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.