good money on the puts we sold. The most important takeaway is that we are still picking winners and given the choice of making a pick and watching it drop vs watching it rise, I'll take this any day. It means we are picking stocks that when we do buy, based on our criteria, have a better chance of success.

What to do now? Shares have given up some of their gains recently and now sit at $50. With the money we made on the initial puts and what we can sell new ones for, we may actually be able to get into this thing at the original $45. Could happen....

Citigroup Likes Blockbuster's (BBI) Plan To Lose More Money

Just when you thought the analyst calls could not get any odder, here we go.


Citigroup upgraded Blockbuster (BBI) today to "buy" from "hold", saying the high cost of its combined online and store movie rental scheme is now reflected in the share price. It added the firm's announcement of a lower-priced online-only rental product could help improve costs by eliminating in-store costs and could help it gain market share in rural areas.

How is voluntarily reducing revenues for a company losing money going to help? They are just sticking their finger in a leaking dam. As long as they are store heavy and not offering online downloads, not only are they not a "buy", they are a screaming "sell".

What happens if today Netflix (NFLX)comes out today and matches these new prices? Is Blockbuster going to get downgraded? They simply cannot compete on price with NetFlix as their cost structure is just too high. A Netflix price match will only exacerbate already increasing losses at Blockbuster. They could really boost subscribers by just offering free rentals. Maybe that would get a "strong buy" rating?

Pricing is not Blockbuster's problem. Too many stores and being one of the last to offer downloads is. Until these change, avoid shares at all cost.

Apple's (AAPL) Safari: Security Experts Easily Find Multiple Bugs

In the now-classic Apple(AAPL) commercials, Mac Guy occasionally remarks to PC Guy that Macs don't have the security Relevant Products/Services problems of PCs. But now, Mac Guy might have PC Guy's problems. Within hours of Monday's announcement that Safari 3 beta was available for Windows, three security blogs identified vulnerabilities in the Apple-made browser.

While Apple's marketing information suggests Safari has been "designed to be secure from day one," security experts Aviv Raff, David Maynor, and Thor Larholm found otherwise -- in some cases simply by opening a malicious Web site in Safari.

Bloggers Unveil Issues

Writing on the Errata Security blog, David Maynor said on Monday that using "publicly available tools," he and associates found "six bugs in an afternoon; four DoS and two remote code execution bugs." DoS refers to a denial-of-service attack in which packets of data can overwhelm and then crash a computer.

The bugs work not only on the Windows version of Safari, Maynor wrote, but also on the version for Apple's OS X. "Same code base for a lot of stuff," he said.

Maynor said that his disclosure policy was to "give vendors as long as they need to fix problems." But "if the vendor is unresponsive" or makes threats, he wrote, after 30 days he will release the full details. In any case, he said, the information on the vulnerabilities will not be sold to a third party.

Thor Larholm, on his blog Larholm.com, wrote today that, within two hours of downloading, installing, and using Safari for Windows, he found a "fully functional command execution vulnerability, triggered without user interaction simply by visiting a Web site."

He pointed out that Safari was originally designed for tight integration with OS X, but "the breadth of knowledge is crippled when the software is released on other systems and mistakes and mishaps occur." When Apple released Safari for Windows, he noted, the company neglected to implement Windows-specific URL protocol handlers. The result is that a malicious user can "break out of the intended confines and wreak havoc."

On his blog, aviv.raffon.net, Aviv Raff said that he found "memory corruption" that "might be exploitable," although he added that he'll "have to dig more to be sure of that."

Hackers have long wanted to get their hand on the iPod and you can bet the iPhone is just too tempting for them. With the planned integration between the browser and the devices, the security breaches in Safari will open that door. How long before Microsoft's (MSFT) PC guy has his own commercial out there?

Full Article Here

BREAKING NEWS: Lead Paint Victory In Missouri

A major victory for the former lead paint companies, today the Supreme Court of Missouri ruled, "... product identification requirement applies with equal force to public nuisance cases brought by governmental entities for monetary damages accrued as an alleged result of public nuisance." Blog's Jane Genova at Law and More. The case is City of St. Louis v. Benjamin Moore, a subsidary of Berkshire Hathaway (BRK.A); Company, et al., et al. Respondents." Unofficial copy of interim court opinion available free from Mgenova981@aol.com.

This ruling is in direct conflict with the set of instructions to the jury issued by Judge Michael Silverstein in the Rhode Island lead paint trial vs. Sherwin Williams (SHW) and Milwaukee's case against NL Industries (NL). And it affirms the trial court's earlier decision in summary judgment. The opinion states, "The trial court did not err in entering summary judgment against the city [of St. Louis] based on its inability to provide any product identification evidence." The city had appealed that decision.

In the original case, as in lead paint public nuisance litigation in general, there was no way to link the paint on the walls of buildings to a specific lead paint brand or to a specific manufacturer. Therefore, the city of St. Louis attempted to use "market-share evidence." The trial court disagreed. It characterized that evidence as perhaps relevant but not sufficient to prove causation and entered a summary judgment for the paint companies.

Can we lead-paint watchers also expect similar good news from the RI Supreme Court where the verdict from the RI lead paint trial is being appealed?

Bruce Berkowitz Summer Picks

Here are some picks from famed value investor Bruce Berkowitz of the Fairholme Fund for the summer.


"Value today is in the oil % gas sector"

"We want mangers who have a significant portion of their families wealth in the business"

He gave two quick picks on CNBC:

1- Canadian Natural Resources (CNQ)

2- Berkshire Hathaway (BRK.A)

Caterpillar (CAT): One That Got Away.

In early February I posted on Caterpillar (CAT) "If you absolutely must own this stock and plan to hold it for years go ahead and buy it now. Selling at $67, shares are fairly priced but not priced great. Cat at this level is not a value, at $58 it was but that was before the buyback was announced (causing the run). If my middle of the road estimate is too high then shares fall from here, if it is low they go up. The risk / reward is evenly balanced. To minimize this risk and tilt the balance in my favor I will wait for a great price, one that prices in the potential for an earnings miss. "What price is that" you ask?

Cat is currently another high fastball. Shares are priced fairly for 2007's growth after the recent run. I need to have shares at about $62 (7% lower) before I pull the trigger. I will add it to the watch list and we will see what happens. Let's this fastball come down in the strike zone before we swing... "

Cat came close to $62 ($63 and change) but never hit it. I think I may have placed too much emphasis on the US market and set the buy point too low. Management then came out a reiterated their earnings view and the stock has run with the market recently to $78. Today they again reiterated: "Inside the U.S., business is a little weaker than we thought and it looks like outside the U.S. is a little stronger than we thought," said Mike Dewalt, director of investor relations, at JPMorgan's Basics and Industrials conference.

Management said it expects 2007 earnings per share of $5.30 to $5.80 on revenue of $42 billion to $44 billion. Looking forward to 2010, earnings are expected to reach roughly $8 to $10 a share on revenue of $45 billion to $60 billion.

Oh well, did not make any money, did not lose any. The good news is the methodology for picking winners is working. I guess in this scenario, I would rather have picked a company and not bought only to watch the stock rise than to pick it and watch it drop like a stone. That would mean there was a problem with the evaluation of the business, here I was just too picky on price. I can live with that.

Corn Crop Progress

The USDA released the weekly crop progress yesterday. The results to date look very good for a banner corn crop this year.


Crop Condition

Good to Excellent 2007 = 77%

Good To Excellent 2006 = 70%

Percent Emerged

June 10th 2007 = 99%

June 10th 20006 = 97%

2002-2006 Average = 95%

The news is very good as we have a record crop planted that is ahead of both last year and historical levels in it's progress.

Goldman Actually Makes Deutsche Look Reasonable (SBUX)

I do not really know where to go with this. I had to read it a couple of times because I thought I was missing something

Goldman Sachs (GS) today reiterated it's "buy" rating on shares of Starbucks (SBUX) but removed it from it's "conviction buy" list. They replaced it on the list with McDonald's (MCD). Now is Starbucks CEO Jim Donald finally "considering the competition"? I am not sure if this means shares of Starbucks are definitely a buy or not. It sounds like they are saying "we are pretty sure you should buy this, but not really sure."

This is on the heals of Deutsche Bank's call last Friday essentially saying the same thing. At least DB has Starbucks rated a "hold" and is not telling people to go buy shares.

Here is where the Goldman call gets odd (as if it is not already). In their note, they say that that they maintain a price target of $43 (almost 60% higher than they are now) based on a multiple of 36 times 2008 earnings (year end October). 36 times 2008 earnings? Even if Starbucks hits it's goal of 18% earnings growth this year, which is looking less likely everyday, and would be the third consecutive year of earnings growth decline, what make then think investors will pay such a high multiple? That multiple also assumes Starbucks grows earnings 25% next year, a number they have not hit since 2005. What impetus is there for this turnaround?

When you consider coffee prices are increasing, milk prices are at all time highs (and the real reason for the switch to 2% milk) and it is clear to everyone except folks in Seattle McDonald's is taking customers from them left and right, how could any reasonable person think they are going to report anything but "challenging conditions" in August when they release earnings and give future guidance? If they do manage to meet the earnings estimates, will it be be due to another $500 million share buyback like the one they did in Q1? Again, I will reiterate, I love share buybacks, but Starbucks just cannot afford that much each quarter.

I guess the question we need to ask is not why doesn't Starbucks deserve a multiple of 36 times earnings, but what justification can anyone give for claiming they do?

Berkshire Supporters and Buffett Make My Point

Every since my Berkshire (BRK.A) post last month, I have been seeing posts pop up around the internet about it. Most are incredulous that I could possibly for a second doubt Mr. Buffett. To a person their replies recite his track record despite my saying in my opening "No one will will argue or dispute his past success and what he has done for shareholders. Nor will anyone attempt to belittle the atmosphere and honesty in which he runs the organization and the culture he created." Yet all the replies documented a history I praised. Odd. Yet almost none addressed the actual substance of my post and when they did, they unknowingly reinforced my thesis.

After almost a month of begging those who commented and emailed to give me a rebuttal, only Andy Kern at Berkshire Ruminations took me up on my offer and I thought did an excellent job. I disagree with him, but he did an excellent job none the less. Most folks chose to hide behind a car and throw snowballs. OK.

Let's address one of those today. I tried to do it on their site but it seems they do not allow comments (at least I could not see where to place one) so it seems to be a bit of a soapbox rather than a blog (at least as I know them). I will preprint the entire post here: Title: Fear vs. Greed in Berkshire Hathaway Their comments are italicized



Every few years someone has the myopic hubris to write an article bashing Buffett's capital allocation ability and that's usually a decent sign that there's a good deal of irrationality in the air:


From ValuePlays: "In the past Buffett has said, "Wait for a fat pitch and then swing for the fences." Why isn't he doing that? Considering the investment possibilities Berkshire has, his recent investing record is one of bunts, not big swings. He has also said in the past "if you would not buy the whole company, why would you buy a single share"? Using his own logic, I have to ask, "Warren, if you are going to invest $160 million in Home Depot, why not $1 billion?" The theory still holds, if you would not buy 100 shares why buy one share and if you would buy one share, why not a hundred of them? An investment of less than 1% of his available cash is not "swinging for the fences."



Why isn't he swinging for the fences, Mr. Sullivan? Maybe...because he's actually waiting for a fat pitch before swinging!


The full context of Mr. Buffett's "fat pitch" analogy, excerpted from the November 1, 1974 Forbes interview is particularly interesting:

"I call investing the greatest business in the world," he says, "because you never have to swing. You stand at the plate, the pitcher throws you General Motors at 47! U.S. Steel at 39! and nobody calls a strike on you. There's no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it."

But pity the pros at the investment institutions. They're the victims of impossible "performance" measurements. Says Buffett, continuing his baseball imagery, "It's like Babe Ruth at bat with 50,000 fans and the club owner yelling, 'Swing, you bum!' and some guy is trying to pitch him an intentional walk. They know if they don't take a swing at the next pitch, the guy will say, 'Turn in your uniform.'" Buffett claims he set up his partnership to avoid these pressures.


Mr. Sullivan, respectfully, it looks like you're the owner Mr. Buffett predicted a few decades ago would be saying "Turn in your uniform."

Posted by Shai Dardashti at 12:01 PM

Now, Mr. Dardashti unwittingly proved my very point. No, I would not be the owner saying "turn in your uniform". I would be the owner saying "Warren, if you are going to swing, swing for the fences!"

Far from "bashing Mr. Buffett's capital allocation" I instead begged him to return to the very style that he has trumpeted and made shareholders unbelievably wealthy.

Let's take his "waiting for a fat pitch" comment. If this is so, then how do we explain his recent investments in Wal-Mart (WMT), Sanofi-Aventis (SNY), Johnson & Johnson (JNJ) and Anheuser Busch (BUD) and Target (TGT)? There are more but this will suffice as he buys and sell securities in Berkshire's portfolio regularly now so is is not like he cannot "find value" out there. None of them made a dent in Berkshire's cash position or were substantial investments in the numbers of shares outstanding in any of the companies. All these are recent purchases (last few years), yet none of them follow the tenants both Buffett and Mr. Dardashti espouse above.

I will reiterate Buffett, "If you would not buy the whole company, why would you buy a single share?" It is clear Buffett sees or saw value in these companies when he bought shares. As a value investor, that is the reason he acts. If that is so, then these had to have been "fat pitches" or he would not have bought them, correct? According to his own words, that is the only reason to "swing", when you get a fat pitch. Now if they were fat pitches, why didn't he "swing for the fences"? Why? It is not a function of the number of shares available to buy as these all trade millions of shares a day. It is not a function of him running up against company induced limits like he did with his huge purchases of Coke (KO) and American Express (AXP) which make up over 30% of Berkshire's portfolio. It is just a function of him taking "half swings" at shares. This was my complaint in my original post. Why not buy 5% or 10% of WalMart? That would have been a move from the Buffet of old and he easily could have done it.

Maybe these were not "fat pitches"? Well then why would be buy them? That is the antithesis of everything he has ever said!!

Currently Berkshire holds almost 40 positions in publicly traded companies and it's main holdings have essentially been that way for almost 2 decades now and most new positions, despite the ability to purchase far more almost always amount to less than a 3% of Berkshire's portfolio, again, a BUNT. I am not saying to sell the core holdings, for tax reason alone that would be a unwise move, I am saying "if you are going to swing, swing for the fences". He has the ability but chooses not to.

Both Munger and Buffett have said their favorite holding period "is forever" yet again, recent actions contradict that as positions are trimmed every quarter.

I will conclude by letting Warren make my point. In his own words:

"Our policy is to concentrate holdings. We try to avoid buying a little of this or that when we are only lukewarm about the business or its price. When we are convinced as to attractiveness, we believe in buying worthwhile amounts." Warren Buffett, 1978 Berkshire Hathaway Letter to Shareholders


"…if you know how to value businesses, it's crazy to own 50 stocks or 40 stocks or 30 stocks, probably because there aren't that many wonderful businesses understandable to a single human being in all likelihood. To forego buying more of some super-wonderful business and instead put your money into #30 or #35 on your list of attractiveness just strikes Charlie and me as madness." Warren Buffett's comments at the 1996 Berkshire Hathaway Annual Meeting

"The strategy we've adopted precludes our following standard diversification dogma. Many pundits would therefore say the strategy must be riskier than that employed by more conventional investors. We disagree. We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort-level he must feel with its economic characteristics before buying into it. In stating this opinion, we define risk, using dictionary terms, as 'the possibility of loss or injury." Warren Buffett, 1993 Berkshire Hathaway Letter to Shareholders


That is the Warren Buffett I invested in and made wonderful amounts of money with. Warren today is contradicting Warren, it is not me saying it, it is him.

ADM Hires Head of DOE's Bio-Based Products Program

So, if you are attempting to become the world's leading bio-products company, who would you hire? How about the guy who coordinated all these programs for the Department Of energy?

Todd A. Werpy joins Archer Daniels Midland Company (ADM) in the newly created position of VP, Biofuels & Biochemical Research, effective June 11, 2007.

Werpy comes to ADM from the U.S. Department of Energy's (DOE) Pacific Northwest National Laboratory, one of the DOE's nine multi-program national laboratories,where he has served as relationship manager since 2005.

As vice president, biofuels; biochemical research, Werpy will be responsible for leading ADM's new research into second generation biofuels and biochemicals. He will report to Tom Binder, president, Research.

"Todd Werpy brings additional expertise to our BioEnergy research and development team," said ADM vice president and chief technology officer Michael Pacheco. "He has exceptional knowledge of developing technologies for the conversion of renewable feedstocks to value-added chemicals, including biofuels, gasification, enzymes and fermentation. We are confident he will make a strong addition to our team."

As relationship manager at the Northwest National Laboratory, Werpy coordinated the DOE's relationships with the Office of Biomass Programs and various industry clients, as well as leading the development of proposals and acquisition of funding for the biobased products program.

From 1998-2005, he served as senior program manager where he directed and managed all research programs in the biobased products area. He is the co-author of several patents in the area of chemical conversion for creating value-added products from renewable resources.

From 1995-1998, Werpy served as director, research and business development for
the National Corn Growers Association where he developed the organization's research and business development strategy. In this role, he worked with the DOE to establish the first formal program in renewable chemicals from alternative feedstocks.

Werpy also served as a senior research scientist at Michigan Biotechnology Institute where he worked with a team of scientists and engineers to develop new processes for converting biomass. Werpy received a Ph.D. in chemistry from Michigan State University and a Bachelor of Science degree in chemistry from Southwest State University.

Archer Daniels Midland Company (ADM) is the world leader in BioEnergy and has a premier position in the agricultural processing value chain. ADM is one of the world's largest processors of soybeans, corn, wheat and cocoa. ADM is a leading
manufacturer of biodiesel, ethanol, soybean oil and meal, corn sweeteners, flour and other value-added food and feed ingredients. Headquartered in Decatur, Illinois, ADM has over 26,000 employees, more than 240 processing plants and sales for the fiscal year ended June 30, 2006 of $37 billion. Additional information can be found on ADM's Web site at http://www.admworld.com/.

SOURCE Archer Daniels Midland Company


This will not get much press but is quite possibly the most important thing ADM has done this year. This guy knows what everyone is doing in the biomass industry, who is working on what, what is or is not working and do you think ADM will have trouble getting any gov't funding for it's efforts? Already the world's leader in ethanol, biodiesel and biodegradable plastic production ADM is now taking step to assure that lead will only increase. In the past ADM has alluded to cellulose ethanol being economically viable in a couple of years. They recently received DOE funding for a project in conjunction with Purdue University for cellulose research and we have the hire of Werpy. This guy was not hired to "start" something but to get ADM to the finish line.

Apple Counter: The Stockmasters

In all fairness to the Apple (AAPL) lover's out there whose feeling I may have hurt, here is a pro-apple article from Frank Lara Jr. at the Stockmasters


The iPhone. I could end the article right there, you've all seen those commercials, and they are nothing short of amazing. As consumers, we all know that the first new releases of the iPhone might be buggy, they'll figure out the quirks, then on about the third release it's going to be a stellar product. But let's face it, this is Apple (AAPL) we are talking about and everything from their MacBooks to iPods are great performing inventions. Those commercials for Macs vs. PC's really hit home and it's true, how often do you hear about people complaining about their Macs or the blue screen of death?

Last week UBS reiterated Apple Inc. (AAPL) with a "buy" rating while Piper Jaffray raised its price target on the stock to $160 per share. Joseph Hargett at SchaeffersResearch.com pointed out that the Dow Jones Newswire listed several (14 to be exact) large blocks of AAPL shares crossing the tape last week and all of the blocks numbered 100,000 shares or more. Everyone is getting excited about the iPhone launching at the end of the month, and I'm betting the powers that be send Apple's stock to $160 sooner than we all think.

Personally I think buying Apple's stock is ridiculous at this point, but just when you think the stock is going to fall they release another product, get an upgrade, or Steve Jobs parts the Red Sea and everyone cheers and throws money at him. I like the plays from the iPhone that include AT&T (T) and Research in Motion (RIMM), everyone on Wall Street has mentioned those picks including Todd Sullivan who wrapped it up beautifully with a ribbon on top (read Todd's reasoning).

AT&T (T) is the exclusive carrier of the iPhone and will gain wireless subscribers hand over foot. Just wait until AT&T starts selling more services from the iPhone and we will all watch AT&T morph into the largest corporation on the planet that eventually builds the Death Star. So that would make AT&T's CEO Randall Stephenson the Emperor and CFO Richard Linder be Darth Vader - I knew they had it in them.

If AT&T is the "Dark Side", sign me up for Sith training school (along with Overstock.com's Patrick Byrne) because it's going to be a galactic-kegger (thank you Rip Torn from MIB) this year and next at AT&T thanks to the iPhone partnership.
Research in Motion's (RIMM) products will serve as an alternative to customers not on AT&T's (T) wireless network. The devices also sell for less than $200, versus iPhone's incredible $500 to $600 price tag. RIMM could also benefit from any disappointment or delays with the iPhone. Let me add the mighty Jim Cramer (the true Sith Lord) has given his blessing on AT&T and Research in Motion as iPhone plays, so believe me America, it's on.

So Apple shares sit at around $125 a share, it's hard to believe isn't it? But they are unlike any company in their field, their technology, innovation and products have us all screaming for more. If they build a Mac compatible blender I bet they could take out the Juiceman overnight (wouldn't the infomercial's be fun for that?) Come June 29th, we all know shares of Apple will not be falling on that day, oh no, they'll be screaming. I would love to short Apple right now, but it's a losing battle, maybe a year from now, but Apple Inc. is a hard hitting technology machine that is going to push its stock to new levels come July and August.

Using the power of the Force, Piper Jaffray's Gene Munster predicted Apple will sell 45 million iPhones by 2009. Sound a bit much? I don't think Pet Rocks sold that fast back in the 70's but I could be wrong. Steve Jobs has projected sales of 10 million iPhones in its first year, so it's reasonable to say the iPhone is going to do well, even if sales come in below expectations. Then again, iPhone sales may blow everyone away like the superlaser from the Death Star, it could happen -- do you think Steve Jobs has plans for the iDeathStar?

Better trademark that name ASAP. As much as I hate to say it, Apple is on fire, and will continue to be for months to come. But just like any fire, all it takes is a little water to cool the blaze, and you can bet Microsoft (MSFT) is standing in the corner with a big bucket of water.

Visit the Master's Here

Lampert Looking For $3 -$5 Billion

CNBC reports that Eddie Lampert, Chairman of Sears Holdings (SHLD) is raising money through his former firm Goldman Sachs (GS)for a hedge fund. For folks looking for him to begin to spend Sears' cash hoard, this is real good news.

It clearly means he sees investments he wants to make out there. I my opinion it smells of him wanting to do a mega deal and is adding dollars to his coffers. Between the money he raises, the $4 billion in Sears cash he has available and multiples of that in potential additional debt, he will now be able to do a much larger deal. It was not clear if this was a new fund or more cash for ESL Investments, the fund he has racked up 29% annual return for over a decade with. No matter either way. It does give Lampert the ability between the various entities he controls to take a controlling stake or buy completely a much larger company now. I would love to see him get his hands on the Gap (GPS) now. Still no new CEO there, sales have stabilized and great value in both cash on hand and real estate. He could do wonders there.

Coming off the heals of his recent Citi (C) purchase and the revelation he is back buying Sears shares, it is clear he is in a buying mood.

The fund requires a $25 million minimum investment, a 5 year lock up and a 6 month notice to withdraw. I am thinking about investing but can't seem to find that $25 million I had laying around this weekend.

As a Sears shareholder, it does make thing very interesting.

Deutsche Bank on Mcdonald's (MCD) and Starbucks (SBUX), Where Ya' Been?

Upgrading it's rating on McDonald's (MCD) shares to "buy" from "hold," and bumping it's price target to $61 from $45 (20%) saying the company "is poised to capitalize on global economic growth and key consumer trends in the United States", Deutsche Bank enlightened clients to the obvious in a note Friday. Yeah. If I was a "client" I would be asking, "You are just only getting this now?"


Just in case "clients" were not mystified enough, the firm cut its price target on Starbucks Corp. (SBUX) shares to $32 from $37, saying "The downside of McDonald's getting coffee right is material to both same-store sales and the global growth opportunity," they said. "We see several obstacles to higher returns and valuation for Starbucks."

The timing of this for investors is nice as Starbucks shares now sit at multi-year lows and McDonald's sits at multi-year highs.

"McDonald's sits at the crux of key positive trends in the U.S. restaurant industry, including Quick Service Restaurant resurgence, an expanding beverages opportunity, and a health/wellness slant (with a focus on women and kids), Deutsche Bank said. No kidding!?!

I have been stumping this very line of thinking since January here, here and here and other times but I think you get the point. In the meantime Starbucks shares have fallen over 20% to levels not seen since October 2005 (they will fall further) and McDonald's shares are up by some 20%. If you are a Deutsche Bank client, you may want to be asking them what happened.

Apparently the only person who is farther behind the curve here is Starbucks CEO Jim Donald

Dow Stocks YTD: Who Hasn't Participated In The Run?

Now that we are nearing the 1/2 way point in 2006, let's take a look at the stocks that make up the Dow Jones Industrial Average (DJIA) and see who has not benefited from the record breaking run so far this year.


Value if $1,000 Invested at the end of 2006 (largest loser first):

1- Johnson & Johnson (JNJ)= $953

2- Home Depot (HD)= $956

3- Citigroup (C) = $977

4- Proctor & Gamble (PG) = $992

5- Disney (DIS)= $988

Not bad. 5 out of 30 stocks in the red. The big winners? Caterpillar (CAT) at $1,292 and Alcoa (AA) at $1,355

Sirius (SIRI) / XM (XMSR) : Dead

The FCC announced it is "seeking comment " on the proposed merger between the only two satellite radio companies in existence. Am I the only one who wonders they are even bothering?

Based on recent decisions like the one in which the FTC contested the Whole Foods (WFMI) and Wild Oats (OATS) $560 million buyout, I cannot fathom a scenario in which the only two companies in an industry are allowed to form only one. While I feel the Whole Foods opposition is nonsensical, the fact there is opposition to it is what it is. The merger between XM (XMSR) and Sirius (SIRI), valued at $4.7 billion is currently being opposed by both consumer groups and the National Association of Broadcasters and really, I cannot find anyone who favors the merger except folks and shareholders of XM and Sirius.

For a little history we only need go back to the attempted Direct TV (DTV), Echostar (DISH) merger a few years ago. There we had two companies attempting to merge to create more competition against other pay TV companies (cable) like Time Warner (TWC) and Comcast (CMCSA). . The FCC opposed and squashed it because they said the merger would eliminate competition in rural areas and the same scenario holds true in this instance. Also hurting this attempt is that we have no pay radio competition at all for the combined entity to argue they need to merge to help combat in other areas. The profitability with the two companies is not due to lack of consumer interest, it is due to moves like giving Howard Stern hundreds of millions of dollars to essentially do what he did for for a fraction of the price on free radio. Heck, if they had just waited the guy probably would have pulled an Imus soon enough and got himself tossed off the air anyway, then they could have picked him up on the cheap. The only difference now is that without the specter of the FTC coming down on him at any minute, the cache and risk is gone and so all you have is a middle aged guy swearing on the radio, it's get boring after about 3 minutes. There is a reason he has not been in the news the last 2 years, nobody longer cares.

This attempt will be squashed and consumers will win in the long run. Short term, shareholders will get hit.

Wall St. Radio Interview To Air Wednesday

Well, it is finished, my interview on Wall St. Radio. Click on this link to hear it..

I have put a permanent link on the blog to hear the other ones.

Altria's (MO) Marlboro Chew: A Mega Hit

The Philip Morris USA unit of Altria Group (MO) has decided to launch a smokeless product under the Marlboro name. In some corners this is being called "a substantial risk". Not only is it not a risk, it is the closest thing to a slam dunk. Here is why.

Almost forty percent of the cigarettes sold in the U.S. are Marlboros. In order to truly appreciate the dominance Marlboro has on the industry, one had to consider #2, is only at 6%!! Now you also have to consider that it has been this way for almost 1/2 a century.

Let's talk about smokers. There isn't a more brand loyal lot out there than tobacco users, except for possibly scotch drinkers. Having both smoked and chewed (many years ago), I am speaking from experience. If you smoke or chew a brand, that is your brand, period, end of story. Only under the most extreme circumstances will you switch and it is doesn't have anything to do with price, it has to do only with availability. If you cannot get your brand, you will use another and that is the only reason. This is the why Altria has been the single best investment in the history of the US stock market.

Now the new product. Smoking rates have decreased steadily for some time now while smokeless tobacco use is increasing 3%-4% a year and up until this point, Altria has not been in this market. The new product can be used in offices and restaurants since it does not violate any of the smoking bans enacted in recent years and it is not "wet" like other forms of smokeless tobacco so users do not have to spit juice. In April I posted about the product not then labeled under the Marlboro brand name and now that it is, I am more excited that ever. Chew users will gravitate to this brand as they can use it anywhere and not have to carry a plastic Coca Cola bottle around filled with spit. But that is not the best part. The kicker is: Since it is a dry product, smokers will use it when they are inside and do not want to have to go to the "smoking area" and be looked down upon like lepers. They can now sit at their desk's and get their fix, no one will be any wiser and there will be no lost work time. There will also be the added bonus of not smelling like an ashtray all day (it's the little things). What does all this mean? More tobacco sales for Altria. Simply put, you have the number one brand of tobacco giving it's users the ability to now use their product in places they now cannot. Perhaps this is why the tag line "Flavor Anytime" is being tossed around. Ka-Ching..

So let's address the elephant in the room. Cancer. Snus is widely used in Scandinavia, where numerous studies proved that it offers smokers an alternative way to get the nicotine and taste of cigarettes with less risk of cancer. A safer product that can be used everywhere smoking is banned and is spit free. Where is the problem?

Investing morality. When god created man he did so in his own image. This means he gave us "free will". We are free to drink, smoke, gamble, eat lousy foods, drive like a-holes and smash our hands with hammers so should we choose to. Now there may be ramifications to any of those actions, but we are free to do them. Folks are free to smoke and I choose to watch my kid's college funds grow from it, guilt free. I stopped, so can they.

Ignoring a great investment on moral grounds is just foolish. Profit from it and do something good with the money if you are so inclined. You will never stop smokers by not buying Altria shares. If you do buy them and profit you may actually be able to stop young smokers by funding programs at local schools. Avoiding shares because they "sell tobacco" is just putting your head in the sand and plain stupid. Poverty never cured society or it's ills, wealth has cured plenty.

Will it sell? Will Apple (APPL) fans buy iPhones (they would buy a hell of a lot more at a reasonable price)? Will Diageo's (DEO) Johnny Walker Black users buy Blue? Will Star Wars fans line up around the block for the next installment?

Need I go on?????

June Top Stories To Date At VIN

Here we go. Is it just me or are the stories here getting better and better?

1- Sell Side Cliches- Market Prognosticator
2- Bestinver's Paramus: Pitching Tips To Buffett Bloomburg

3- Spinoffs- Forbes

4- Lampert Buying More Sears Shares - ValuePlays

5- SAC Capital Accumulates 5.2% Stake in FreightCar America - Streetinsider style="text-align: left;">


You may view the whole list here:

I have receives some requests to not include articles from the MSM (main stream media) and only include those written by bloggers and the like. I go both ways on it as I am partial to bloggers but do recognize any information no matter where it comes from is valuable.

I am open to suggestions

Greenspan & Subprime: Another Mess

Alan Greenspan was arguably the country's most powerful financial cop in his 18 years as chairman of the Federal Reserve. But Mr. Greenspan's regulatory record has received far less scrutiny than his management of the economy.

Article Originally Published in The WSJ

That may be changing. A former colleague says Mr. Greenspan blocked a proposal to increase scrutiny of subprime lenders under the Fed's broad authority. That added scrutiny might have helped curtail questionable lending practices now blamed for soaring defaults by mostly low-income borrowers. Democrats in Congress are now turning up the heat on regulators, especially the Fed, for failing to do more to stamp out those practices, and the Fed appears increasingly likely to overhaul its approach.

Edward Gramlich, who was Fed governor from 1997 to 2005, said he proposed to Mr. Greenspan in or around 2000, when predatory lending was a growing concern, that the Fed use its discretionary authority to send examiners into the offices of consumer-finance lenders that were units of Fed-regulated bank holding companies.

"I would have liked the Fed to be a leader" in cracking down on predatory lending, Mr. Gramlich, now a scholar at the Urban Institute, said in an interview this past week. Knowing it would be controversial with Mr. Greenspan, whose deregulatory philosophy is well known, Mr. Gramlich broached it to him personally rather than take it to the full board.

"He was opposed to it, so I didn't really pursue it," says Mr. Gramlich, a Democrat who was one of seven Fed governors.

Greenspan's Response

Mr. Greenspan, in an interview, says he doesn't recall a specific discussion of the idea but confirmed his opposition to it.

There is "a very large number of small institutions, some on the margin of scrupulousness and very hard to detect when they are doing something wrong," says Mr. Greenspan, who retired in February last year. "For us to go in and audit how they act on their mortgage applications would have been a huge effort, and it's not clear to me we would have found anything that would have been worthwhile without undermining the desired availability of subprime credits."

Mr. Greenspan adds that borrowers might get a false sense of security from a lender that advertised itself as Fed-inspected.

Ben Bernanke, Mr. Greenspan's successor, told Congress in March that he has asked his staff for "a complete review of our powers and practices" in examining holding-company units. A Fed spokesman this past week said "that review is under way." The Fed Thursday will conduct a public meeting on steps it could take to strengthen laws governing subprime lending.

On June 29, the Urban Institute will release a book by Mr. Gramlich, "Subprime Mortgages: America's Latest Boom and Bust." It argues, among other points, that all lenders affiliated with banks and thrifts could "be brought under the same supervisory conventions as their parents seemingly without major culture shock." It wouldn't be a huge undertaking by policy makers, and it would lead to more uniform, stringent practices.

Mr. Gramlich, who is being treated for cancer, says, "There are certain things that unsupervised lenders do that a Fed supervisor would not let you get away with," such as not escrowing taxes and insurance, not verifying an applicant's stated income, or assessing the borrower's ability to repay based on an introductory "teaser" rate. But he said the proposal's reach would have been limited by the fact that many lenders would still have no federal supervision.

At the time President Clinton appointed Mr. Gramlich to the Federal Reserve Board, he was a University of Michigan academic who had served on commissions studying Major League Baseball and Social Security. Mr. Greenspan put him in charge of the board's community and consumer affairs committee.

Mr. Gramlich often pushed the Fed to expand fair-lending and consumer-protection rules, winning the admiration of consumer groups that often accuse the Fed of being too supportive of the financial industry. Despite their differing philosophies, Mr. Gramlich says he got along well with Mr. Greenspan, who supported him on most initiatives, especially those involving increased disclosure.

Nonetheless, his remarks represent a rare insider's criticism of Mr. Greenspan's regulatory record. Mr. Greenspan says he didn't get heavily involved in regulatory matters in part because his laissez-faire philosophy was often at odds with the goals of the laws Congress had tasked the Fed with enforcing.

"I basically listened to the staff and tried as best I could to support the staff's recommendation," he says. He notes that with one exception, on a highly technical issue, he always voted with the board majority.

Still, Mr. Greenspan's views did color the regulatory environment, facilitating growing concentration in banking and a hands-off approach to derivatives and hedge funds. That approach, broadly shared by both the Clinton and Bush administrations, is coming under increased scrutiny.

The Fed has taken heat recently for not more vigorously using its power to write consumer-protection rules for the entire industry, not just the lenders it oversees directly. Before it proposed new standards last month, the Fed hadn't conducted a broad review of its credit-card disclosure requirements since 1981 -- six years before Greenspan took office.

In 2005, 52% of subprime mortgages were originated by companies with no federal supervision, primarily mortgage brokers and stand-alone finance companies; 23% by banks and thrifts; and 25% by finance companies affiliated with banks and thrifts, including units of bank holding companies.

According to Inside Mortgage Finance, an industry publication, in 2006 three of the eight largest subprime mortgage lenders were units of bank holding companies. The Fed is one of four federal regulators that supervises deposit-taking banks and thrifts. It also has oversight over bank holding companies, with the discretion to delegate authority over their operating units to other agencies.

Thus the Fed generally leaves regulation of nationally chartered banks to the Office of the Comptroller of the Currency; of securities-dealer units to the Securities and Exchange Commission; and of consumer-finance companies to the states.

However, state regulation is generally considered inconsistent and usually less rigorous than federal oversight. Moreover, 18 states offer some form of exemption from state regulation to bank holding company units, according to the Conference of State Banking Supervisors.

The Fed periodically examines the finance-company units to ensure that they pose no threat to the "safety and soundness" of their deposit-taking affiliates and to assess their controls for things like money laundering. In special situations, it does scrutinize their practices for compliance with consumer-protection laws. In 2004, it fined Citigroup $70 million for alleged abuses by its CitiFinancial unit.

But Mr. Gramlich fretted that extending those standards to holding-company units would create an unlevel playing field unless stand-alone lenders were subjected to the same thing.

Jim Strother, general counsel for Wells Fargo & Co., said oversight of bank holding company units isn't "where the need is," noting the Fed does examine Wells Fargo Financial, a major subprime mortgage lender. "The gap is for companies that aren't in the banking system at all."

Berkshire Rebuttal: Andy Kern

A while back I had a post on my thought that Berkshire Hathaway's Warren Buffett has not recently been investing like, well, Warren Buffett. There was a time when 40% of Berkshire's assets were in 1 stock, American Express. Now before you freak I do fully realize that given Berkshire's size today, that is not possible. My point was, given the bear market we had after 9/11 (bottoming in 2003), Buffett really has not made any meaningful investments given Berkshire's size. Yes I know $3 billion is a lot of money, but when you have $40 billion to play with, it really isn't. You would have though I called the Pope a sinner. Many folks replied and I have been begging for a rebuttal, actually an intelligent rebuttal I should say as I do not consider "you a moron" necessarily a rebuttal. Finally I got one:

Andy Kern, over at the aptly named Berkshire Ruminations has posted a two parter, you can read them here. Read them and decide what you think. Andy has a great blog and I am a regular reader of it, I just still disagree with him. I guess one of us will be right and the really nice thing about what we talk about, we will be able to get an answer eventually .

Ethanol Has OPEC Publicly Worried

Abdalla El-Badri, Secretary-General of the Organization of the Petroleum Exporting Countries (OPEC) said the biofuel strategy being pushed by President Bush and European leaders would backfire because “you don’t get the incremental oil and you don’t get the ethanol”. In this scenario, he warned, oil prices would go “through the roof”.


He said OPEC members had so far maintained their investment plans but he warned: “If we are unable to see a security of demand...we may revisit investment in the long-term.” Why the change? In the past OPEC had all but mocked biofuel's potential. This is the first public expression of concern.

“They are really concerned,” said Julian Lee of the Center for Global Energy Studies in London. “Opec will continue investing, but with biofuels on the horizon, they may not invest enough.”

OPEC is caught between a rock and hard place. On the one hand,if they keep prices high like they have become accustomed to, the rest of the world will continue it's quest for alternative sources. Should they ramp up production to bring prices down in an attempt to make biofuels cost prohibitive, their wallets suffer. What to do?

I think if anything this is proof positive that oil production is currently at a peak level. If OPEC could, it would flush the world with oil and dampen it's desire for alternative sources and make them less profitable. The fact that they haven't means they can't.

Here is another odd point. With OPEC clearly scared about both the current reality and the future surrounding ethanol, why are US ethanol makers currently nowhere near 52 week highs? When you have the US and Brazil, who between them produce over 10 billion gallons a year of the stuff rushing to partner production practices, shouldn't that excite us? When the world's #1 producer of biodiesel, ADM (ADM) has set up shop in Brazil, will produce biodiesel there in August and is aggressively seeking an ethanol partnership, ought we not be more positive about the future of these companies?

Let's not forget other US Agribusiness companies like Bunge (BG) and Corn Products (CPO) are in the process of producing from South America also.

Here is another miscellaneous thought. If the Dems take the White House (and even possibly if they do not) oil companies like Exxon (XOM), Chevron (CVR), and BP (BP) will once again find them selves in front of congress answering for record profits and high gas prices. Dems have wanted to grab some of these profits for years and may soon be in a position to actually do it. Can you think of anything that would get anyone of them off the hook faster than being able to say "We are also the #1 (or #2) ethanol producer in the US"? With half the ethanol sector near 52 week lows, valuations are ripe for buyouts by big oil flush with cash, looking for some real nice PR in their commercials and as a way to protect their profits from congress's hands.

When you have the organization that controls 40% of the world's oil publicly worried about ethanol, I find the current apathy towards companies that produce it odd. Maybe that is what a value investor is, finding the value in what others overlook.

Lead Paint Litigation Update

Time for an update of the various lead paint suits winding their way to obscurity throughout the US.
The main defendants are Sherwin Williams (SHW) and NL Inustries (NL). I have taken this post in it's entirety from Jane Genova's Law and More since, as I have said here numerous times before, investigating the legal aspect of lead paint litigation begins and ends with Jane's blog.


"These updates come by way of the monitoring, research and interpretation of LexisNexis [TM] Mealey's Litigation Report. This Mealey's briefing is focused totally on the lead issue. I have radically downsized the content of the original report. Also I have added my own commentary.

Documents associated with these developments are available from Mealey's at www