Here's a one page summary of leading stories from this weekend's (June 24) Barron's (paid sub. req.), noting stocks to watch for Monday morning when the market opens and brief comments on the Barron's articles. Note: clicking on a stock ticker pulls up opinion, analysis and a quote for that stock; clicking on a headline takes you to the full Barron's article (paid sub. req'd.).
Is Your CEO Lying? by Jonathan R. Laing
Highlighted companies: Computer Associates (NASDAQ:CA), MBIA (NYSE:MBI), Eastman Kodak (EK), General Motors (NYSE:GM)
Thesis: Several hedge funds have employed the services of Boston-based Business Intelligence Advisors, which uses former CIA and intelligence operatives to perform behavioral analyses of corporate executives. Their goal is to detect when executives are being less than honest in their public statements (written and verbal). The specialists look for language clues in, for example, conference call transcripts and personal interviews, to help the funds find good short ideas. Examples: An 2001 interview with then-CEO Sanjay Kumar of Computer Associates (CA) was used by BIA in its training video -- Kumar five years later pled guilty to securities fraud. BIA analysts claim that Kodak (EK) executives, in their latest earnings conference call, were less than open about the company's back-to-school sales prospects, in-store kiosk results and effort to improve operating margins. And the analysts give General Motors (GM) management low marks for openness and credibility.
Quick comment: Seeking Alpha carries the largest free database of conference call transcripts anywhere -- here, for example, is the Kodak conference call that raised eyebrows at BIA - can you spot the alleged dishonesty?
Trend Spotter by Sandra Ward
Highlighted companies: Garmin (NASDAQ:GRMN), JetBlue (NASDAQ:JBLU), CarMax (NYSE:KMX), Yahoo (NASDAQ:YHOO), Google (NASDAQ:GOOG), Amazon (NASDAQ:AMZN), Station Casinos (NYSE:STN), Boyd Gaming (NYSE:BYD), Wynn Resorts (NASDAQ:WYNN), Apple (NASDAQ:AAPL), KB Home (NYSE:KBH), MDC Holdings (NYSE:MDC), Pulte Homes (NYSE:PHM)
Thesis: Interview with John Aiken, head of equity research at independent firm Majestic Research, which seeks 'to get real-time information on sales and on competitive pressures that give its 125 institutional clients a jump on the direction of quarterly revenue and earnings on nine business sectors.' Aiken sees positive trends in the Internet-media (online advertising) and GPS electronics sector sector (especially for Garmin), and deteriorating trends in online travel and online retail, and in Las Vegas casinos and home builders. Aiken sees Google having an edge in online advertising currently, due to faster and more accurate search results. He's cautious on Amazon, due to pressure from inventory costs and lost brand awareness. Boyd Gaming is suffering this quarter, he claims, due to failure to absorb new capacity and raise revenue per player. Regarding Apple, he sees iPod sales coming in well below Street estimates (7.3 m vs. 8.5 m)
The House that Hef Built by Andrew Bary
Highlighted companies: Playboy (PLA), New Frontier Media (NASDAQ:NOOF), DirecTV (DTV)
Thesis: Playboy stock has been beaten down recently following a warning on 2006 profits. Now, with an equity market value of just $310 million and little debt, the company could be taken private at much higher valuation. Upstart New Frontier Media is taking some video market share from Playboy -- the company CEO boasts they have 'no mansion and no silk pajamas'. New Frontier's margins are 35%, vs. Playboy's 9%.
Quick comment: Read Playboy Enterprises, Inc. Q1 2006 Earnings Conference Call Transcript for more insight to this business.
Easier Than 1-2-3 by J.R. Brandstrader
Highlighted companies: Fidelity National Financial (NYSE:FNF), Fidelity National Information Services (NYSE:FIS), Fidelity National Title (FNT)
Thesis: In an effort to extract value from its big, intertwined mortgage title-insurance and financial data-processing businesses, executives at Fidelity National decided in April to jettison a third operation -- a holding company that held stakes in both. 'Besides simplifying the corporate structure,' Brandstader notes, 'the strategy allows the new FIS to distance its faster-growing financial-technology efforts from the slowdown in new- home mortgage originations and the continuing investigations of the title industry by state regulators.' FNF may have room for serious share price gains as a result.
Diet Plan: Avoid This Stock by Kopin Tan
Highlighted companies: Sara Lee (SLE), Kraft Foods (KFT), Kellogg (NYSE:K)
Thesis: Sara Lee stock, at $17, is reaching a five year low and is therefore piquing the interest of value investors. A 4.6% dividend yield helps, but with Hanesbrand being spun off soon, there's not much to like here, according to Tan. Sales growth from the core housewares and food products divisions is stagnant, and margins are under ever-increasing pressure. Its debt was recently downgraded to Baa1 from Moody's, which cited 'increasing challenges'. A five-year restructuring program will be hampered by a poor IT infrastructure and cutbacks in R&D and marketing. Tan thinks that SLE could drop another 15-20%.
Quick comment: Look for SLE stock to take a hit at the open Monday, but its competitors Kraft and Kellogg didn't receive glowing reviews here either.
TECHNOLOGY TRADER: The Pfizer Factor by Bill Alpert
Highlighted companies: Merck (NYSE:MRK), Pfizer (NYSE:PFE), Teva (NYSE:TEVA), Ranbaxy Laboratories (OTC:RBXLF), Dr. Reddy's (NYSE:RDY)
Thesis: Merck aggressively cut the price of its cholesterol drug Zocor this week, which will pressure Pfizer's market leader Lipitor as well. But Pfizer 'might be worth holding,' says Alpert, as the drop in Liptor sales ($12.2 billion last year) seems priced in, the company has an even better cholesterol drug in the pipeline, and its large cash position could be used soon for share buybacks or a raised dividend.
Highlighted companies: Motorola (MOT), Nortel (NT), UTStarcom (NASDAQ:UTSI), Juniper (NYSE:JNPR), Cisco (NASDAQ:CSCO)
Thesis: Nokia and Siemens' announced partnership in wireless and telecom infrastructure last week was the third in the past nine months, following the Ericsson-Marconi deal and the Alcatel-Lucent merger. Though some see a MOT-NT deal as logical for the companies, the factors against it seem just as strong: Motorola is paring back and consolidating businesses, not looking for big mergers, and Nortel just hired Mike Zafirovski as CEO and seems likely to wait for him to implement his internal plan. Other potential partners for Motorola are three Chinese firms: Huawei, UTStarcom, and ZTE. Meanwhile, Juniper may take a hit from the Nokia-Siemens deal, as it receives more than 10% of its revenue from Siemens in a reseller agreement, but Nokia may well opt to stay with its supplier Cisco instead -- and the Siemens business would be a potential new windfall for Cisco.
Other notable articles on Seeking Alpha: Latest conference call transcripts from Oracle, Family Dollar Stores, and Rite Aid. Jim Cramer's Mad Money stock picks. Despite price declines, money flows into gold and silver ETFs. Latest IPO filing, from Sucampo Inc. More new ETFs from Claymore and StateStreet.
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