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Showing posts from October, 2007

BigBand Networks -- the company just got smaller

Last month we wrote about BigBand Networks pre-announcement in which they warned that revenues would be in the range of $35 to $39M, significantly lower than the initially projected $54 to $58M.

This week the actual third quarter results were announced. Revenues were at the high end of the lowered range, coming in at $38.6M, 11% lower than the previous quarter's revenue and beating analyst estimates.

As expected, the company was in the red, showing a loss of $12.2M versus a profit of $1.6M in the previous quarter.

The bad news doesn't stop there. The company also expects to post another loss in the fourth quarter on revenue that is projected to be even lower than the current quarter.

In light of this dismal performance, BigBand has said it is cutting 15% of staff and is discontinuing its Cuda CMTS broadband Internet access product. This will, of course, result in asset and inventory charges as the product line is shut down, further depressing fourth quarter results.

Is there light …

Facebook SocialAds -- great idea but no Google killer

We have had a parade of new web advertising concepts lately: Yahoo's Smart Ads, Google's Gadget Ads. Now we have Facebook's SocialAds.

Just as people are throwing around absurd valuations on Google, we now have some bloggers doing the same with Facebook, that's how important they are interpreting SocialAds to be. In keeping with the current silly season regarding all things Facebook, a $100 billion valuation has been projected for the company based on this development.

Background --

SocialAds will take advantage of all the profile data that users enter in Facebook. Knowing a user's age, location and interests will allow precise ad targeting. It's a no brainer for Facebook to use profile data for ads served on the Facebook site and, indeed, they are already trying this out with their Facebook Flyers initiative.

Many in the blogosphere, however, are speculating that Facebook will extend their advertising efforts beyond their own site and put in place a full blown ad …

Motorola's good quarter not all that good

Motorola (MOT) recently released earnings and the stock got a little boost. Was the stock gain warranted? Is Motorola out of the woods?

First, we can acknowledge there are a few positives mixed in with the negatives. After three quarters of declining earnings, two of which showed losses, MOT actually showed a profit of $60M. That is very good news and may indicate that the worst is behind the company and the tide is turning, to mix a couple of metaphors. On the negative side, the year-over-year comparison is stark: 3rd quarter earnings in 2006 were $968M, more than 16 times greater that this year's 3rd quarter.

On the revenue side, this year's 3rd quarter revenues of $8.8B were less than 10% lower than last year's $10.6B. $8.8B was a small improvement over the previous quarter's revenue and that's another positive. Still, earnings have plunged while revenues have shown a moderate decline. This indicates something's still wrong with Motorola. And this earnings sho…

Owning oil ETF takes the sting out of buying home heating oil

Earlier this week I had this year's first load of heating oil delivered for my drafty, 100 year old house. The cost was a good 25% higher than last year. I was astounded.

Based on emotion, I resolved to find my personal energy hedge against rising prices.

A year or so ago, as a result of rising prices at the gas pump, I had bought shares of XLE, the Energy Select Sector SPDR ETF. I naturally turned to that idea again. On thinking about it, however, I recalled that a number of energy companies had seen earnings reduced lately due to a falloff in refining profits. Maybe I could do better than XLE.

So I thought about the ETFs that track indexes of the actual commodities. The PowerShares DB Energy (DBE) tracks a mix of energy products including Light Sweet Crude Oil, Heating Oil, Brent Crude Oil, RBOB gasoline and Natural Gas. The alternative was PowerShares DB Oil (DBO) that tracks only Light Sweet Crude Oil. Performance of DBE was slightly better than the performance of DBO but, for m…

Despite drop in semiconductors, tech rally still has legs

The Philadelphia Semiconductor Index ($SOX) plunged today. Is this the end for the tech rally?

In the chart below, I compared the Merrill Lynch HOLDRs that are focused on technology. The ETFs and their associated sectors are as follows:

SMH - semiconductors
SWH - software
IAH - hardware
BDH - networking
HHH - Internet
IIH - Internet infrastructure


As can be seen, the Software HOLDR (SMH, black line) is indeed breaking down. Notice, however, that the other ETFs are moving up or at least holding their own. Interestingly, the Internet HOLDR (HHH, light blue line) does show weakness despite all the hoopla over Google and Yahoo's good earnings reports recently. Still, for the most part, the other tech sectors are still showing growth.

Looking closer at the semiconductor sector, we have had some earnings reports that were good, some that were lackluster. Similarly, forward guidance has varied from company to company. Nevertheless, market research companies like iSuppli are predicting 11% growth…

China Automotive - looking for another good quarter

Having watched the Chinese stock market soar to what looks like bubble levels, I have been reluctant to look at any Chinese stocks as serious investments. I do watch a few though and I thought that it might be time to highlight one that is beginning to display accelerated growth.

China Automotive Systems (CAAS) has been drooping most of the year from a high of about $13 in January to a low of $6 in August. Still, CAAS came through with a big 2nd quarter earnings report and eventually the stock began moving up. In early October it managed to close over $9 but has been slipping since then to just over $8. This could be as cheap as the stock will get.

Industry Background --

As written in the Asia Times, July 10, 2007:

China has managed to chalk up year-on-year growth of 25.9% in car sales for the first half of 2007, according to the China Association of Automobile Manufacturers (CAAM).

From January to June, 3.08 million passenger vehicles were sold nationwide, up 22.3%. The total included 2.2…

Weekly Market Update - Is this selloff serious?

Naturally the markets would have to tumble as I was traveling Friday. It always seems that major down moves occur when I am out of pocket.

After reviewing the carnage this week I decided that I needed to step back and not jump to conclusions.

First, I decided that I would avoid trying to make any predictions as to what directions markets will take. Better to simply focus on my own portfolio and evaluate whether any changes need to be made.

This was a tough week on some parts of the TradeRadar portfolio. Two stocks were sold when they hit stops: Starbucks (SBUX) and Qualcomm (QCOM). Modest losses were taken in each.

I recently wrote a post describing why I'm overweight tech. Does this week's action signal a change in that strategy? I don't think so. In the tech sector we are holding the ProShares Ultra Technology ETF (ROM), Cisco systems (CSCO) and BigBand Networks (BBND). I track the Select Sector Technology SPDR (XLK) as my high-level tech stock indicator. Looking at the per…

Yahoo reveals a strategy for incremental change

It's 100+ days and Yahoo (YHOO) has finally revealed its new strategy. They are not "blowing up" the company; it is more like they are going to mold it into something better. This is an incremental approach not a radical one.

There are three main points presented by CEO Jerry Yang. These are Yahoo's objectives going forward:
Become the starting point for the most consumers on the InternetEstablish Yahoo! as the must buy for the most advertisersDeliver industry leading platforms that attract the most developersLet's take them one by one and look a little closer.

Become the starting point for the most consumers on the Internet -- Yahoo's strength has always been their content and management recognizes this. The focus on content in order to drive traffic is a logical extension of current strategy. Mail, the Yahoo homepage, MyYahoo, all generate millions of pageviews per day. Yahoo Finance, Sports, and News are known leaders in their categories. Yahoo has been laggi…

Citi expenses not looking any better

Another quarter is in the books and it is time to check in on Citi's expense reduction initiative and see how they're doing.

In all to shouting over the plunge in revenue and profits and the charges and off-balance-sheet vehicles and increased loan loss reserves this quarter, there hasn't been much attention paid to Citi's well-publicized expense reduction efforts.

Let's take a look at each expense category listed in the Consolidated Statement of Income in the 10-Q. I will provide two kinds of numbers, the year-over-year comparison between 3Q2007 and 3Q2006 and the sequential change from 2Q2007 to 3Q2007.

Compensation and benefits -- up y-o-y 15% but down sequentially over 13%. This is a significant improvement and the consequences are mostly being shouldered by the rank and file employees, of course, not the managers currently in the news. There have been staff reductions as planned and a not insignificant number of people leaving voluntarily. Interestingly, there ha…

Sold Starbucks Today

As predicted on the TradeRadar Track Profit & Loss page this past weekend, we hit our stop at $26 and sold the Starbucks (SBUX) position today.

Late last week the TradeRadar software showed SBUX popping out of the BUY zone. Sure enough, the stock continued to break down. This has resulted in a 6% loss.

My expectation has been that patience would be rewarded as Starbucks ramped up efforts to open new stores overseas. With growth in the US slowing, this seemed to be the appropriate strategy and recently opened international stores do seem to be showing accelerated growth.

I still believe there is good potential in Starbucks but for now it is best to step aside.

Looking at the charts, there doesn't seem to be much in the way of support below $26. We will most likely have an opportunity to buy the stock at a lower price and at a time when signs of its turnaround are more apparent.

Teradata - solid company but questionable investment

On October 1, Teradata began trading on the NYSE under the symbol TDC. The company was recently spun off from NCR. Teradata begins this phase of its public life as a $5.2 billion company with shares changing hands at just under $29. Is there an investment idea in this stock now that you can invest directly in it?

Background --Teradata is a well-known vendor of data warehouse software. They have been around long enough and are big enough to have built a list of marquee clients in a number of different industries. In all, they have over 850 customers worldwide. Below is a very abbreviated list of the industries and customers served by Teradata but it will give you an idea of the reach the company has among large enterprises.

Customers --Financial Services: Bank of America, Charles Schwab, ABN Amro, Wells Fargo

Retail: Wal-Mart, Office Depot, Sears, Williams-Sonoma, Bed, Bath and Beyond

Miscellaneous: Fed Ex, Cardinal Health, UNUM, Nationwide Insurance, Verizon, Harrah's, British Airways…

More background on Rogers Corp.

Having just featured Rogers Corporation (ROG) in a previous post based on the chart (TradeRadar BUY signal flashed) and a news announcement (third quarter earnings expected be well above previous guidance), I thought it would be a good idea to dig a little further and understand why the stock had lost half its value between last November and August.

In the fiscal fourth quarter of 2006, the company recorded record revenues and earnings but provided weak guidance, indicating unit sales would be flat, taxes annd labor costs would increase and there would be higher equity compensation costs. The stock began its decent at this point.

As predicted, earnings took a hit in the fiscal first quarter of 2007. Expenses were high and, despite increased revenues, the year-over-year income comparison suffered. The stock continued its downward path.

In the second quarter of 2007, there was little positive news. Revenue was lower than the previous year's quarter and the company showed a loss of $0.2…

TradeRadar BUY signal -- Rogers Corp.

I was looking at a list of stocks that made big moves today and I came across Rogers Corp. (ROG). They were up $4.67, or 11%, today. I hadn't ever heard of the company before so I took a look.

Rogers is a 175-year old industrial company that now focuses on four segments: Printed Circuit Materials, High Performance Foams, Custom Electrical Components and Other Polymer Products. They sell primarily to electronics, aerospace and defense, ground transportation and consumer product original equipment manufacturers.

This stock has the classic chart pattern we like to see in the TradeRadar software. It has been steadily dropping since November 2006 from a high of over $70 until it hit a low around $35 during the summer.

In early August Rogers jumped from $35 into the $40's and stabilized. By August 15 the stock had flashed the TradeRadar BUY signal. We are a couple of months late in recognizing Rogers as a buy but there may still be gains to be made.

Here is the chart from the TradeRada…

Rumors Microsoft might buy Garmin -- five reasons to do this deal

Garmin (GRMN) has been on a rollercoaster lately. First, Nokia (NOK) announces they are buying Navteq (NVT). That day, Garmin takes an almost 10% dive because Navteq provides the mapping data used in all Garmin's GPS systems. The only other significant provider of mapping data, Tele Atlas, is in the process of being bought by GPS-system competitor TomTom. Investors fear that Nokia could put the squeeze on Garmin if they so choose.

Then comes the rumor Microsoft (MSFT) is going to buy Garmin and the shares notch a 5% gain.

Neither Garmin nor Microsoft have been willing to comment on the rumors.

Background on Garmin --Based in Kansas, Garmin is the current leader in the portable GPS industry, well ahead of U.S. rival Trimble. The company sells more than 50 GPS products, including portable in-car navigation units, aviation systems, marine products and pocket-sized receivers for hikers, hunters or other outdoorsmen.

5 reasons Microsoft should buy the company --1. Microsoft needs to add he…

Too late for Citi breakup?

Each time Citigroup (C) disappoints investors, the calls go out for breaking up the company. The window for doing that is shrinking.

When Citi announced with great fanfare their expense reduction initiative, led by Bob Druskin, many analysts focused on the staff reductions. Citi was very clear, however, in describing that they are looking at a completely different way of doing business.

The following quote is from the NY Times:

"Many departments will be consolidated or fashioned into utility groups... Instead of serving an individual business, like investment banking or consumer banking, they will provide services for an entire country or region."
This next quote is also from the NY Times:

"Streamlining the company's technology systems is expected to generate an additional 35 percent of the expense reductions. Citigroup said it was planning to cut its 42 data centers in half by 2009, consolidate its mortgage origination systems, and also reap savings from an ambitious f…

Looking at TradeRadar Portfolio Performance

The fourth quarter has gotten off to a great start and all the major indexes are sporting solid gains for the year. So where does the TradeRadar portfolio stand? Trailing by a mile.

Let's look at where the mistakes were and evaluate whether the TradeRadar software caused the problem.

First, I would like to comment on the content of the TradeRadar portfolio. There are many bloggers who are also money managers who discuss proper portfolio composition; ie, appropriate diversification, minimizing volatility, etc. The TradeRadar portfolio is not intended to be the only portfolio held by an investor. It is just meant to be a vehicle for tracking stock picks made using the TradeRadar software. As an individual investor, I have a 401K and an IRA where most of my investments are mutual funds being held for the long term. The TradeRadar portfolio is my opportunity to implement a "put your money where your mouth is" committment. It's only fair, in my opinion, that if I am to offe…

Death of display ads greatly exaggerated

An article on Reuters today (US Web ad spending nears $10 bln in first half '07) discussed how ad spending on the Internet continues to increase, putting pressure on other media like newspapers, TV and radio.

This is a quote from the last two paragraphs:

"Search advertising, led by Google, remained the most popular form of online marketing and accounted for 41 percent of the money spent at $4.1 billion in the first half of 2007.

Graphic display advertising, such as banners, grew to account for 32 percent at $3.2 billion, compared with $2.4 billion in the year-earlier period."
There has been much discussion on financial blogs about how display advertising is losing ground to other kinds of ads, how it is hopelessly Web 1.0 and that companies dependent on display ads are doomed. Yahoo is usually mentioned in these discussions as a prime example of a site dependent on display ads and, as if to prove the point, we all know how badly Yahoo is doing these days.

The fact that displa…

Insurers get thumbs up from Merrill Lynch

Yesterday I wrote a post describing how Merrill Lynch was reducing earnings estimates for some financial companies. Today I'd like to highlight a group where Merrill is raising estimates: insurance companies.

After a tough summer, the KBW Insurance ETF (KIE) seems to have bottomed out. In the last few weeks it has begun its recovery and has just recently crossed back above its 200-day moving average. The indecision in the chart seems to be resolved: KIE is moving upward strongly and just in time to keep that 200-day MA, which was going sideways, from beginning to turn down.

When it comes to the financial sector, it appears the place to look for stock price appreciation based on improving fundamentals is in the insurance companies. Merrill Lynch, for example, has raised 2007 earnings estimates for a number of the larger players:

Company

American Financial Group (AFG)

Chubb Corp. (CB)

Allstate Corp. (ALL)

Travelers Cos. (TRV)

From

$3.18

$6.10

$7.10

$6.15

To

$3.63

$6.20

$7.30

$6.20



Disclosure: author…

Financials rally while analysts cut earnings estimates

Can the rally in financial stocks last?

On Monday, Citigroup and UBS announced that their third quarter earnings would be significantly and negatively impacted by the turmoil in the credit and mortgage markets.

Nevertheless, the SPDR Select Sector Financials ETF (XLF) gained 1.89% on Monday and tacked on another 1.29% Tuesday. Similarly, the KBW Bank Index ETF (KBE) gained 1.77% on Monday and added 0.41% on Tuesday. It seems investment is rotating to the downtrodden financial sector in a big way.

Is this a short-term trading bounce or is the move for real?

In a contradiction of the move in the market, Merrill Lynch reduced 2007 earnings estimates for the following financial companies:

CompanyEstimate
Changed
FromEstimate
Changed
To
Comerica (CMA)4.604.55
Prudential Fincl (PRU)7.407.30
Bank of America (BAC)4.754.60
Wachovia Corp (WB)4.754.50
Citigroup (C)4.383.76

Note that all the institutions listed above are not only having 2007 estimates reduced but are also expected to end up with lower year-over…

Google roadmap seen in its acquisitions

Looking at Google's acquisitions to see how the company developed, I thought perhaps we could discern a roadmap of where Google might be going next. First, I was surprised to see how many deals Google has done over the years. I was also struck by how the company has focused very precisely on expanding and filling in certain lines of business within the company. Google's acquisition binge has actually been quite strategic and extremely successful.

We see that most acquisitions fall into a well-defined set of groups. Initially those groups were search, advertising, maps and a general Internet/Social Networks/Blogging category. More recently, they have added mobile, enterprise and security acquisitions while continuing to build the other categories.

Let's take a look at the categories, the companies acquired and when the deal took place. Where I can, I'll add a few comments.

Internet/Social Networking/Blogging --Deja News (February 2001) This web-based Usenet archive started…