1. THQ Under the Radar
In the gaming industry, THQ is a small player, at least from a market capital point of view, THQ is merely $300M, while both Electronic Arts (ERTS) and Take Two (TTWO) are over $1B. Well, a good execution could grow a company rather dramatically. THQ's CEO recently presented a roadmap for for 2011 and beyond, and its uDraw game recently kicked off a series of new products. The game was well accepted during this holiday season, and it looks to be a big hit in the industry. The company expected 1.3M sales, and it could hit over 2M based on the momentum so far. uDraw really changed the philosophy of the game design; the new technology can be implemented in upcoming games and players look forward to them.
Although, in my view, THQ may rebut any offers from competitors as the potential growth has not been reflected in the stock price at all. A very sweet offer could still trigger management's itchy fingers.
2. First dividend paying company in solar industry
It has been over 5 years since many solar companies went public, and everyone has been striving to lower costs of the electricity generated by PV panels. The PV chain includes silicon materials, ingots, modules, and panels. Today we have costs very close to $1/W, which is a critical level for solar energy to compete with fossil fuel. More countries are starting to realize that renewable energy is the future, not only because fossil fuel is limited on this planet, but also because solar energy and other renewable sources have less negative environmental impact. Countries such as the USA, China and the EU are investing incrementally in solar and wind energy. China's "Golden Sun" project could easily boost solar panel demand by 9-10GW in the next 5 years (2011-2016 is the nation's 12th 5-year strategic plan). 2011 may be the year that solar companies become self sustainable and some even start to pay dividends. Two companies are on the top of the list, LDK Solar (LDK) and Trina Solar (TSL).
LDK Solar is the most likely one, with full capacity production reaching a head, the cost for LDK is well below its competitors, and the cost model on Wall Street is way behind the curve. Keep in mind, the company doesn't have to produce wafers and modules in full capacity. Rather, the cost per watt for LDK is dropping dramatically, and our model shows the 2011 cost for LDK is likely well below $1/W. We will not be surprised to see a 10-20c dividend announcement in 2011. Investors have been worried about its $1.3B debt, but with this earnings growth, it is not difficult for the company to reduce debt 20%-25% per year and still maintain a strong cash flow.
Trina Solar is the cost control leader. It took different approaches of cost reduction, and the labor cost in Trina is one of the lowest. If its vertical integration was well executed, the cost could be even lower. However, capacity may become bottlenecked if the company doesn't expand in 2011. We believe Trina could easily deliver 20c dividend in 2011.
3. Netflix Goes Live
Netflix (NFLX) has expanded quickly in recent years. Its main business focuses on DVD rental. However, its new rental model gives customers easy access to a variety of DVDs from home as long as there is an internet connection. The new model could easily be used in live programs; users can pick TV programs whenever they start and watch from home. Its' a video-on-demand service, but on live TV. For example, if one wants to watch Larry King live only at 9:00PM on CNN, one can order it at 8:59 or earlier, and Netflix can deliver it to their TV starting at 9:00PM. This could revolutionize the way people watch TV, and could bring the next phase of growth to the company.